Iraq's arbitration victory against Turkey has fundamentally changed the power dynamics that enabled the Kurdistan Regional Government (KRG) to build an independent oil sector.
Baghdad and Erbil have never come close to resolving the constitutional and policy debates over how Iraq's oil sector should be structured, but for nearly a decade the KRG was winning the argument that mattered most: the ability to establish facts on the ground to secure control over oil and revenue flows.
The KRG's advantage depended on one indispensable partner: Ankara. Before signing a strategic energy agreement with Turkey in November 2013, the KRG could only achieve large-scale pipeline exports by striking temporary deals with Iraq's federal government; after Turkey agreed to give the KRG control of its own exports, it had a financial artery that did not depend on Baghdad.
Days after the KRG sold its first tanker of crude via Turkey's pipeline, in May 2014, the Iraqi Oil Ministry filed for arbitration against Turkey at the International Chamber of Commerce (ICC) in Paris. The case argued that Turkey was using its side of the Iraq-Turkey Pipeline (ITP) system to facilitate the KRG's crude exports without Baghdad's permission, and that doing so was a violation of the pipeline treaty the two countries had just renewed in 2010.
Nine years later, the tribunal has now issued its ruling. The most pivotal question it needed to address was whether Turkey could legally facilitate KRG exports without Baghdad's consent, or whether the ITP treaty gives Iraq's federal Oil Ministry primary authority over directing the export of all crude oil coming from Iraq.
On that fundamental question, the ruling was an unequivocal win for Baghdad.
Iraq Oil Report was briefed on the ICC ruling by two individuals affiliated with the parties and familiar with the award, and was able to independently corroborate the details they provided.
Those details show that, while Iraq prevailed in its most central claim, it also failed to win damages on the scale it had sought. Details of the decision also show significant ways in which the ICC ruling has changed the legal parameters that shape the KRG's ability to export crude in the future — and reveal some important ways in which very little has changed.
In summary, the substance of the ruling has significant implications for the future of Baghdad-Erbil relations, the trajectory of the KRG oil sector, and impending negotiations between Iraq and Turkey. Here are five key takeaways.