Russia recedes from Iraqi Kurdish crude trade

Russia's involvement in Iraqi Kurdish crude trade has dwindled in recent months, opening the door for a new trading firm to enter the previously tight selling circle.

Trading and shipping sources say Russia's state-controlled Rosneft is no longer selling term supplies of Kirkuk blend crude, which it previously procured from the Kurdistan Regional Government (KRG) under a Switzerland-based entity called Energopole.

Only a handful of sellers are typically involved in Iraqi Kurdish crude trade, most of them securing the oil in term deals. Energopole is one of four trading firms understood to have a contract with the KRG at the start of this year, alongside Vitol, Trafigura and Petraco. Glencore sold Kurdish crude in previous years, according to market participants.

Some traders say Energopole's absence from Kurdish crude trade is linked to EU sanctions against Russia imposed following the invasion of Ukraine in late February. The extent and duration of the company's withdrawal are not clear. Energopole has yet to respond to a request for comment.

Trading sources say the KRG has placed some spot volumes with a new trading firm — Dubai-based BGN International. BGN International's director Emin Imanov told Argus that the KRG suspended Energopole's contract due to sanctions, although this has not been confirmed by either party. "KRG has more spot crude barrels available to sell. We purchased some available spot volumes," Imanov said.

KRG crude offers a sour alternative to Urals for buyers in the Mediterranean seeking to avoid Russian oil. But many refiners are concerned that buying from the KRG might endanger their relationship with — and their Basrah crude term supplies from — Iraqi federal state oil marketer Somo.

A long-standing feud between Baghdad and Erbil over the marketing of Kirkuk crude intensified in February, when Iraq's federal supreme court ruled that the KRG's oil and gas law is unconstitutional and demanded that Kurdish authorities hand over "all oil production from all oil fields in the Kurdistan region" to Baghdad. Iraq's federal oil ministry has since approached international oil companies operating in Iraq's semi-autonomous Kurdish region to offer them restructured contracts. The KRG has in turn repeatedly rejected the court ruling.

Argus tracking data indicate that the KRG exported around 400,000 b/d of Kirkuk blend in January-May, while Somo marketed just 70,000 b/d of the grade over the same period.

By Ruxandra Iordache