The Bay Hussein field pipeline in Kirkuk that carries oil to the Turkish port of Ceyhan
Iraqi oil officials told Archyde.com news agency today, Saturday, that Iraq has won an arbitration case against Turkey in a long-running dispute over oil exports from the Iraqi Kurdistan region.
A senior Iraqi oil official said Turkey had told Iraq it would respect the arbitration decision.
Iraq suspended crude oil exports from the autonomous region of Kurdistan and fields north of Kirkuk, on Saturday, after announcing the arbitration court’s decision in favor of Baghdad.
According to a document seen by Archyde.com, Turkish shipping officials told Iraqi staff at the oil export center in the Turkish port of Ceyhan that no ship would be allowed to load shipments of Kurdish crude without approval from the Iraqi government.
Another document showed that Turkey, accordingly, stopped pumping Iraqi crude oil from the pipeline that leads to the port of Ceyhan.
In the arbitration case dating back to 2014, Iraq alleged that Turkey violated the joint agreement signed between the two countries by allowing the Kurdistan Regional Government to export oil through the pipeline to the Turkish port of Ceyhan. Baghdad considers the regional government’s oil exports illegal.
A senior official in the Iraqi Oil Ministry said, “Iraq was officially informed by the International Court of Arbitration of the final decision on Thursday, which was in favor of Iraq.”
According to what an Iraqi official told Archyde.com, Iraq has stopped pumping oil through the pipeline, which originates from the oil fields in northern Kirkuk.
According to a source familiar with the export operations that take place through the pipeline, Iraq was pumping 370,000 barrels per day of Kurdistan Region crude oil per day and 75,000 barrels per day of federal crude oil through the pipeline before it was stopped.
Another official in the Iraqi Oil Ministry told Archyde.com, “A delegation from the Oil Ministry will travel to Turkey soon to meet with energy officials in order to agree on a new mechanism for exporting crude oil from northern Iraq in line with the arbitration decision.”
From agreement to arbitration
The Iraq-Turkey pipeline was established under a bilateral agreement between the two countries and was developed in order for Iraq to be able to export more than one million barrels of crude oil per day to the Mediterranean region through the Turkish port of Ceyhan.
The two countries signed the Iraq-Turkey pipeline agreement in 1973, with some updates in 1976, 1985 and 2010. This agreement stipulates that the Turkish government “must comply with the instructions of the Iraqi side regarding the movement of crude oil coming from Iraq in all storage and disposal centers and the final station.”
When extending the agreement in 2010, Turkey confirmed that the “Iraqi side” is in its designation the “Ministry of Oil in the Republic of Iraq”, with the inclusion of a clause exempting the previous documents of the Iraq-Turkey pipeline from this designation.
According to the Washington Institute for Near East Policy, Ankara has allowed the Iraqi Kurdistan Region to export oil independently of the Federal Oil Ministry in order to replace withheld Iraqi budget transfers, and to connect Kurdish pipelines to the Iraq-Turkey pipeline in the KRI-controlled border town of Faysh Khabur.
This enabled the Kurdistan Region of Iraq to sell its oil directly to the market and keep the revenues, but Baghdad considers this an illegal practice while the Kurds see it as compensation for salaries withheld.
In May 2014, this dispute prompted Iraq’s Oil Marketing Company to file a case subject to ICC arbitration on behalf of the Ministry of Oil. The defendant is the Turkish government, represented by the state-owned pipeline operator BOTAS.
The lawsuit went on to say that “by transporting and storing crude oil from Kurdistan, and by loading that crude oil onto the tanker in Ceyhan, all without the authorization of the Iraqi Ministry of Oil, Turkey and BOTAŞ breached their obligations under the Iraq-Turkey Pipeline Agreement.”
The Washington Institute for Near East Policy believes that Turkish courts are obligated to respect foreign arbitral awards, so they are obligated to follow Baghdad’s instructions regarding the marketing and loading of all crude oil in Ceyhan, including crude oil operated by the Kurds and produced by international oil companies.
The preliminary ruling may open the way for Baghdad to claim compensation in additional sessions at the International Chamber of Commerce during the coming period.
image copyright Getty Images
The final stop for the arrival of the Iraqi oil pipeline near the Turkish port of Ceyhan
hard hit
Michael Knights, a specialist in military and security affairs for Iraq, Iran and the Gulf states, believes in an analytical article written for The Washington Institute’s website that the court’s ruling in favor of Iraq will deal a severe blow to US allies and policy exigencies alike.
He goes on to say that for Turkey, the ruling “would hurt President Recep Tayyip Erdogan’s pride at a time when economic confidence in his country is collapsing.”
As for the Kurdistan region of Iraq, Knights expects that “the Kurds and their trading partners in the oil sector will lose any additional incentive to export crude oil, and any threat issued by them to stop production will be justified. If both sides close the Iraq-Turkey pipeline, the global oil market will lose nearly of half a million barrels in a matter of weeks.