Why the Iraq-Turkey Oil Pipeline Was Halted for 2-1/2 Years

WHAT PROMPTED THE SHUTDOWN?

Turkey shut the pipeline following an International Chamber of Commerce (ICC) ruling which ordered it to pay Iraq about $1.5 billion in damages for unauthorised oil exports from Iraqi Kurdistan between 2014 and 2018.

Iraq had filed for arbitration in 2014 with the Paris-based ICC over Turkey’s role in facilitating exports from Kurdistan without the consent of the federal government.

Baghdad sought $33 billion in damages, arguing that its national oil marketing company, SOMO, held sole authority for exporting Iraq’s oil.

The ICC has not yet ruled on a second arbitration case covering exports from 2018 onwards.

WHY IS IT IMPORTANT FOR THE OIL MARKET?

Iraq is OPEC’s second-largest oil producer and exports around 3.4 million bpd from its southern ports.

The latest deal will add some 180,000 to 190,000 bpd from the north, Iraq’s oil minister told Kurdish broadcaster Rudaw, and this is expected to rise to some 230,000 bpd.

The U.S. government had pushed for a restart, as higher supply could help ease crude prices, something the Trump administration has prioritised while simultaneously pledging to cut neighbouring Iran’s crude exports to zero.

The move is also in line with recent efforts by OPEC+ oil-producing countries to increase output to gain market share.

WHAT HAPPENS NEXT?

Eight oil companies operating in Iraqi Kurdistan, representing over 90% of production, have reached agreements with Baghdad and the KRG to resume exports.

The Kurdistan Regional Government will deliver the crude to SOMO and an independent trader will handle sales from Ceyhan using SOMO’s official prices. Producers will get $16 per barrel.

For the Kurdistan region, the resumption of oil exports via the Iraq Turkey Pipeline will ease economic strain that had seen salary delays for public sector workers and cuts to essential services.

(Reporting by Maha El Dahan and Yousef Saba)