In our Law-Now last week, ‘Iraq arbitrates to disrupt Kurdish oil sales’, we commented that the Government of Iraq had commenced an ICC arbitration agaisnt Turkey and the Turkish Petroleum Pipeline Corporation (BOTAS).  The trigger for the dispute seemed to be the export of Kurdish oil from Turkey in a crude oil tanker (the ‘United Leadership’).  In an important development, the oil tanker carrying Kurdish oil has returned back to Turkey.  The reasons for this will be of interest to all participants in the Kurdish region.

The United Leadership oil tanker symbolises the wider conflict over oil sales between Baghdad and Iraqi Kurdistan.  The autonomous northern enclave of Kurdistan has a large proportion of Iraqi crude reserves that the KRG recently sought to export independently from the Iraqi central government.  The KRG estimates the region has about 45 billion barrels of crude reserves; Iraq itself has about 150 billion barrels.

Until the recent episode with the United Leadership tanker, Kurdish oil exports were limited to a small volume shipped by truck to Turkish ports on the Mediterranean.  Nechirvan Barzani, prime minister of the KRG administration, claimed that the KRG had exported $9 billion worth of Kurdish oil to date.  The United Leadership tanker, however, contains the first Kurdish oil from the Kirkuk – Ceyhan pipeline and has spurred Iraq into taking this arbitration action against  Turkey.

It has been reported that the shipment turned back about 300km west of Gibraltar, at which point it was sailing to the US Gulf.  The precise reason for the turnaround remains unclear, although it has been suggested that the turnaround indicates that the shipper has no a buyer for the oil.   It is not clear if the oil has been unloaded or a buyer found. The US State Department said that it did not condone oil sales bypassing Baghdad and that any buyers could risk a legal suit with the central government. 

’50-year energy accord’

In another recent development to relations between Turkey and Iraq, Barzani announced on 4 June that Tukey and the KRG have signed a 50-year deal to export Kurdish oil.  This is likely to strain relations between the KRG and central Iraqi government further as the central government continues to insist that it has the sole right to export Iraqi crude.  Barzani has commented that these actions were not part of an agenda to divide Iraq.

The status and outcome of this case will be of keen interest to all those involved in Iraqi oil.  For the time being the oil held in the tanker, which has an estimated value of around $110 million, seems to be ‘homeless’.  Claims the oil shipment is illegal will mean it will be difficult to establish who has title to this disputed oil and this will only serve to deter potential buyers.

Overall the questions raised over this shipment are likely to affect political stability in the region and have a negative impact on investment decisions concerning the energy sector in Kurdistan.