Oil smuggling to Iran embarrassment for Iraq

The smuggling of tens of thousands of gallons a day of crude oil and refined fuels from northern Iraq to Iran, in violation of new U.S. sanctions, is stoking tensions between Iraq's central government and its Kurdish provincial counterparts.

The reports about the oil smuggling surfaced just over a week after the U.S. imposed new sanctions barring the export of refined fuels to Iran. They also arise at a time when Kurdish help may be needed to form the next government as politicians in Baghdad have been deadlocked since the March 7 election.

Iraqi officials quickly vowed to do something about the practice. The smuggling is an embarrassment for Baghdad and the Kurds — both U.S. allies — not only because of the sanctions but also because of Iraqis' perception that politicians are profiting on the trade while the public suffers from fuel shortages.

Iraqi Oil Minister Hussain al-Shahristani said Tuesday the cabinet had decided to summon representatives of the Kurdish regional government to discuss the smuggling issue and "to put an end to it, as it harms Iraq's national and economic interests."

"This matter is unacceptable and strange," al-Shahristani told reporters after the cabinet meeting. It is "illogical to export refined products to neighboring countries while Iraq imports refined products such as gasoline."

Days earlier, government spokesman Ali al-Dabbagh said an urgent meeting would be held with Kurdish officials.

The Kurds, however, appeared resistant. One Kurdish government official told The Associated Press he doubted any meeting would take place, noting "the government's mandate is over." He spoke on condition of anonymity because he was not authorized to discuss the issue.

Kurdish officials acknowledged that some refined fuel from their region was being exported legally, but denied that any crude was being smuggled into Iran.

Kurdish Natural Resources Minister Ashti Hawrami insisted the source of the smuggling problem was not the Kurds. According to the Kurdish news agency, Hawrami said oil from two major refineries in central Iraq is being shipped to Iran and "the Iraqi government's raising of this issue now has a political objective of covering up the unofficial sale of crude oil from southern Iraq."

In a statement this week, the Kurdish regional government blamed Baghdad's policy of selling heavily discounted fuel to private distributors for the Iraqi public, which it said creates "incentives" for the buyers to smuggle it abroad. It acknowledged some of that smuggling may go through Kurdistan and said it is "committed to working with the federal government to eliminate permanently all such profiteering of fuel oil."

An Associated Press reporter who visited the area several weeks ago saw hundreds of fuel tankers lined up at an official crossing on a narrow mountain road at Haj Omran, a Kurdish resort town on the border with Iran. One driver, Nouri Ahmed, said he was to transport his shipment down to the Iranian port of Bandar Imam, where it is unloaded and moved to a tanker in the Gulf.

"I don't know where it goes" from there, Ahmed said.

The oil smuggling is far from new. For several years after the 2003 U.S.-led invasion, it was one of the preferred ways for insurgents to fund their operations. As security improved, private individuals and political groups picked up on the lucrative practice. Analysts say that smuggling of oil has been going on in the Kurdish north since the early 1990s.

But the issue is in the limelight now after President Barack Obama this month signed the new sanctions, which punish entities involved in exporting refined fuel products to Iran. Iran is a major exporter of crude oil, but it sorely lacks refineries, making it heavily reliant on imports of gasoline and other refined fuels. The U.S. move aims to put extra pressure on Iran over its nuclear program after four rounds of U.N. financial sanctions.

"If Iran had not been placed under international sanctions, the smuggling would have continued without a single comment," Bassem al-Sheik, the editor-in-chief of Ad-Dustour newspaper wrote Monday. He said the Kurdistan government's silence on smuggling for so long was likely because the Kurdish political groups were benefiting from the proceeds.

U.S. officials in Iraq said smuggling had long been an issue, even before the new sanctions were approved. But as major oil companies grow increasingly reluctant to sell refined products to Iran, new players had been stepping up.

"We're concerned about this, and we're reviewing these developments," said Nolan Barkhouse, a U.S. embassy spokesman in Baghdad.

Oil has long been a source of tensions between the central government in Baghdad and the government in the autonomous Kurdish region in the north. The two sides have been at odds over just how much control the Kurds — who sit on more than a third of Iraq's 115 billion barrels in proven crude reserves — should have over the oil in their territory.

Several years ago, Baghdad deemed illegal the unilateral oil deals signed by the Kurds with foreign companies following Saddam Hussein's ouster.

While the Baghdad government struck a deal in June 2009 with the Kurds to allow exports to resume through the pipeline that runs from Kirkuk to Ceyhan, Turkey, the agreement was short-lived, with exports halted three months later over a dispute over payments to foreign companies operating there.

