Kurdish crude, SOMO and the organisation known as Islamic State (ISIS): What banks and traders need to know

В настоящем выпуске бюллетеня наше внимание привлек аналитический материал, посвященный отношениям, которые складываются по поводу курдской нефти между  Государственной организацией по маркетингу нефти (SOMO), Исламским Государством (ISIS) и др., поскольку эти отношения представляются аналогичными в какой-то мере отношениям, складывающимся по поводу полезных ископаемых в Крыму. Особый интерес представляют вопросы, связанные с судебным процессом, который инициирует SOMO в американском суде. Чрезвычайно интересны также рекомендации относительно поведения трейдеров и банков в условиях наличия международных экономических санкций.

Background

Kurdish crude is currently the subject of an intense debate.

In the August edition of our Commodities Bulletin, we reported that Iraq’s Ministry of Oil, represented by the State Oil Marketing Organisation, SOMO, had threatened to sue any buyer lifting Kurdish crude.

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The past five months have seen in excess of 11 million barrels of Kurdish crude exported through the Iraq-Turkey Pipeline (ITP) and delivered to destinations such as Israel, China and Croatia.

The vessel UNITED KALAVRVATA, carrying one such cargo, was reported to have ‘disappeared’ from the Galveston Offshore Lightering Area in the Gulf of Mexico, by turning off its transponder on 28 August 2014. The vessel subsequently reappeared on 1 September in the same location, with coastguard data revealing that none of its cargo had been offloaded.

SOMO initiated proceedings against the UNITED KALAVRVATA in respect of its cargo on 28 July 2014 in the US District Court for the Southern District of Texas. An order was initially made in favour of SOMO and US Marshalls were instructed to take possession of the cargo. It was subsequently held that the US court lacked the jurisdiction to seize the cargo as the vessel was located 60 miles offshore, but the US Court will hear arguments as to title. The Kurdish Regional Government (KRG) successfully requested that the order made for the seizure of the oil by the court be vacated. On 5 September 2014, SOMO resubmitted a claim in respect of the cargo, this time including the buyer as a defendant, again urging the court to arrest the cargo.

Most recently, on 15 September 2014, the KRG filed a suit arguing the dispute is “firmly rooted in Iraq, and it will not and cannot be resolved by application of maritime law.”1

Issues for banks and traders

What do banks and traders need to be aware of when buying or financing cargoes of Kurdish crude?

For a discussion on whether Kurdistan is legally entitled to sell its crude as a matter of Iraqi law, seehttp://www.hfw.com/Commodities-Bulletin-August-2014

Where payment is made by letter of credit, both the issuing and advising banks could be involved in a dispute over payment. This is likely to be a question of timing. If the buyer has already paid against the documents and only finds out later that the seller did not have good title, he would still have the right to reject. In practical terms this right may have limited use if the oil is on board his ship and has already been paid for.

Most FOB and CIF sale contracts provide for payment after the bill of lading date and the issuing bank must pay if conforming documents are presented at the loadport where delivery takes place.

If a vessel is arrested, a CIF/FOB buyer could find that it has paid for cargo that it cannot physically discharge. Where payment has not taken place, a buyer may be able to argue that the seller was in breach of contract because it did not have good title in order to avoid payment.

Under a delivered contract, payment will often occur after tender of Notice of Readiness at the discharge port. If a vessel were arrested prior to arrival, a DES buyer could refuse to pay due to failure to deliver.

International sanctions may also have an impact on banks’ decisions about making payment under letters of credit. HFW Partner Damian Honey will consider this issue in more detail in the next edition of our Commodities Bulletin.

The situation has been complicated still further because Iraqi crude has reportedly been illegally sold by ISIS since it began to take over parts of northern Iraq and north eastern Syria. Currently, ISIS controls some of Iraq’s refineries: its occupied territory includes 11 oil fields. At its peak in August 2014, the Iraq Energy Institute estimated ISIS oil production to amount to 50,000 barrels a day in Syria and 30,000 barrels a day in Iraq. Following US airstrikes, ISIS production has significantly declined. A 14 October 2014 report by the International Energy Agency estimated that daily production has fallen to 20,000 barrels.

United Nations Security Council Resolution (UNSCR) 2170 was adopted unanimously by the 15-member Security Council on 15 August 2014. It forbids:

“nationals or any persons and entities within their territories from making any funds, financial assets or economic resources or financial or other related services available, directly or indirectly, for the benefit of persons who commit or attempt to commit or facilitate or participate in the commission of terrorist acts.”

This makes it illegal to trade with ISIS.

As a matter of law, ISIS does not hold title to Iraqi/Syrian crude. When it purports to sell that crude on, no subsequent buyer in the chain ever holds good title. Under English law, a seller must have good title in order to sell2.

Both banks and traders should exercise extreme caution in relation to oil originating from this region.

For further information, please contact Sarah Hunt, Senior Associate, on +41 (0)22 322 4816, orsarah.hunt@hfw.com, or your usual contact at HFW. Research conducted by Conor Cahill, Trainee.

Footnotes

  1. Graeber, Daniel. Kurds challenge latest Iraqi oil claims. UPI. 16.9.2014.http://www.upi.com/Business_News/Energy-Resources/2014/09/16/Kurds-challenge-latest-Iraqi-oil-claims/1811410870599/ixzz3ELBxuqge
  2. Note that if ‘ISIS’ oil is mixed with legally obtained oil (to which the buyer has good title) the mixture is held in common and the owner is entitled to receive out of it a quantity equal to that of his goods which went into the mixture, any doubt about that quantity being resolved in favour of the owner; seeIndian Oil Corp Ltd v Greenstone Shipping SA (Panama) [1998] QB 345.

Источник: http://www.hfw.com/Commodities-Bulletin-October-2014#page_3

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