The MED This Week newsletter provides expert analysis and informed insights on the MENA region’s most significant issues and trends, bringing together unique opinions on the topic and reliable foresight on possible future scenarios. Today, we turn the spotlight on the struggle to resume oil exports from the semi-autonomous region of Iraqi Kurdistan via the Turkish port of Ceyhan. This comes after an agreement between Baghdad and Erbil was reached to end a long-standing dispute over the control of Iraq’s oil production.

Tensions between Iraq and Türkiye over oil export flows from Iraqi Kurdistan are not abating. On April 12, Baghdad petitioned a US federal court to force Ankara to comply with the International Court of Arbitration (ICC) ruling issued in late March. According to the ICC, Türkiye violated a joint agreement with Iraq by allowing the semi-autonomous region of Kurdistan (KRG) to export oil through the Kirkuk-Ceyhan pipeline without Baghdad’s consent. This is the latest episode in a string of disputes over the control of oil exports from northern Iraq that recently involved Ankara, Baghdad, and Erbil. A few days prior, Erbil and Baghdad signed a temporary agreement, under which Iraq’s state-owned oil company SOMO would have the right to market Kurdistan’s oil and deposit the revenues in an account with the Iraqi Central Bank controlled by the KRG. However, oil exports to Ceyhan so far have not resumed, and this risks compromising the entente reached by Erbil and Baghdad. While representing only a small portion of the global oil supply (about 0.5%), the disruptions of oil exports from northern Iraq have contributed to an increase in oil market prices (up to 80$ per barrel in late March) and caused significant economic damage to oil companies in the area. Moreover, the echoes of the energy shutdown have reverberated in European countries like Italy, since oil from northern Iraq became a key import for Rome following the ban on Russian crude. Finally, the dispute has also unsettled a highly volatile region, marked by the growing interference of Iran and Türkiye – whose latest actions in Iraqi Kurdistan prompted direct diplomatic intervention from Baghdad.

ISPI MED experts respond to the impact of the impasse on Kurdistan’s oil exports between Baghdad, Ankara, and Erbil.

The arbitration ruling in Paris: Not a fatal blow for Erbil’s energy sector, and only a partial victory for Baghdad

“The arbitration ruling in Paris was a significant development for the relationship between Erbil and Baghdad, and the relationship between Iraq and Türkiye. However, it was not a fatal development for Kurdistan’s energy sector. Firstly, because the ruling represented only a partial victory for Iraq: Baghdad claimed there was a breach of contract under five categories, including storage, transportation, exclusive use, access and loading but was only able to win its loading claim. Secondly, the fate of Kurdish oil exports through Türkiye will be determined by the politics of Erbil’s relationship with Baghdad, and Baghdad’s relationship with Ankara. Türkiye can still refuse to abide by the ruling, which was narrow in its scope, and does not preclude Türkiye from facilitating exports by truck or through an alternative pipeline.”

Ranj Alaldin, Fellow, Middle East Council on Global Affairs; Director, Crisis Response Council; Non-Resident Fellow, Brookings Institution

Over the oil sector in Kurdistan, the KDP has the lion’s share

“Intra-Kurdish dynamics played a limited role in recent developments regarding oil sales through Türkiye and the joint management of Kurdistan’s energy sector between Baghdad and Erbil. However, these internal divisions have weakened the Kurdistan Region’s ability to negotiate with Iraq. While there was consensus and ownership among Kurdish parties in developing the energy sector, significant disagreements have arisen in recent years. Two developments explain this shift: first, as the balance of power between the KDP and the PUK has shifted in favour of the KDP, energy policy in the KRG has become dominated by the KDP. Second, most of the KRI’s operational oil fields are in Erbil and Duhok, under KDP control. PUK and other parties believe that if KDP loses its ability to manage and sell oil independently, its power will be reduced in both Kurdistan and Iraqi politics. However, this view is short-sighted, as losing sovereignty in managing oil will also impact the PUK’s future attempts to develop the KRI gas sector, primarily located in areas under PUK control.”

Kamaran Palani, Research Fellow, Middle East Research Institute (MERI)

Ankara-Erbil economic and security relations are becoming increasingly hindered

“Türkiye’s ties with the Kurdish Regional Government (KRG) and the Kurdistan Democratic Party (KDP) primarily rely on security and economic factors, with security taking precedence. Since the early 1990s, Ankara has sought support Iraqi Kurdish parties to counter the Kurdistan Workers Party (PKK), which has been in conflict with the Turkish military since 1984. The International Chamber of Commerce’s arbitration court ruling, which served as setback for the KRG, grants Baghdad the primary authority over directing Iraq’s crude oil exports. The resumed oil flow following a deal between KRG and Baghdad signifies that both Baghdad and potentially Tehran have now inserted themselves into the previously independent economic relations between KRG and Ankara. This development presents challenges on both the security and economic fronts. Economically, the new oil deal’s terms will make oil imports from the KRG less profitable for Türkiye. On the security front, Ankara has struggled to defeat the PKK despite their substantial military investment, and the Patriotic Union of Kurdistan (PUK) has begun to act more independently of Türkiye in its dealings with the Syrian Kurdish leadership. The KDP in KRG views Baghdad as the main obstacle to greater independence for the Kurdistan region but does not see its reliance on Türkiye as having a similar effect.”

Guney Yildiz, Political Analyst; and Doctoral Researcher, Cambridge University

For Tehran, northern Iraq’s stability depends on Baghdad’s ability to limit transboundary actions

“It remains to be seen if the Iraqi government will, as promised, deploy federal guards on the Iraq-Iran border. Still, as long as the Iraqi government cannot uphold sovereignty over the entirety of its territory, we cannot expect an end to border-crossing aggression against Iran. Therefore, we will likely see more attacks and counterattacks in the border area until authorities of the autonomous Kurdistan Region are persuaded to deliver what the central government in Baghdad is incapable of delivering, that is to contain Iranian-Kurdish fighters on the Iraqi side of the border, who are currently engaged in border-crossing attacks against Iran. However, should Kurdistan Region authorities, rather than the central government in Baghdad and the federal guards, manage to contain Iranian Kurdish fighters, this will further erode the sovereignty of the Iraqi state.”

Ali Alfoneh, Senior Fellow, AGSIW

The shutdown of Kurdish exports endangers Italy’s energy security

“Over the last year, Iraq became a significant element of the Italian energy diversification strategy to cut its dependence on Russian hydrocarbons, meeting 13.3% of the Italian national demand for crude oil for 2022. In this equation, oil from the semi-autonomous region of Kurdistan and the Kirkuk fields accounted for over half of the crude oil imported from Iraq. Unsurprisingly, Italy is growingly concerned that the ongoing blockade of Iraqi Kurdistan’s oil exports from Ceyhan may drag on for a long time, potentially threatening Rome’s energy security. Against this backdrop, Italy-KRG energy cooperation was one of the main topics addressed during President Barzani’s latest visit to Rome on April 13. Although it could not be excluded that Italy may also offer its diplomatic assistance in the future thanks to its positive relations with the parties involved in the dispute, these would be an intricate knot to untie for a country primarily looking at the matter through the lens of its national energy security.”

Francesco Salesio Schiavi, MENA Centre, ISPI

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This week’s MED This Week has been edited by Francesco Schiavi