Kurdistan’s oil has begun to reach international markets in independent export deals that further challenge Baghdad’s claim to full control over Iraqi oil after first signing independent exploration deals with foreign oil majors last year.
The move is likely to enrage the government, which is still locked in a battle with ExxonMobil over its independent deal with Kurdistan last year to explore for oil in six Kurdish blocs.
But it also paves the way towards greater Kurdish autonomy as Baghdad has long insisted it alone has the right to market Iraqi oil and gas products.
The involvement of two of the world’s largest trading houses, Trafigura and Vitol, could make it difficult for Baghdad to retaliate, as it depends on those firms for a proportion of its refined oil imports like gasoline and diesel.
If Baghdad were to decide to shop elsewhere, it could face paying much higher prices for its fuel.
Traders and a shipping source told Reuters that Trafigura snapped up the first cargo of Kurdish light oil, known in the industry as condensate, offered for delivery in October via the intermediary Powertrans in a public tender.
The oil was trucked across the country from a Kurdish field to Turkey, where it loaded at the start of the month.
Vitol was quick to follow, becoming the second major oil firm to buy Kurdish oil marketed independently of Baghdad, picking up a second 12,000 tonne cargo of condensate for loading at the end of the month. At around $890 a tonne, each shipment is worth over $10mn.
A spokesman for the Kurdistan Regional Government (KRG) said the Kurdish condensate is being swapped for refined products with a private Turkish company with no cash involved.
“What the private Turkish company does with the condensate it owns is not the responsibility of the KRG,” he said.
This direct trade, which began last summer, is intended to help plug a shortfall of kerosene and diesel, which the region needs to fuel its power stations. Though endorsed by Ankara, Baghdad said the deliveries by truck were illegal.
Iraq government spokesman Ali Dabbagh said any deals independently agreed with Kurdistan are illegal and trading Kurdish oil and gas products without the central government’s consent amounts to smuggling.
“Iraq maintains its right to legally pursue all those who participate in smuggling the property of the Iraqi people locally or internationally,” he said, commenting on the Kurdish sales of oil to the Swiss trading houses.
Trafigura declined to comment, while Vitol confirmed it had bought a parcel for loading in Turkey, declining to comment any further on the deal.
“The small parcel was bought in a public tender, FOB Toros terminal, Turkey. No further comment,” spokesman Mark Ware said.
In addition to supplying Baghdad with products, Vitol also has two term deals to buy Iraqi crude in 2012 for a total of around 22,000 bpd.
Kurdistan’s potential as a major oil producer and exporter has proved to have greater weight with foreign oil firms than warnings by Baghdad that signing contracts with the autonomous region could put their contracts in the south at risk.
ExxonMobil has been followed by other majors including Chevron, Total and Gazprom.