Baghdad, Ankara talks underway to resume Iraq-Turkey pipeline crude exports

Iraq's oil ministry has begun discussions with Ankara to resume exports through the Iraq-Turkey pipeline within two days, Oil Minister Hayan Abdul-Ghani said in a statement carried by state news outlet INA late Feb. 24.

"Once the Turkish side's approval arrives, exports will resume," Abdul-Ghani told INA.

Momentum has picked up to reopen the pipeline, shuttered for nearly two years, as US President Donald Trump has issued a stark warning that exports should resume or Iraq may face sanctions. The US issued additional sanctions on Iran on Feb. 24 as Trump looks to reimpose his "maximum pressure" campaign, and opening the pipeline could be a source of additional barrels on the international market.

Turkey's position for roughly a year has been that it is ready to receive oil from Iraq after completing maintenance on its section of the pipeline in October 2023.

It's unclear if Turkey's position has changed, but one analyst told S&P Global Energy previously that the transit fee paid to Turkey is one issue that must be addressed. Turkey may also be seeking additional political concessions on non-energy-related items.

The Iraq-Turkey pipeline was officially closed by Turkey on March 23, 2023, following an international arbitration decision that Turkey had breached a bilateral treaty with federal Iraq by allowing Kurdistan to use the pipeline to market its crude independently.

Following a lengthy debate, Kurdistan and the international oil companies have said that crude will now be marketed through the federal entity SOMO, and a budget law amendment passed Feb. 2 guarantees a payment of $16/b by the federal finance ministry to the KRG for crude produced in the region.

The bigger stumbling block remains agreement from the international oil companies operating in the region, with sources saying the companies have not yet received contracts or assurances that past debts will be paid.

As of June 2024, the oil companies said they were owed more than $1 billion in payments from the KRG for previous production.

The Association of the Petroleum Industry of Kurdistan, a group that represents most international oil companies in the region, said Feb. 22 that it is seeking "written sales and lifting agreements with the Government of Iraq and Kurdistan Regional Government that provide payment transparency and surety without political interference.

The Iraq-Turkey pipeline previously carried up to 400,000 b/d of predominantly Kurdish crude to the Turkish port of Ceyhan to serve Mediterranean markets.

Even if the pipeline reopens, Iraq's crude production is kept in check by its OPEC+ quota, on which it routinely overcommits. Iraq pumped 4.06 million b/d in January, down from the previous month but still over its quota by 60,000 b/d, according to the latest Platts OPEC+ Survey from Energy.

Baghdad pledged Feb. 24 to submit a new compensation plan for past overproduction that will account for any exported production from Kurdistan.

While OPEC has maintained current production cuts, they are expected to ease soon, potentially increasing the crude volumes available in the market from April, but Iraq's initial allotted increase of 12,000 b/d is modest. Depending on OPEC's view on market conditions, Iraq's output will increase incrementally between 2025 and 2026.