Iraq, which is the second largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), exports about 85 percent of its crude oil through ports in the south of the country. But the northern route through Turkey still accounts for about 0.5 percent of the world’s oil supply.
What is the origin of the conflict?
The Iraqi Kurdistan government began exporting crude oil from the Northern Region away from the federal government in 2013, a move Baghdad considered illegal.
The Iraqi Kurdistan government exports oil through its pipeline to the Faysh Khabur region on the northern Iraqi border, from where the oil enters Turkey and is pumped to the Turkish port of Ceyhan on the Mediterranean coast.
The Iraqi federal government says that the state-owned Oil Marketing Company (SOMO) is the only entity authorized to manage crude exports through the port of Ceyhan.
In 2014, Iraq filed a case for arbitration with the Paris-based International Chamber of Commerce to look into the role played by Turkey in facilitating the export of oil from Kurdistan without the approval of the federal government in Baghdad.
Iraq said that Ankara and the Turkish state energy company (BOTAŞ) had violated the provisions of the pipeline agreement concluded between Iraq and Turkey in 1973 by transporting oil from Iraqi Kurdistan, storing it and loading it on tankers at the port of Ceyhan without the approval of Baghdad.
How did the case develop?
An informed source told Reuters that after the last hearing in Paris last July, the International Chamber of Commerce ruled on March 23 that Iraq has the right to control the loading of oil in the port of Ceyhan and to know the quantities loaded.
Three sources said that the Chamber also asked Turkey to pay 50 percent of the value of the discount under which tonnages of oil extracted from the Kurdistan region were sold.
However, Turkey said that the International Chamber of Commerce canceled four out of five demands made by Iraq and ordered Baghdad to pay compensation to Turkey, without mentioning its value. A source said Turkey also won a lawsuit to demand that Iraq pay the pipeline’s production fees.
The source familiar with the case said that based on all the provisions, the net amount due to Iraq from Turkey was about $1.5 billion before interest. According to a Turkish source, Iraq initially requested about $33 billion.
The arbitration case covers the period between 2014 and 2018.
A second arbitration case, which could take up to two years to process, will cover the period from 2018 onwards.
The Turkish government and the governments of Baghdad and Kurdistan have issued statements since the ruling, but none contained full details of the decision.
Why did Türkiye stop oil exports?
On March 25, Turkey stopped pumping about 450 thousand barrels per day of Iraqi oil through the pipeline to the port of Ceyhan.
An informed source said that this amount included 370,000 barrels of Iraqi Kurdistan government crude and 75,000 barrels of federal government crude.
Turkey closed the pipeline because the Iraqi federal government now has the right to control the loading of oil at Ceyhan port. And the Iraqi SOMO company will have to instruct Turkey about shipping the oil on ships, otherwise the crude oil will be stored without being loaded anywhere.
Turkey, the Iraqi federal government and the Iraqi Kurdistan government are holding talks to reach a joint agreement on northern Iraq’s oil exports. A source in the Iraqi Kurdistan government said Turkey had no choice but to halt pipeline flows until an agreement was reached.
How have oil sales evolved in the Kurdistan region since 2014?
Sales of crude oil to the Kurdistan region via the pipeline with Turkey have increased rapidly over the past 10 years and will total $12.3 billion in 2022, according to a Deloitte professional services report, up 62 percent from 2017 when the company first published its data. .
The Ministry of Natural Resources in the Kurdistan Regional Government said that its oil revenues amounted to $5.9 billion in 2015.
As of June 2015, the KRG has resumed its oil sales independently of the federal government and has signed several prepayment agreements with oil companies.
Trade sources said that the Kurdistan region, after suspending its oil exports, decided to stop paying six billion dollars worth of deals to ship crude oil to a number of energy companies, including Vitol and Petraco.
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