Origin of cargo - oil from Iraqi Kurdistan


Published: 12 June 2014

The situation

Members in the tanker trade may be aware of a recent issue having arisen with respect to oil exports from Iraqi Kurdistan.

At present such cargo may present a political risk, which members need to be aware of.

Oil from Iraqi Kurdistan

The modern Iraqi state consists of several provinces and sub-divided districts. Some of these fall within the administrative authority of the autonomous region of Iraqi Kurdistan. Within that region there are significant energy reserves and to date there is an open issue with respects to the oil originating from that area as both the local administration and the central government have had different positions over these matters.

The Iraqi central government in Baghdad has stated that it considers any oil exports from Iraq, which occur without its consent and authorisation, to be illegal. The responsible central authority is called SOMO.

It has now been reported in news media, in response to recent events, that the Italian Industry Ministry provided a letter to traders and refineries in Italy about this issue and the stance taken by Iraq's central government.

Furthermore the US State Department has also stated it does not condone sales which bypass the Iraqi central government.

Contract and due diligence advice

It is more than prudent for owners, charterers and traders to take an interest in the origin of their cargo. In this era of instant communication, 24 hour news, well-funded NGOs with political agendas, and an increasingly complicated global politics, it requires in depth knowledge to mitigate against undesired developments for any particular trade or voyage.

Consequences can include alleged sanction breaches, fines, delays, blacklisting, criminal investigations, unwanted publicity and more. In any event all of these things are not what commercial parties in shipping wish to suffer or be associated with.

In order to minimise these risks, it is key that commercial teams do their home-work.

It is not enough to consider merely the economics of a proposed transaction, but it requires a real understanding of the trade and its background. A big picture view is needed, rather than a narrow focus purely on the numbers of time and money.

Where cargoes come from areas or sources which are known to be associated with potentially difficult histories and other issues then carrying out further due diligence in advance of agreeing to a proposed transaction can make the difference between a profitable voyage and a voyage with unintended losses and consequences.

If a particular cargo, trade or geography is something new to the trading desk, then the extra time invested up front in learning about it will yield significant dividend later on when such information advantage is leveraged to ensure profitable voyages follow.

The Association is well experienced in discussing such issues with members and can give guidance that will allow members to make informed choices about potential risks, but it is important to understand that ultimately the commercial decision about weighing up risk against benefit is with the members.

Skuld's acumen, shaped and developed over 117 years, will always be a valuable resource for its members.