Iraq wins landmark case against Turkey over Kurdish oil exports

Iraq has won a landmark legal case against Turkey over Kurdish oil exports, which the federal government in Baghdad has long considered illegal.

Iraq and its neighbour Turkey have been locked in a nine-year dispute about oil exports from the semi-autonomous Kurdistan Regional Government (KRG), which flow from the Kurdish region to the Turkish port of Ceyhan.

In the case fought at the International Chamber of Commerce’s International Court of Arbitration, Iraq claimed that Turkey violated a 1973 pipeline transit agreement by allowing the exports without Baghdad’s consent.

The Paris-based court decided in Iraq’s favour on Thursday, according to a statement on Saturday from Iraq’s oil ministry. Turkey was ordered to pay around $1.5bn, according to a person familiar with the case who asked to comment anonymously as they were not authorised to speak.

It is far lower than the sum Baghdad originally asked for, the person said.

In a statement, Iraq’s oil ministry said Baghdad, through its State Oil Marketing Organization (SOMO), was the “only party” that would manage exports through Ceyhan.

The ministry said it will discuss “mechanisms for exporting Iraqi oil through [Turkey’s] Ceyhan port with the concerned authorities in the Kurdistan region as well as with the Turkish authorities” in a manner that guarantees exports will be sustained and international commitments met.

The government of Iraq and Turkey’s energy ministry did not immediately respond to requests for comment.

“Our recent understandings with Baghdad have laid the groundwork for us to overcome the arbitration ruling,” KRG prime minister Masrour Barzani tweeted, adding that a delegation will be in Baghdad for talks on Sunday.

Iraq is Opec’s second-largest producer, exporting about 3.3mn barrels per day. Of those, Baghdad sends 75,000 b/d to Ceyhan from Kirkuk. The KRG does not publish its production figure but industry experts estimate it at about 440,000 b/d, most of which it exports.

Iraq as a whole accounted for 27 per cent of Turkey’s imports of oil and other petroleum products in December 2022, behind only Russia, according to the most recent data from the Turkish Energy Market Regulatory Authority. 

Enver Erkan, chief economist at Istanbul-based financial services group Dinamik Yatırım Menkul Değerler, said the ICC decision would make Turkey “more dependent on Russia” and add to the country’s energy import bill. 

Oil exports have been an economic lifeline for Iraq’s Kurdistan region. For years, the KRG exploited ambiguity in Iraq’s constitution to export crude and keep the revenues as a way of maintaining some financial independence from Baghdad. 

Tensions between the federal government and the KRG flared last year as Baghdad sought to stop the KRG’s exports. It followed a landmark Iraq federal supreme court ruling in 2022, which declared the Iraqi Kurdistan energy industry unconstitutional.

Those tensions preceded the premiership of Iraq prime minister Mohammad Shia al-Sudani, who has worked to quell them.