Iraq has won a landmark legal battle against Turkey over Kurdish oil exports, which the federal government in Baghdad has long considered illegal.
Iraq and neighboring Turkey are locked in a nine-year dispute over semi-autonomous Kurdistan Regional Government (KRG) oil exports flowing from the Kurdish region to Turkey’s port of Ceyhan.
In the case, brought before the International Court of Arbitration of the International Chamber of Commerce, Iraq alleged that Turkey violated a 1973 pipeline transit agreement by allowing exports without Baghdad’s consent.
The Paris-based court ruled in favor of Iraq on Thursday, according to a statement by the Iraqi Oil Ministry on Saturday. Turkey was ordered to pay around $1.5 billion, according to a person familiar with the case, who asked for anonymous comment as she was not authorized to comment.
It is far lower than the sum originally requested by Baghdad, the person said.
In a statement, Iraq’s oil ministry said Baghdad, through its State Oil Marketing Organization (SOMO), is the “sole party” that will manage exports through Ceyhan.
The ministry said it would “discuss mechanisms for exporting Iraqi oil [Turkey’s] Port of Ceyhan with the relevant authorities in the Kurdistan Region as well as with the Turkish authorities in a manner that guarantees exports are sustained and international commitments are met.
The Iraqi government and Turkey’s Energy Ministry did not immediately respond to requests for comment.
“Our recent agreements with Baghdad have laid the groundwork for us to be able to overcome the arbitration ruling,” said KRG Prime Minister Masrour Barzani tweetedand added that a delegation will be in Baghdad for talks on Sunday.
Iraq is Opec’s second largest producer, exporting about 3.3 million barrels a day. Of this, Baghdad sends 75,000 b/d from Kirkuk to Ceyhan. KRG doesn’t release its production numbers, but industry experts put them at around 440,000 barrels per day, most of which are exported.
Iraq as a whole accounted for 27 percent of Turkey’s imports of oil and other petroleum products as of December 2022, behind only Russia, according to the latest data from Turkey’s energy market regulator.
Enver Erkan, chief economist at Istanbul-based financial services group Dinamik Yatırım Menkul Değerler, said the ICC’s decision would make Turkey “more dependent on Russia” and increase the country’s energy import bill.
Oil exports have been an economic lifeline for Iraq’s Kurdistan region. For years, the KRG took advantage of the ambiguity in Iraq’s constitution to export crude oil and keep the revenues to maintain some financial independence from Baghdad.
Tensions between the federal government and the KRG flared last year when Baghdad tried to stop KRG exports. It followed a landmark ruling by Iraq’s federal court in 2022 that declared the Iraqi Kurdish energy industry unconstitutional.
These tensions predated the premiership of Iraqi Prime Minister Mohammad Shia al-Sudani, who has worked to quell them.