Turkey to end Iraq oil pipeline deal

Agreement for export of crude will expire in July next year

The oil pipeline allows for the export of crude from Iraq’s semi-autonomous Kurdish region to Ceyhan. Reuters

Turkey is putting an end to an agreement that allows for the export of crude oil from Iraq’s semi-autonomous Kurdish region through its territory.

Having come into effect in 1975, the pipeline deal will expire on July 27, 2026, a ruling published in the Turkey’s official gazette said on Monday. All protocols or memorandums relating to the deal will also stop.

In March 2023, Turkey halted the flow of oil produced in the region after an arbitration court said Ankara had breached the agreement when it allowed Iraqi Kurdish authorities to pump crude without Baghdad's consent.

The court ordered Turkey to pay Iraq damages of about $1.5 billion for unauthorised exports by the Kurdistan Regional Government between 2014 and 2018.

The two sides had started talks to resolve the issue. In February, Iraq's oil ministry said it would resume oil exports through the 970km pipeline that connects the region to Turkey’s Mediterranean port of Ceyhan. However, exports did not start.

A worker carries out checks at an oil plant in Turkey's Mediterranean port of Ceyhan. Reuters

The stoppage has had serious consequences, including job cuts, as oil producers have been forced to reduce output, while the Kurdistan Regional Government has been unable to dispense full salaries and social service payments.

The oil sector accounts for about 80 per cent of income for the Kurdish region, the Association of the Petroleum Industry of Kurdistan (Apikur) estimates.

Kurdistan's exports once reached 400,000 barrels per day before the Iraq-Turkey pipeline was closed, forcing producers to sell discounted barrels domestically, according to S&P Global Commodity Insights.

Iraq is reportedly losing $1 billion each month that the pipeline remains closed, Apikur said last year. Recently, it also called for the redoubling of efforts to resolve the dispute and resume oil exports through the pipeline.

“Currently there is news that the KRG (Kurdistan Regional Government) and federal Iraq have come to an agreement which would politically allow the resumption of exports, however technically we still have doubts about exports resuming,” James Forbes, senior analyst of upstream oil at FGE Nexant told The National.

“These doubts are because Iraq is currently significantly overproducing its Opec quota, and any resumption of northern pipeline exports would require a further production increase based on our supply/demand balances.”

However, he also clarified that the decision by Turkey to end the deal next year will not have an impact on oil markets.

Turkey has not specified why it plans to halt operations but Reuters cited a senior official as saying the country is keen to negotiate a new pipeline deal with Iraq.

“A new and vibrant phase for the Iraq-Turkey pipeline will benefit both countries and the region as a whole,” the official said, without giving details of what Ankara expects.

A new deal will also help regional projects such as the Development Road – a planned trade route involving Turkey and Iraq, the official noted, without elaborating further.

Iraq is the second-largest producer of oil in the Opec group after Saudi Arabia, with an output of about 3.9 million bpd, according to the latest Opec data.

Opec member countries have been boosting production since April this year amid plans to regain market share after curtailing production for several years.

Oil prices are currently trading lower on expectations of slower economic growth hitting crude oil demand amid Trump tariffs.