On Thursday, March 23, the International Court of Arbitration ruled that the “Iraqi national oil company SOMO is the only entity authorized to manage oil export operations through the Turkish port of Ceyhan.” Iraq filed a lawsuit against Turkey nine years ago over an oil agreement between Erbil, the capital of Iraqi Kurdistan, and Turkey, alleging that the Iraqi government's approval was necessary for energy exports.
The 2014 lawsuit centered on who controlled and had a claim to the oil exports and revenues of the semi-autonomous Kurdistan region. Written in Ahram Online, “Baghdad said the arbitration tribunal of the Paris-based International Chamber of Commerce had accepted Baghdad's claims in a dispute with Ankara over who had responsibility for exporting the autonomous region's oil... But in defiance of Baghdad, the regional government in Arbil continued to export oil through Turkey at a rate of around 450,000 barrels a day.”
As discussions over the legitimacy and ownership of oil supplies continued, Turkey on Saturday stopped the flow of Iraqi crude oil through Ceyhan in response to the court's ruling. As expressed in Middle East Eye, “Iraq had been pumping 370,000 barrels of KRG crude and 75,000 barrels of federal crude through the pipeline per day before it was halted, according to sources talking to Reuters. An industry insider said Ankara was making around $1bn as a transit country thanks to Iraqi shipments. Iraq's federal court also ruled last year that the law regulating the oil industry in Iraqi Kurdistan was unconstitutional, and demanded that Kurdish authorities hand over their crude supplies. Over one million barrels per day, roughly one percent of global supplies, passed through the Ceyhan terminal in January…”
The Iraqi government is still in talks to discuss the next steps in regards to oil passing through Turkey. In addition, Kurdish political leadership is optimistic about future relations with Iraq. Profiled in Iraqi News, “the Oil Ministry clarified that it will discuss the mechanism of exporting Iraqi oil through Turkey’s Ceyhan port with the concerned entities in the Kurdistan region and the Turkish authorities to guarantee continuation of oil exports. ‘The decision of the French court in favor of the Iraqi federal government against Turkey will not impede our relations with the Iraqi federal government,’ the spokesperson for the Kurdistan Regional Government (KRG), Lawk Ghafuri, said.”
The parties have signaled positive bilateral talks between both Iraq and Turkey as well as between the Kurdistan government and Baghdad. Highlighted in Daily Sabah, “the KRG's ministry of natural resources said the ‘arbitration ruling in favor of Iraq against Turkey will not impede the relations with Baghdad's government and dialogue to continue.’ The region's Prime Minister Masrour Barzani said recent discussions with Baghdad ‘have laid the groundwork for us to overcome the arbitration ruling today.’ A KRG delegation is to visit Baghdad on Sunday to discuss energy issues, Barzani said in a tweet. He added there was ‘goodwill’ in talks with the central government, even though losing its ability to export oil independently is likely to undermine the region's autonomy.”
While KRG leaders have expressed positive sentiments regarding the ruling, it remains to be seen how relations will realistically play out economically and politically. Written in Rudaw, “the Kurdish government is heavily reliant on its revenues and an inability to sell its crude will severely impact its already struggling economy. The government has failed for years to pay its over a million civil servants on time and in full. The Iraqi oil ministry said that the court decision will not affect ties with Turkey.
However, arbitration between the three parties is not over. While the court ruled in favor of Iraq, this process is expected to continue, potentially changing relations between the respective groups. Shown in Gulf Daily News, “the ruling, in which Turkey has been ordered to pay Iraq around $1.5 billion before interest, covers the 2014-2018 period, according to a source. A second arbitration case, which the source expects to take around two years, will cover the period from 2018 onwards.”
Straight from the Source
Iraqi-Turkish Oil Arbitration Case