Flows of crude oil through a pipeline from the semi-autonomous Kurdistan region in northern Iraq to Turkey could restart soon after an almost two-year shutdown.
Sources told Reuters that U.S. President Donald Trump’s administration is piling pressure on Iraq to allow Kurdish oil exports to restart or face sanctions alongside Iran.
But the federal government of Iraq and the Kurdistan Regional Government (KRG) have yet to iron out details necessary for the resumption such as a payment mechanism acceptable to oil companies.
Here is an outline of the pipeline dispute:
WHAT IS THE LATEST?
Iraq’s Oil Minister Hayan Abdel-Ghani told reporters on Monday that oil exports from the semi-autonomous Kurdistan region were set to resume next week.
The announcement came after the Iraqi parliament approved on Feb. 2 a budget amendment that set a rate of $16 per barrel for oil transport and production costs in Kurdistan.
The amendment also requires the KRG transfer its oil output to the state-run State Oil Marketing Organization (SOMO).
An association of oil producers in Kurdistan, which includes DNO, Genel Energy, Gulf Keystone Petroleum and Shamaran Petroleum, welcomed the amendment in a short statement on its website.
The earlier proposal for $7.9 a barrel was rejected as too low by the KRG.
The head of the department of foreign relations for the KRG Safeen Dizayee told Reuters on Tuesday that there were no legal or technical issues left to restart the flows.
“The button just has to be pushed to increase production and then re-export,” he added, however declining to say when the pipeline could be reopened.
Turkey, however, said on Wednesday it has not yet received any information from Iraq on the resumption of oil flows on the Iraq-Turkey pipeline.
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.
Resolving a near two-year dispute could potentially add more supply to the oil market and weigh on prices.
Iraq’s oil minister said Baghdad expected to receive some 300,000 barrels per day (bpd) from the region.
The oil export resumption is also expected to ease economic pressure in the Kurdistan region, where the halt has led to salary delays for public sector workers and cuts to essential services.
WHAT PROMPTED THE SHUTDOWN?
On March 25, 2023 Turkey stopped pumping around 450,000 barrels per day (bpd) of Iraqi oil, including some 370,000 bpd of KRG crude, via the pipeline to Ceyhan.
It halted the flows after the International Chamber of Commerce (ICC) ordered Ankara to pay Baghdad about $1.5 billion in damages for unauthorised exports between 2014 and 2018.
Baghdad argued that its national company for marketing Iraq’s oil, SOMO, was the only party authorised to manage crude exports via the Turkish port.
Turkey shut down the pipeline because Iraq’s federal government won the right to control loading at Ceyhan.
WHAT IS THE DISPUTE ABOUT?
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.
Iraq said Turkish pipeline and trading firm BOTAS had violated a 1973 Iraq-Turkey pipeline agreement by facilitating Kurdish oil exports via Ceyhan.
The ICC ruled that Iraq should have the right to control loadings at Ceyhan and ordered Turkey to pay 50% of the discount at which KRG oil was sold, sources told Reuters.
The net amount awarded to Iraq was about $1.5 billion before interest compared to an initial request of about $33 billion.
There’s an ongoing arbitration case covering the period from 2018 onwards.
(Reporting by Maha El Dahan, Ahmed Rasheed and Nerijus Adomaitis; editing by Daniel Flynn)