Iraq Halts Northern Crude Exports After Winning Arbitration Case Against Turkey

Iraq Halts Northern Crude Exports After Winning Arbitration Case Against Turkey

Iraq Halts Northern Crude Exports After Winning Arbitration Case Against Turkey

In 2014, the Kurdish government decided to start crude exports to the Turkish port of Ceyhan via an independent oil pipeline

Iraq discontinued crude exports to Turkey last Saturday. The supply from the sovereign regions of Kurdistan and northern Kirkuk oil fields. It stopped exports after winning an arbitration case against Turkey going on for a long time.

The officials seated in Baghdad and Irbil, the seat of the Kurdish regional government, clashed several times over the crude oil revenue sharing agreement. But in 2014, the Kurdish government decided to start the exports of crude to the Turkish port of Ceyhan via an independent oil pipeline.

While Iraq stated the one-sided decision as smuggling and robbery and went to the International Court of Arbitration to lodge a case against Turkey, it noted that Turkey was contravening the conditions of the Iraqi-Turkish pipeline agreement signed back in 1973.

On Saturday, the Iraq oil ministry confirmed that the International Court of Arbitration ruled out a verdict in their favor last Thursday. Turkey has reciprocated to the Iranian Ministry that it respects the chamber’s decision.

This arbitration case dates back to 2014 when Iraq accused Turkey of breaching the joint agreement by permitting the Kurdistan Regional Government (KRG) to supply crude oil to a Turkish port, Ceyhan. Iraq views the KRG supplies as illegal and halted the crude exports of 450,000 barrels per day (bpd) through the Turkish port of Ceyhan.

According to pipeline operations sources, Iraq was extracting 370,000 barrels per day (bpd) of KRG crude and 75,000 of federal crude from the pipelines in the oilfields of the northern Kirkuk region. But on Saturday, after the ruling, it put a break on its operations of pumping crude. Turkey has also paused its Iraqi crude pumping operations from the pipelines leading to Ceyhan.

A document viewed by Reuters reported that the Iraqi workers employed at the Turkish port of Ceyhan had been ordered by Turkish shipping officials that only after receiving the green signal from the Baghdad government would a ship be permitted to be loaded with Kurdish crude from the Ceyhan oil export base.

Another oil ministry official said that a delegation would visit the Turkish authorities shortly to draft agreements for the new exports of Iraqi northern crude oil in accordance with the ruling.

Iraq‘s oil ministry said they would talk with Turkish officials to resume the crude exports via the Ceyhan port and state-backed SOMO’s obligation with the oil companies.

A source who requested to be anonymous as they are not permitted to speak with media outlets disclosed that based on the court’s order, Turkey would have to pay around $1.5 billion before interest to Iraq for the period covering 2014 – 2018. 

In July 2022, the final hearing on the arbitration case took place in Paris. But to collectively agree upon a decision for the case, the arbitrators, the International Chamber of Commerce, and the secretariat of the arbitration court took months, said a source familiar with the hearing process.

According to data released by the Turkish Energy Market Regulatory Authority, Turkey’s 27 percent of oil and crude product imports were dependent on Iraq in December 2022. Russia enjoys more market share than Iraq. 

Chief economist at an Istanbul-based financial services group Dinamik Yatırım Menkul Değerler, Enver Erkan, said that now Turkey will be more inclined to rely on Russian crude imports which will further burn a hole in its exchequer.

Sources said that the KRG oil production would be negatively impacted by the halt of the Iraqi Turkish Pipeline (ITP). This will affect the livelihoods of workers employed in the oil companies operating in the Kurdistan Region in Iraq (KRI). This KRI economy is heavily dependent on the functioning of this pipeline, and a halt of supply might wreck the whole economy.

The Ministry of natural resources in the Kurdish region said that the court’s rulings would not affect its relationship with the central government, and they will not accept any compromise in the constitutional rights of the Kurdistani citizens.

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