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.



Oil Edges Up on Strong US GDP Data

A pumpjack brings oil to the surface in the Monterey Shale, California, US April 29, 2013. REUTERS/Lucy Nicholson/File Photo
A pumpjack brings oil to the surface in the Monterey Shale, California, US April 29, 2013. REUTERS/Lucy Nicholson/File Photo
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Oil Edges Up on Strong US GDP Data

A pumpjack brings oil to the surface in the Monterey Shale, California, US April 29, 2013. REUTERS/Lucy Nicholson/File Photo
A pumpjack brings oil to the surface in the Monterey Shale, California, US April 29, 2013. REUTERS/Lucy Nicholson/File Photo

Oil prices were up slightly on Friday on stronger-than-expected US economic data that raised investor expectations for increasing crude oil demand from the world's largest energy consumer.

But concerns about soft economic conditions in Asia's biggest economies, China and Japan, capped gains.

Brent crude futures for September rose 7 cents to $82.44 a barrel by 0014 GMT. US West Texas Intermediate crude for September increased 4 cents to $78.32 per barrel, Reuters reported.

In the second quarter, the US economy grew at a faster-than-expected annualised rate of 2.8% as consumers spent more and businesses increased investments, Commerce Department data showed. Economists polled by Reuters had predicted US gross domestic product would grow by 2.0% over the period.

At the same time, inflation pressures eased, which kept intact expectations that the Federal Reserve would move forward with a September interest rate cut. Lower interest rates tend to boost economic activity, which can spur oil demand.

Still, continued signs of trouble in parts of Asia limited oil price gains.

Core consumer prices in Japan's capital were up 2.2% in July from a year earlier, data showed on Friday, raising market expectations of an interest rate hike in the near term.

But an index that strips away energy costs, seen as a better gauge of underlying price trends, rose at the slowest annual pace in nearly two years, suggesting that price hikes are moderating due to soft consumption.

China, the world's biggest crude importer, surprised markets for a second time this week by conducting an unscheduled lending operation on Thursday at steeply lower rates, suggesting authorities are trying to provide heavier monetary stimulus to prop up the economy.