Turkey’s runoff election is paralyzing key oil exports from northern

Turkey’s runoff election is compounding delays to restart roughly 450,000 barrels per day of Iraqi crude oil exports, as Ankara studies its relationship with Baghdad, analysts and market sources told CNBC.

Oil typically flows through Turkey from both the Iraqi state and the semi-autonomous Kurdistan Regional Government (KRG). More specifically, this Kirkuk crude flows down the Iraq-Turkey Pipeline linking the north of the Gulf country with Turkey’s Ceyhan port in the Mediterranean. But the flows have been paralyzed since March 25 by a legal dispute involving federal Iraq, the KRG and Turkey.

Resolution pends on the result of a second presidential vote this weekend, but a prolonged halt could reduce Iraqi crude production.

The KRG had previously trucked its crude exports across borders, until it linked its major oil-producing fields to the Iraq-Turkey pipeline and began shipping crude in 2014. Federal Baghdad denounced Erbil’s independent crude sales as illegal, threatening to ban customers of such supplies from purchasing Iraq’s larger Basra crude volumes.

After a nine-year suit, the International Chamber of Commerce’s Court of Arbitration in Paris found that Turkey violated the 1973 version of a pipeline transit agreement between Baghdad and Ankara over 2014-2018. Turkey was ordered to pay Iraq roughly $1.5 billion in damages, according to Reuters. A second arbitration suit covering 2018 to date is still ongoing.

The ICC verdict followed a domestic win for Baghdad, after Iraq’s federal court in February 2022 pronounced the KRG’s oil and gas legislation unconstitutional and invalidated its contracts with foreign firms. This decision led to U.S. companies deciding to exit contracts in Kurdistan and deterred some KRG oil buyers from further purchases.

Iraq’s oil minister Hayan Abdul-Ghani on May 23 said that Baghdad has informed Turkey it is able to restart flows through Ceyhan and awaits Ankara’s response.

“Our colleagues in Turkey said there are some evaluative issues that they have to take into account. And that resulted from the earthquake,” he said, noting that an Iraqi delegation will be sent at an unspecified time to Turkey to discuss the restart.

Kirkuk crude is exported from the Botas terminal at Ceyhan in southern Turkey, separate from Azeri crude flows shipped out from the nearby Baku-Tblisi-Ceyhan port terminal. Botas resumed loadings the day after the devastating earthquake of Feb. 6 that killed at least a combined 50,000 people in Turkey and Syria, according to the U.N. The BTC terminal suffered a longer outage.

Several trade, shipping and oil producing sources — who could only comment anonymously because of contractual obligations — told CNBC that, following a request from Baghdad, Ankara was widely expected to resume Kirkuk crude exports from Ceyhan on May 13 — a day before presidential elections in Turkey,…