A year after Iraq-Turkey pipeline halt, no progress to resume flows

LONDON (Reuters) – Twelve months post the shutdown of the Iraq-Turkey oil pipeline, the conduit that previously managed approximately 0.5% of the global oil supply remains in a state of flux, hindered by legal and financial obstacles, as per three sources informed Reuters. Approximately 450,000 barrels per day of crude oil previously traversed Iraq’s northern oil export route via Turkey. Its closure has resulted in an estimated loss of around $11 billion to $12 billion for Iraq, according to the Association of the Petroleum Industry of Kurdistan (APIKUR).

The possibility of a restart is currently not under discussion, conveyed one of the sources familiar with the matter to Reuters. Ankara ceased the flow on March 25, 2023, subsequent to an arbitration ruling that found it in breach of provisions of a 1973 treaty by facilitating oil exports from the semi-autonomous Kurdistan region without Baghdad’s consent, the federal government of Iraq.

The court mandated Ankara to compensate Baghdad with $1.5 billion for unauthorized exports spanning from 2014 to 2018. Another ongoing arbitration case pertains to the period from 2018 onwards. The nations remain entangled in a prolonged legal dispute, as disclosed by two sources acquainted with the litigation.

Meanwhile, as long as the pipeline remains technically operational, Iraq owes Turkey minimum payments – estimated by consultancy Wood Mackenzie at approximately $25 million monthly – under the treaty, ostensibly providing an incentive for the resumption of flows. However, with Iraq deepening its cuts in oil exports as part of OPEC+’s broader initiative to bolster oil prices, restarting northern flows is not currently on the agenda, as per two Reuters sources.

POLITICAL LANDSCAPE
Geopolitical factors also pose a hindrance. The strained relations between the Iraqi government and the Kurds, an enduring aspect of Iraq’s political scene since the overthrow of Saddam Hussein in the 2003 U.S.-led invasion, have recently deteriorated further. Michael Knights, an Iraq expert at the Washington Institute think-tank, noted that the United States, which stands to benefit from a pipeline restart resulting in lower oil prices, has attempted to mediate several times. However, amidst ongoing conflicts in Ukraine and Gaza, the U.S. government’s resources are stretched thin. Knights remarked, “They’ve tried to fix this problem about five or six times. And they’re tired of it.” The U.S. State Department did not provide a response to a request for comment.

Additionally, instrumental to any potential restart agreement are the international oil companies operating in the Kurdistan region. These companies were compelled to halt exports due to the pipeline closure, restricting them to selling oil locally in Kurdistan at a substantial markdown. APIKUR highlighted that these companies collectively await over $1 billion in overdue payments for oil delivered between October 2022 and March 2023. The group continues to advocate for compensation in accordance with their contracts. The companies have incurred a collective loss of over $1.5 billion in direct revenue since the closure, as per APIKUR.

Despite numerous meetings, APIKUR and its affiliates have not received any formal proposals or agreements from Iraqi or Kurdish authorities that would facilitate the resumption of exports, stated an APIKUR spokesperson.