Exports through the line have yet to resume with any consistency, raising the question of what becomes of production from the Taq Taq and Tawke fields that feed it. Taq Taq is operated by China's state-owned Sinopec Group and Turkey's Genel Enerji, and Tawke by the independent Norwegian oil company DNO.

Tawke's production in May — the latest available — stood at about 4,800 barrels per day, far shy of the field's 50,000 barrel per day capacity. Of that production, 80 barrels per day go to power the company's operations at Tawke, according to company figures. The rest is split between DNO's local refinery and the small refineries in the region, said DNO spokesman Tom Bratlie.

While DNO doesn't keep track of what happens to the oil once it's sold, "all deliveries are subject to approval by the local government," Bratlie said. He said oil refined by DNO is distributed by the local government.

The smuggling seems less a matter of helping Iran than of turning a profit.

"It's physically impossible for the oil being smuggled to be more than a drop in the bucket for Iranian needs," Samuel Ciszuk, Mideast energy analyst with IHS Global Insight said.

El-Tablawy is based in Baghdad and Barzanji in Sulaimaniyah; AP writer Sinan Salaheddin contributed to this report from Baghdad and Ian MacDougall from Oslo, Norway.

Iraqi court seeks arrest of Iranian exiles

An Iraqi court ordered the arrest of 39 members of an exiled Iranian opposition group, accusing them of crimes against humanity in helping Saddam Hussein to crush a revolt almost two decades ago, a judge said Sunday.

The 39 are members of the People's Mujahideen Organization of Iran (PMOI), a guerrilla movement opposed to the Iranian government. It sided with the toppled Iraqi dictator, a Sunni Muslim, during the Iran-Iraq war in the 1980s but has denied helping Saddam to crack down on long-oppressed majority Shi'ites and ethnic Kurds.

Iran, Iraq and the United States consider the PMOI a terrorist organization and the now Shi'ite-led Iraqi government has been trying to get it to vacate a base north of Baghdad where around 3,500 of its members have lived for 20 years.

"An arrest warrant has been issued against 39 leaders and members of the organization including the PMOI's head Massoud Rajavi, due to evidence that confirms they committed crimes against humanity," said Judge Mohammed Abdul-Sahib, a spokesman of the Iraqi High Tribunal.

Rajavi's wife Maryam, leader of the French-based National Council of Resistance of Iran (NCRI), the PMOI's political wing, was also included in the warrant, Abdul Sahib added.

"The 39 Iranian suspects were involved with the former Iraqi security forces in suppressing the 1991 (Shi'ite) uprising against the former Iraqi regime and the killing of Iraqi citizens," he said.

The PMOI began as an Islamist leftist group opposed to Iran's late Shah, but fell out with Shi'ite clerics who took power after the 1979 revolution. Mujahideen guerrillas carried out attacks against Iranian targets. Iran executed a large number of PMOI prisoners at the end of the Iran-Iraq war.

Last year, Iraq said it wanted the Iranian opposition exiles based at Camp Ashraf north of Baghdad to leave the country. Iraqi forces took over responsibility for the camp on January 1, 2009 from U.S. troops, who had been guarding it.

Violence erupted there last year when Iraqi security forces tried to enter the camp. At least seven exiles were killed.

Mahdi Uqbaai, a spokesman of the PMOI, said the court was pressured by the government to order the arrests.

"This is a politically motivated decision and it's the last gift presented from the government of (Prime Minister) Nuri al-Maliki to the Iranian government," said Uqbaai.

The Iraqi High Tribunal was set up after the 2003 invasion to prosecute crimes against humanity and genocide committed during Saddam's rule. Any case against the PMOI would be its first against foreigners for Saddam-era crimes.

Iraq says to discuss oil smuggling to Iran with Kurd authorities

The Iraqi government has called for urgent talks with the Kurdistan Regional Government to discuss the growing trade in crude oil and oil products from the semi-autonomous Kurdish region in defiance of US sanctions, government spokesman Ali al-Dabbagh said Sunday.

Dabbagh spoke on Dubai-based al-Arabiya television in response to a report carried by the Saudi-owned channel about the rise in smuggling of fuel by tanker truck across the border between Iraq and Iran.

"We will be contacting the Kurdish authorities to work together to put a stop to this phenomenon," Dabbagh said, adding that footage shown by the Dubai-based network of oil tanker trucks waiting to cross into Iran "was clear evidence" that smuggling was taking place. He said the Iraqi government would call for immediate contact with the KRG to discuss the issue.

