Vitol Apologizes for Kurdish Oil Purchase

Source: Reuters 12/9/2012, Location: Middle East

Top oil trader Vitol has apologized to the Iraqi government for buying Kurdish oil that was exported via Turkey without Baghdad's permission, Iraqi Oil Minister Abdul-Kareem Luaibi said.

Baghdad is in dispute with Kurdistan over oil exports from the northern Iraqi province, insisting the central government has the sole right to export oil, reimbursing payments to the Kurdistan Regional Government (KRG).

It considers any other business illegal and tantamount to smuggling by the Kurds.. The KRG says exports on its own behalf are legitimate.

Luaibi, in Vienna for an OPEC meeting, was asked by reporters how Iraq was dealing with three companies -- Vitol, Trafigura and LUKOIL -- who have purchased condensate, a light crude oil, sourced from Kurdistan and sold via an intermediary to world markets.

"In terms of Vitol, they have cancelled the Kurdish amount and they apologized officially," said Luaibi. "As for LUKOIL, there will be a meeting about this concern - maybe tomorrow or the day after." He made no mention of Trafigura.

Kurdistan began selling oil into international markets in independent export deals in October, further challenging Baghdad's claim to full control over Iraqi oil after signing independent exploration deals with foreign oil majors last year.

Luaibi said Kurdistan is now supplying less than 100,000 barrels a day to the central government via a Baghdad-controlled pipeline to Turkey, compared to the 200,000 bpd it has agreed to deliver. Output from Kurdistan is rising but is still only a fraction of total Iraqi exports of 2.6 million bpd.

Luaibi said Baghdad had been informed about oil smuggling by neighbouring countries. "We have received messages from the adjacent neighbour countries concerning the smuggling of Iraqi crude oil," he said. "Iraq will work against any company that buys these smuggled shipments."

Luaibi declined to put a number on how much oil was being smuggled from Kurdistan to Iran and Turkey and then into world markets, but said the volume amounted to the difference between what was being produced by the Kurds and supplied to the central government.

Kurdish deliveries to Baghdad were more than 180,000 bpd last month, he said, and are now below 100,000 bpd.

In April, Kurdistan halted shipments of its oil in protest over what it said were overdue payments from the central government to companies in the Kurdish region.

Baghdad made an initial payment to the KRG in October, but a subsequent payment is now overdue and Iraq's deputy prime minister for energy, Hussein al-Shahristani, recently said it would not be made.

Regional sources have said Kurdistan is not getting enough refined oil products to run its power stations under supplies controlled by the central government.

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