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Iraq Halts Northern Crude Exports after Winning Arbitration Case against Türkiye

The Nihran Bin Omar oil field flare stacks burn north of Basra, Iraq, Wednesday, March 22, 2023. (AP)
The Nihran Bin Omar oil field flare stacks burn north of Basra, Iraq, Wednesday, March 22, 2023. (AP)
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Iraq Halts Northern Crude Exports after Winning Arbitration Case against Türkiye

The Nihran Bin Omar oil field flare stacks burn north of Basra, Iraq, Wednesday, March 22, 2023. (AP)
The Nihran Bin Omar oil field flare stacks burn north of Basra, Iraq, Wednesday, March 22, 2023. (AP)

Iraq halted crude exports from the semi-autonomous Kurdistan region and northern Kirkuk fields on Saturday, an oil official told Reuters, after the country won a longstanding arbitration case against Türkiye.

The decision to stop shipments of 450,000 barrels per day (bpd) of crude relates to a case from 2014, when Baghdad claimed that Türkiye violated a joint agreement by allowing the Kurdistan Regional Government (KRG) to export oil through a pipeline to the Turkish port of Ceyhan.

Baghdad deems KRG exports via Turkish Ceyhan port as illegal.

The International Chamber of Commerce ruled in favor of Iraq on Thursday, Iraq's oil ministry confirmed on Saturday.

Türkiye has informed Iraq that it will respect the arbitration ruling, a source said.

Turkish shipping officials told Iraqi employees at Türkiye’s Ceyhan oil export hub that no ship will be allowed to load Kurdish crude without the approval of the Iraqi government, according to a document seen by Reuters.

Türkiye subsequently halted the pumping of Iraqi crude from the pipeline that leads to Ceyhan, a separate document seen by Reuters showed.

On Saturday, Iraq stopped pumping oil through its side of the pipeline which runs from its northern Kirkuk oil fields, one of the officials told Reuters.

Iraq had been pumping 370,000 bpd of KRG crude and 75,000 bpd of federal crude through the pipeline before it was halted, according to a source familiar with pipeline operations.

"A delegation from the oil ministry will travel to Türkiye soon to meet energy officials to agree on new mechanism to export Iraq's northern crude oil in line with the arbitration ruling," a second oil ministry official said.

Iraq will discuss with the relevant authorities ways to ensure the continuation of oil exports through the port of Ceyhan and state-owned SOMO's obligations with oil companies, Iraq's oil ministry said in a statement.

The ruling, in which Türkiye has been ordered to pay Iraq around $1.5 billion before interest, covers the 2014-2018 period, according to a source familiar with the case who spoke on condition of anonymity because they were not authorized to speak with the media.

A second arbitration case, which the source expects to take around two years, will cover the period from 2018 onwards.

Turkish government officials did not immediately respond to requests for comment.

Production risk

The final hearing on the arbitration case was held in Paris in July 2022, but it took months for the arbitrators, the secretariat of the arbitration court and the International Chamber of Commerce to approve the verdict, the source familiar with the process said.

The impact on the KRG's oil production depends heavily on the duration of the Iraqi Turkish Pipeline (ITP) closure, sources said, adding this would cause significant uncertainty to oil firms operating in the Kurdistan Region in Iraq (KRI).

A cessation of exports through the pipeline would trigger a collapse of the KRI economy, according to a letter last year to US representatives from Dallas-based HKN Energy, which operates in the region.

Türkiye would need to source more crude from Iran and Russia to make up for the loss of northern Iraqi oil, the letter said.

Analysts have warned that companies could withdraw from the region unless the environment improved.

Foreign oil firms, including HKN Energy and Gulf Keystone, have linked their investment plans this year to the reliability of KRG payments, which face months of delays.

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Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
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Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)

A broad internal consensus, encompassing both political and economic dimensions, is taking shape to adopt the principles outlined in the presidential inauguration address as the foundation of the new government’s program and ministerial statement. This approach aims to sustain Lebanon’s immediate and strong positive momentum, which is reinforced by widespread support on both Arab and international levels.

Economic bodies and professional unions representing business sectors have openly expressed their relief and full support for the strategic directions set by President Joseph Aoun following his election. However, they have made it clear that maintaining this positive momentum depends on the formation of a reform-oriented rescue government, composed of competent, experienced, and honest ministers. This government must also collaborate constructively with the president.

According to a senior financial official, the rescue mission will be challenging due to years of governmental inaction and constitutional voids, which led to a deterioration in public sector operations and the accumulation of economic, financial, and monetary crises over the past five years. These challenges were further compounded by a devastating war, which inflicted severe human and financial losses estimated at approximately $10 billion, thereby worsening the country’s financial gap, now estimated at $72 billion.

Economic and banking circles are looking to the new government to swiftly capitalize on extensive international support by restoring trust and reestablishing financial channels between Lebanon and its regional and international partners. Key to this effort are explicit and transparent commitments to combating illegal economic activities, corruption, smuggling, money laundering, and drug trafficking. In parallel, the government must prioritize strengthening judicial independence and implementing strict controls over land, sea, and air borders.

The national consensus evident in the presidential election, according to Mohammad Choucair, head of Lebanon’s economic associations, paves the way for constructive collaboration among political factions. This collaboration is crucial for addressing challenges, rebuilding the state, and benefiting from renewed international and Arab—particularly Gulf and Saudi—interest in Lebanon. Choucair emphasized the importance of normalizing relations with Gulf nations, supporting Lebanon’s recovery, and providing resources for reconstruction efforts.

One of the urgent tasks for the new government, according to the financial official, is revisiting the draft 2024 state budget, which was previously submitted to parliament. Adjustments are necessary to address fundamental discrepancies in expenditure and revenue projections, taking into account significant changes brought about by the Israeli war.

Ibrahim Kanaan, chairman of the Parliamentary Finance Committee, described the budget as “unrealistic, if not entirely fictitious,” particularly in its revenue estimates. He pointed out that revenue increases were based on income and capital taxes, internal duties, and trade-related fees, all of which have been severely impacted by the war.

Reassuring depositors, both domestic and expatriate, who have suffered massive losses over recent years, is another pressing issue. These losses were exacerbated by the inability of successive governments to implement a comprehensive rescue plan addressing the $72 billion financial gap fairly. The situation was worsened by mismanagement in the electricity sector and the squandering of over $20 billion in central bank reserves following the onset of the financial crisis.

In response to Aoun’s commitment to a fair resolution for depositors, the Association of Banks in Lebanon welcomed his emphasis on safeguarding deposits. It also expressed its readiness to collaborate with the central bank and the government to protect depositors’ rights, citing a recent State Council ruling that prohibits any financial recovery plans from including measures that would erode depositors’ funds.

In its final session, the caretaker government addressed long-standing creditor issues by unanimously agreeing to suspend Lebanon’s right to invoke statutes of limitations on claims by foreign bondholders under New York law. This suspension, effective until March 9, 2028, aims to facilitate future negotiations.

With this decision, the caretaker government tacitly acknowledged Lebanon’s pending debt obligations, including over $10 billion in suspended interest payments on Eurobonds and approximately $30 billion in principal debt. The resolution now awaits direct negotiations under the new administration, which faces the challenge of resolving a nearly five-year-old crisis triggered by the previous government’s uncoordinated decision to halt payments on all Eurobond obligations through 2037.

Caretaker Finance Minister Youssef Khalil emphasized that despite the difficult circumstances, “Lebanon remains committed to reaching a fair and consensual resolution regarding the restructuring of Eurobond debt.”