Turkey cancels pipeline agreements with Iraq in latest row impacting Kurdish crude

Turkey on July 21 abruptly canceled all six agreements governing the operation of the Iraq-Turkey pipeline, threatening to keep the key export route from Kirkuk to Ceyhan shuttered, in yet another blow to the embattled semiautonomous Kurdistan region's oil sector.

The pipeline has been closed since March 2023 following an international arbitration court ruling that Turkey violated a bilateral agreement with Iraq by allowing the Kurdistan Regional Government to independently export its crude through the pipeline.

Since then, both countries have said several times that they are ready to reopen the pipeline, which previously carried some 400,000 b/d of Kurdish Blend Test and about 75,000 b/d of federal Iraqi crude to Ceyhan, but have pointed fingers at each other over various grievances and reasons for delay.

Iraq's government is also at odds with the KRG over the pipeline in a sovereignty dispute over Kurdish oil and payments.

The bilateral pipeline agreements, some dating back to the 1970s, when the ITP was developed, were canceled by Turkish President Recep Tayyip Erdogan by presidential decree, as published in Turkey's official state gazette.

The cancellation does not become effective until July 27, 2026, with the one-year delay apparently made in order to allow Turkey and Iraq time to negotiate a new agreement that could include new financial terms, as well as authorizations on what crudes are allowed to flow through the line.

An official from Turkey's energy ministry confirmed to Platts that Ankara is keen for a new pipeline arrangement to be negotiated.

"A new agreement would benefit all parties. The ITP has the potential to become a highly active and strategic pipeline for the region," the official said, adding that Turkey had invested heavily in maintenance for the pipeline and pointing out that the line has been underutilized.

"A new and vibrant phase for the ITP will benefit both countries and the region as a whole," the official said.

Iraq's oil ministry did not immediately respond to a request for comment.

The main motivation for the cancellation appears to be the ongoing spat between Turkey and Iraq over the use of the Turkish section of the line to carry crude from Turkey's Gabar oil fields operated by Turkey's state upstream operator TPAO.

Turkey's state pipeline operator Botas, which operates the Turkish section of the ITP, last year constructed a spur pipeline connecting the Gabar fields to the ITP.

Between December and March, Botas' monthly flow data showed oil flowing in the ITP, which was officially closed, and which was subsequently confirmed to be crude from TPAO's Gabar fields.

Gabar crude

In April an oil ministry source in Baghdad told Platts that Gabar crude was being fed into the line without Iraq's knowledge, in violation of the intergovernmental agreements governing the line, and that "the Iraqi ministry will be taking action soon."

In May, Botas removed the data showing oil flowing in the ITP, resetting the volumes for December through March to zero.

TPAO's Gabar fields currently produce around 80,000 b/d, with production expected to reach a plateau of 100,000 b/d later this year.

Talks between Ankara and Baghdad over the future of the pipeline have been ongoing since last year, with Turkish officials stating numerous times that Ankara wanted to use spare capacity in the 650-km Turkish section of the ITP to transport crude from oil fields in southeastern Turkey.

Ankara is also believed to be hoping to negotiate a resolution to the March 2023 International Arbitration Court, which ordered Turkey to pay Iraq $1.4 billion in compensation for lost revenue, a fine it has shown no signs of intending to pay.

Turkey began transiting crude from Iraqi Kurdistan in 2013 after the Kurdish administration developed a spur pipeline connecting oil fields in the region to the Turkish section of the ITP on the Iraq-Turkey border at Fishkabur, despite protests from Baghdad, which opened a case at the IAC the following year.

Prior to that, Ankara had allowed the transit of crude from the Kurdistan region by truck to a storage site at Mersin, from where it was exported.

A source close to the issue indicated to Platts that Ankara wants a new agreement with Iraq on the ITP to be part of a broader slate of energy agreements also covering gas and electricity.

Iraq has substantial untapped gas reserves, which Turkey would like to be made available for transit to Turkey and on to Europe via Turkey's planned gas trading and pricing hub.

Ankara is also interested in increasing the capacity of its cross-border electricity transmission connections with Iraq, in order to meet Iraq's current generation shortfall.