Iraq Wins Arbitration Case Against Turkey Exporting KRG’s Oil

(Wikipedia)

At the end of March the International Court of Arbitration ruled that Turkey violated a bilateral agreement with Iraq over exporting oil for the Kurdistan Regional Government (KRG). This was a victory for Iraq in its long standing dispute with the Kurds over its oil industry and could point to a final resolution of this problem.

 

On March 25, the International Court of Arbitration found Turkey violated its contract with Iraq over the use of its oil pipeline. Baghdad actually brought up five issues with Turkey but only won on one of them, which was loading KRG oil for export. That was important because it meant Kurdistan could no longer use the pipeline without Baghdad’s approval. Iraq wanted $58 billion in compensation but was only awarded $1.4 billion. At the same time the court said that Iraq had to pay Turkey $600 million for unpaid transportation fees and not using the pipeline to full capacity.

 

Even though Iraq did not get all that it wanted it was still a big victory for the country. The central government had been disputing the KRG’s independent oil contracts and exports for over a decade. For instance, Baghdad filed for arbitration in the pipeline case in 2014. More recently in February 2022 the Iraqi Federal Court said that the KRG’s energy law was unconstitutional. In May Iraq told oil companies in the KRG they had to sign new contracts with the State Organization for Marketing Oil (SOMO), then in June it began suing those firms for working in Kurdistan, and a commercial court in Baghdad annulled four contracts between international firms and the KRG in July. The case with the Arbitration Court is just another legal ruling against the KRG that will help Baghdad.

 

Turkey shut down its pipeline afterward until Baghdad and the KRG came to an agreement over exports. An initial deal has been reported whereby the KRG will control its oil revenue but the central government’s SOMO will market the petroleum. This also means that the KRG’s oil will sell at international prices instead of the old highly discounted rate which will greatly increase profits.

 

This had to be resolved quickly because the KRG is burdened with a very large debt. Companies were shutting down their operations because there is barely any storage capacity in Kurdistan. That meant the KRG couldn’t pay the $1.7 billion it owed to energy corporations or the $3.82 billion to trading companies that loaned money to the KRG for its future petroleum sales.

 

Overall this looks like one of the major dilemma’s facing Iraq’s oil industry could finally be coming to an end. If it does that means the KRG’s dreams of an independent energy sector will finally be coming to an end. Ironically that could help stabilize the region’s economy which has fallen into disarray since it started exporting its oil in 2014. Baghdad retaliated by cutting off monthly budget payments and the KRG has faced financial problems ever since.

 

SOURCES

 

Dourian, Kate, “Despite turbulence, Kurdistan’s IOCs look to raise spending and output,” Iraq Oil Report, 5/27/22

 

Hussein, Mohammed, Dourian, Kate, Van Heuvelen, Ben, “KRG export outage continues as negotiations falter,” Iraq Oil Report, 3/30/23

 

Hussein, Mohammed, Porter, Lizzie, and Van Heuvelen, Ben, “Progress in Baghdad-Erbil talks over northern export restart,” Iraq Oil Report, 4/2/23

 

NINA, “According to a Kurdish media network: Erbil and Baghdad agree on a new mechanism for selling the oil of the Kurdistan region,” 4/1/23

 

NRT, “Block To Kurdistan Oil Exports Preventing Repayment Of $6 Billion To Int’l Traders,” 3/30/23

 

Porter, Lizzie, Tahir, Rawaz, Van Heuvelen, Ben, “Baghdad court declares four KRG oil contracts void,” Iraq Oil Report, 7/5/22

 

Reuters, “Iraq federal court deems Kurdistan oil and gas law unconstitutional,” 2/15/22

- “Iraq halts northern crude exports after winning arbitration case against Turkey,” 3/25/23

- “Iraq makes fresh attempt to control Kurdistan oil revenue with contract switch,” 5/19/22

 

Rudaw, “KRG repays over 600 million dollars in debt to oil companies,” 9/27/22

 

Soylu, Ragip, “‘Hollow victory’: Iraq is not really a winner in the Turkey oil arbitration case,” Middle East Eye, 3/28/23

 

Van Heuvelen, Ben, Lando, Ben, Hussein, Mohammed, Tahir, Rawaz, Al-Aqily, Ali, Porter, Lizzie, “Baghdad launches legal action against Kurdistan’s oil companies,” Iraq Oil Report, 6/2/22