Turkey and Iraq need to work together on oil policy

Turkey and Iraq have been embroiled in legal disputes over petroleum exports through the port of Ceyhan. Reuters

The relationship between Turkey and Iraq is in need of a major reset. A recent arbitral award relating to the use of a pipeline that runs from Iraq to Turkey illustrates how relations between both countries have been beset by what appear to be uncoordinated policies and a failure to capitalise on mutual interests. Conversely, recent developments also demonstrate how much work would be required to achieve a reset, which is why it is so important for both sides to reflect internally on how to engage with each other.

Commentators have long argued that there are obvious synergies between Turkey and Iraq that should be capitalised upon. Turkey is a major importer of oil and gas, both of which are plentiful in Iraq. Conversely, Iraq is famously vulnerable to climate change. Its main sources of water originate in Turkey, which has constructed a large number of upstream dams. Much of its farmland is being damaged and abandoned as a result. In addition, much of Iraq’s water infrastructure is antiquated, while Turkey has significant expertise that it can share.

Instead of capitalising on these synergies, Iraq has been unable to build its own joint strategy towards Turkey, while Turkey has sought to benefit from Iraq’s weakness since 1991. As a result of these dynamics, in 2013, Turkey negotiated an agreement with the Kurdistan Regional Government (KRG), which controls the autonomous Kurdistan region of Iraq, to allow the KRG to pump oil into the (pre-existing) Iraq-Turkey Pipeline and then load it onto vessels in the Turkish port of Ceyhan for export without involving the Ministry of Oil in Baghdad.

Baghdad protested that use of the pipeline was governed by an agreement between Iraq and Turkey which stipulated that the export of all oil that flowed through the pipeline should be controlled by the Ministry. It brought two separate claims before the International Chamber of Commerce. The first related to oil that was exported through the pipeline in 2014-2018 and the second relating to 2018-2022.

There are obvious synergies between Turkey and Iraq that should be capitalised upon

In March 2023, an arbitral tribunal finally issued an award in the first dispute in Iraq’s favour. The tribunal also ordered Turkey to pay Iraq approximately $2 billion in damages, and also ordered Iraq to pay around $500 million in damages to Turkey for a variety of costs and expenses. The second dispute for the period 2018-2022 is expected to lead to a similar financial award in Iraq’s favour, without any corresponding amount in Turkey’s favour.

The arbitral award was an opportunity for both parties to re-engage with each other constructively. The award should have encouraged both parties to turn the page, to re-evaluate what they had achieved through their respective strategies and build on the synergies set out above.

However, instead of reengaging with each other positively, both parties adopted unconstructive positions that complicated matters further. Surprisingly, the parties’ actions were also incoherent, which suggests internal incoherence in both Turkey and Iraq. Elements in both countries have also taken actions that undermine their own respective positions.

As soon as the award was issued, Turkey immediately moved to close the pipeline, something that was not required by the tribunal. When Iraq asked for Turkey to allow for the flow of exports to resume, Turkey responded that the closure was to ensure the pipeline’s structural integrity following the February 2023 earthquake, a concern that it had not raised before.

As if that wasn’t peculiar enough, Turkey also stated behind the scenes that it would not reopen the pipeline until a number of conditions were met, including that Iraq abandon its second claim for 2018-2022. The closure means that Iraq has lost approximately $6bn in lost profit, an amount that it is probably entitled to recover from Turkey under the ITP Agreement. At the time of writing, the pipeline remains closed.

More recently, Turkey has argued that due to interest calculations, on balance Iraq owed it a payment of $950m and not the other way around. However, Turkey has also argued in the French courts that the award should be set aside, which strongly suggests that Turkey may not be so convinced by its interest calculations after all.

For its part, Iraq publicly stated that it was keen to reach an agreement with Turkey on this matter. At the same time, however, immediately after the award was issued, in a needlessly aggressive move that was possibly motivated by overeager legal counsel, Iraq moved with lightning speed to have it enforced in the US courts without reaching out to Turkey first. Turkish officials have since stated that they felt slighted by Baghdad’s action.

This history of counterproductive actions and never-ending escalations should give officials in both countries pause. Both countries should engage in some serious introspection on how they have managed their bilateral ties and how to do better in the future. For states such as Turkey and Iraq to resolve their differences through the courts and threats of further action is a travesty – particularly given the synergies mentioned above.

In addition, both sides should examine the means through which they have been communicating with each other on these issues: currently, communication is often through ad hoc meetings, as well as uncoordinated statements and legal actions by a variety of different government departments. Instead, both countries should explore ways to centralise strategy and decision making, and to create a permanent forum of exchange and negotiation (for example, through the formation of a permanent strategic committee).

Turkey and Iraq are natural allies that have much to offer each other. But to improve their own positions, both sides will have to engage in significant introspection and offer concessions. Were they to do so, it is hard to overstate how much could be achieved.