Crude oil flows from northern Iraq to Turkey halted for more than seven months could start flowing again this week after Baghdad said it had reached « an understanding » with Istanbul.
Here is an outline of the pipeline dispute:
WHAT IS THE LATEST?
On a visit to Erbil on Sunday, Iraqi oil minister Hayan
Abdel-Ghani said he expects to reach an agreement with the Kurdistan Regional Government (KRG) and foreign oil companies to resume oil production from the Kurdish region’s oilfields within three days, signalling a potential restart soon.
Turkey had said last month the pipeline was ready to begin operations, but Iraq maintained it had received no official notification over the pipeline and a senior energy adviser told Reuters Baghdad was waiting to iron out « lingering financial and technical issues » ahead of any restart.
WHY IS IT IMPORTANT?
While Iraq, OPEC’s second-largest oil producer, exports about 85% of its crude via ports in the south, the northern route via Turkey still accounts for about 0.5% of global oil supply.
WHAT PROMPTED THE SHUTDOWN?
Supplies of 450,000 barrels per day (bpd) were halted on March 25 after an International Chamber of Commerce (ICC) arbitration ruling.
The ICC ordered Ankara to pay Baghdad damages of about $1.5 billion for unauthorised exports by the semi-autonomous Kurdistan Regional Government (KRG) between 2014 and 2018.
KRG exports flow through a KRG pipeline to Fish-Khabur on the northern Iraqi border, where the oil enters Turkey and is pumped to the port of Ceyhan on its Mediterranean coast.
Iraq’s federal government says state-owned marketer SOMO is the only party authorised to manage crude exports via Ceyhan.
Turkey shut down the pipeline because Iraq’s federal government won the right to control loading at Ceyhan.
Iraq’s SOMO would have to instruct Turkey on ship-loading, or the crude would have built up in storage with nowhere to go.
Turkey halted flows through Iraq’s northern oil export route after an arbitration ruling on March 23 by the International Chamber of Commerce (ICC) which ordered Ankara to pay Baghdad damages for unauthorised exports between 2014 and 2018.
The move sent oil prices down towards $80 a barrel.
On March 25, Turkey stopped pumping around 450,000 barrels per day (bpd) of Iraqi oil via the pipeline to Ceyhan. This comprised 370,000 bpd of KRG crude and 75,000 bpd of federal crude, a source familiar with the pipeline’s operations said.
WHAT ARE THE DISPUTES OVER?
Iraq filed for arbitration in 2014 with the Paris-based ICC over Turkey’s role in facilitating oil exports from Kurdistan without the consent of the federal government in Baghdad.
Iraq said that by transporting and storing oil from Kurdistan and loading it on tankers in Ceyhan without Baghdad’s approval, Ankara and Turkish state energy company BOTAS violated provisions of an Iraq-Turkey pipeline agreement signed in 1973.
In March, the ICC ruled in Iraq’s favour for the right to control loading at Ceyhan and to have access to see what was being loaded, a source familiar with the case has told Reuters.
Turkey was also asked to pay 50% of the discount at which KRG oil was sold, three sources said.
Based on several rulings, the net amount Turkey owes Iraq is about $1.5 billion before interest, a source familiar with the case said.
According to a Turkish source, Iraq’s initial demand was for about $33 billion.
A second arbitration case, which could take about two years, would cover the period from 2018 onwards.
The Turkish government and the governments in Baghdad and Kurdistan have released statements since the court ruling, but none included full details about the decision.
In addition, the treaty regulating the pipeline obliges Baghdad to pump a minimum guaranteed volume through it. This translates into a minimum payment to Turkey, regardless of the amount of crude that flows, as long as the pipeline is operational and could further complicate matters, an Iraqi official said.
Iraq said in May that the stoppage in March coincided with request by Turkey to check the pipeline and storage tanks for any damage resulting from a massive Feb. 6 earthquake.
The two countries agreed to wait until a maintenance assessment on the pipeline was complete to restart flows, while still engaging in the legal battle over arbitration awards.
In April, Iraq petitioned a U.S. federal court to enforce the ICC arbitration award. Ankara also said last month it was
weighing legal action against Iraq.
Turkey is seeking a halt to the U.S. litigation and a lack of progress on resolving this issue was among the reasons behind the postponement of a planned August visit to Iraq by Turkish President Tayyip Erdogan.
Sources have said an Erdogan visit to Baghdad would help resolve the matter, but that hasn’t happened yet. Turkish energy minister Alparslan Bayraktar made a surprise announcement at an industry event in Abu Dhabi on Oct. 2, when he said the maintenance was complete and the pipeline would resume work within the week.
Baghdad did not officially comment on the matter at the time but officials have said talks were ongoing. Flows are yet to restart.