It was not immediately known what volumes of crude oil produced in Kurdish-controlled areas and refined product produced in illegal topping plants in Iraqi Kurdistan were making their way into Iran. However, Al-Arabiya showed footage of long lines of tanker trucks waiting to cross into Iran from the border post of Haj Umran, one of three border crossings it said were used in the smuggling operation.

Some of the crude oil was being taken to Iran's Abadan refinery, which lies close to the border with Iran, Al-Arabiya said.

Dabbagh said the government was trying to obtain details about the smuggling, which he said has been a phenomenon in the past because refined product prices in neighboring countries were higher than Iraqi prices, which are heavily subsidized.

Iraqi Kurdistan currently has only two oil producing fields, Tawke and Taq Taq, which are believed to have a combined capacity of 60,000 b/d. Exports from the two fields began on June 1 last year but were halted three months later in a dispute between the KRG and the Baghdad government over payment to the foreign contractors.

Norwegian independent DNO is operator of the Tawke field, while a Turkish-Chinese consortium is developing the Taq Taq field. Both fields are producing below capacity with no sign of a resumption of exports despite announcements that the Iraqi government had agreed to repay the foreign operators' costs.

The New York Times reported July 8 that hundreds of millions of dollars in crude oil and refined products were being smuggled over the Kurdish mountains into Iran every year without Iraqi government approval.

It said the stream of tankers into Iran continued without interruption during an Iranian military campaign last month against Iranian Kurdish separatists operating at the border.

Hundreds of tankers, each with a capacity of at least 226 barrels of crude oil and refined products, enter Iran every day from Penjwin and two other border posts in Iraqi Kurdistan, the newspaper quoted Kurdish officials as saying. The Times quoted some tanker truck drivers as saying that while much of the refined product is used in Iran, which sorely lacks refinery capacity, the crude oil is trucked all the way down to the Persian Gulf ports of Bandar Bushehr, Bandar Imam Khomeini and Bandar Abbas, where it is emptied into reservoirs or loaded onto ships.

It quoted Kurdish energy minister Ashti Hawrami as saying that the trade is supported by an estimated 70 mini-refineries or topping plants dotted around the Kurdistan region, many of which are unlicensed.

The provision of refined products to Iran is a breach of recently passed US sanctions, which prohibit any company or party from supplying refined oil products to Iran as part of an effort to force Tehran to abandon its nuclear ambitions.

The KRG's official spokesman, in a statement posted on the KRG's website on Sunday, referred to inaccuracies in the New York Times article with regard to the refining of crude oil in Kurdistan. He did, however, concede that some oil and refined products were finding their way across the border.

"The [Kurdish] region's refineries provide essential fuels to Iraqi domestic and international markets," he said. "The KRG is proud of its growing oil and gas sector and the KRG's free trade policies."

The KRG has licensed three refineries in regions under its control, all of which were issued in accordance with the Iraqi constitution and the Kurdistan region's oil and gas law of 2007, he added.

"Surplus from some refined products from Kurdistan's refineries is available for export. The KRG conducts open and competitive tendering for the export sale of petroleum products," he said.

The major sources of refined products are the large refineries in other parts of Iraq, including Baiji, near Baghdad, and Daura, in the Salahiddeen governorate. Some of that product may well be exported through the Kurdistan Region.

"In other parts of Iraq, fuel oil is sold to the local private sector by Federal agencies at a significant discount to the international price. This discount is intended to stimulate the local economy. Unfortunately, this creates incentives for the buyers to engage in cross-border trade," the spokesman said.

"The KRG is aware of the fact that profiteers in fuel oil refined outside Kurdistan have exploited Kurdistan's international borders," he said, adding the KRG, with the active support of Kurdish president Masoud Barzani, was "instituting a series of measures to ensure full compliance with the Iraqi Constitution and international law, and in this regard the KRG is committed to working with the Federal Government to eliminate permanently all such profiteering in fuel oil, not only in the KRG but also along the entirety of Iraq's international borders."

Although Iran and Iraq are oil-producing members of OPEC, the oil and gas industries in both countries face huge challenges as a result of wars and sanctions. Iran turned a blind eye to illicit Iraqi oil exports while Iraq was under UN sanctions for its 1990 invasion of Kuwait, when sanctions-busting tankers would smuggle crude oil through the Persian Gulf.

Iran too faces constraints in developing its oil and gas resources and the expansion and upgrade of its refineries because of a lack of sufficient foreign investment, due largely to UN and US sanctions that have squeezed its financial sector and prevented large inflows of foreign funds into Iran.

Iran, like Iraq, is a net importer of oil products to meet domestic consumption, which is high because of subsidies that apply to most refined products.