By William Sellars / AGBI

Iraq’s oil pipeline through Turkey – which has been closed for two years – is not just a pipeline.

It raises a cornucopia of issues: declining Russian oil exports to Turkey, US pressure on Iraq to stop illicit Iraqi oil exports to Iran, peace with the militant Kurdistan Workers Party (PKK) in eastern Turkey, how to split oil revenue between the Iraqi central government in Baghdad and the autonomous Kurdish region, and, finally, how to settle $1 billion dollars in arrears. 

Resolution may be drawing closer but the last mile, or two, may be the hardest as the oil companies and the Kurdistan Regional Government (KRG) struggle over financial claims.

Iraq’s oil ministry said on February 22 that it could begin exports through the pipeline – running from Kirkuk in Kurdistan to the port of Yumurtalık in the Turkish seaside district of Ceyhan – “within two days”. A month later that has not happened.

In part, that is because the Association of the Petroleum Industry of Kurdistan (Apikur) – which represents international operators drilling for oil under production-sharing agreements with the KRG – says there is as yet no agreement allowing for the resumption of exports via this pipeline. 

Apikur members are owed nearly $1 billion in arrears, the association said last year.

“Discussions between the government of Iraq, KRG and IOCs [international oil companies] are ongoing,” Myles B Caggins, Apikur spokesman, tells AGBI by email. 

“We anticipate the US government will continue to apply pressure to Baghdad to ensure all sides reach an agreement swiftly.” 

The US is putting pressure on Iraq to halt clandestine shipments of crude oil to neighbouring Iran – with which the US has been at odds since the 1979 revolution – or else be subject to sanctions. Up to 200,000 barrels per day (bpd) of Iraqi crude, mainly from the Kurdish north, flow to Iran. 

Apikur members include the UK’s Genel Energy, London-listed Gulf Keystone Petroleum, HKN Energy, which has its headquarters in Dallas, Norway’s DNO and Canada’s ShaMaran Petroleum.

Turkey halted shipments of Iraqi oil through the 970km pipeline in March 2023. Then a Paris-based arbitration tribunal ruled in favour of Baghdad in a case launched by the Iraqi government, which claimed Ankara and the KRG had been illegally exporting oil. 

The International Criminal Court found both the KRG and Turkey at fault. 

A general view of oil tanks at Turkey’s Mediterranean port of Ceyhan

It fined the latter $1.5 billion and authorised the Iraq state oil marketing organisation, Somo, to control exports out of Ceyhan, a ruling that led Turkey to close the pipeline immediately. 

Ankara rejected any liability to pay compensation to Baghdad, a position it maintains to this day.

Earnings from oil exports

At its peak the Ceyhan pipeline carried 400,000 bpd of oil from autonomous Kurdistan, along with up to 75,000 bpd from other parts of Iraq fully controlled by the government in Baghdad. The combined total was equivalent to about 0.5 percent of global oil production. 

Baghdad successfully argued that earnings from oil exports should be paid to the central government, then redistributed to regional authorities.

That problem now appears to have been solved. 

Early in February the government in Baghdad, under prime minister Mohammed Shia Sudani, agreed to raise the “cost recovery” to the KRG authority in Arbil. 

The amendment now sets what goes from the central government to the KRG to cover transport and production costs to $16 per barrel, up from an earlier proposal of $7.90 per barrel.

In the meantime, Apikur says the Iraqi government – which faces an election in October – has lost out on $28 billion of earnings. 

Ankara too has missed out on transit fees and access to greater volumes of the Iraqi crude. 

“We are talking about a relationship of interdependence here,” says Büşra Zeynep Özdemir, an energy researcher at Istanbul-based research body Seta Foundation.

“Iraqi oil is important for Turkey, just as the Turkish market is also very important for Iraq. Turkey is one of the largest energy-consuming countries in the region as well as acting as an intermediary for Iraqi oil to reach other countries via Yumurtalık.”

Military ceasefire

Progress towards resolution has also been helped by a ceasefire declaration from the PKK, which has bases in northern Iraq. 

The pipeline was put out of commission several times as a result of attacks, both by the PKK and the still active Isis – or Daesh – most recently in 2020. 

A resumption of shipments through the Kirkuk-Ceyhan pipeline has taken on increased importance for Ankara as Turkey comes under pressure to reduce its imports of Russian crude or also face sanctions. Turkey’s leading refiner Tüpraş said in January it was suspending all imports of Russian crude in response to stepped-up threats of US sanctions. 

Russian oil accounted for more than 60 percent of all Turkish crude imports last year, with Tüpraş estimated to have taken delivery of 225,000 bpd in 2024. 

With the Russian door possibly closing, the possibility of Iraqi crude imports takes on greater significance for Ankara.