Iraq halts northern crude exports after winning arbitration case against Turkey (updated)

Gulf Keystone Petroleum

25/03/2023 11:49

(Adds oil ministry, detail on arbitration case)
    By Ahmed Rasheed and Rowena Edwards
       March 25 (Reuters) - 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 Turkey.
    The decision to stop shipments of 450,000 barrels per day
(bpd) of crude relates to a case from 2014, when Baghdad claimed
that Turkey 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 favour of
Iraq on Thursday, Iraq's oil ministry confirmed on Saturday.
    Turkey has informed Iraq that it will respect the
arbitration ruling, a source said. 
    Turkish shipping officials told Iraqi employees at Turkey'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.
    Turkey 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 Turkey
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 Turkish port
of Ceyhan and state-owned SOMO's obligations with oil companies,
Iraq's oil ministry said in a statement. 
  
        The ruling, in which Turkey 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 authorised 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 U.S. representatives from Dallas-based HKN Energy,
which operates in the region.
    Turkey 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.

 (Reporting by Ahmed Rasheed in Baghdad and Rowena Edwards in
London, and Daren Butler in Istanbul; editing by Jason Neely,
Mike Harrison and Clelia Oziel)
 ((Rowena.Edwards@thomsonreuters.com;))