Foreign oil firms operating in the semi-autonomous Kurdistan region of northern Iraq have begun diverting their crude output into storage tanks after pipeline exports of Iraqi Kurdish oil to the Turkish Mediterranean port of Ceyhan were halted at the weekend following the end of a long-running arbitration case between Ankara and Baghdad.
The ruling in Baghdad's favour — first reported by Argus on 24 March — brought to a close a case that has been dragging on for close to nine years. Iraq made a claim at the International Chamber of Commerce (ICC) in Paris back in 2014 that Turkey was violating the terms of a 1973 bilateral agreement by allowing the Kurdistan Regional Government (KRG) to export crude through the Kirkuk-Ceyhan pipeline without Baghdad's consent. Last week's ruling prompted Turkey to request on 25 March that flows of Kurdish crude to Ceyhan be halted.
Crude exports from northern Iraq, Kirkuk blend, averaged 452,000 b/d last year, according to Argus tracking data. Over 380,000 b/d of this was marketed by the KRG. Iraq's federal oil marketing firm Somo accounted for the rest, all of which all went to Turkish refiner Tupras.
Norwegian independent DNO said today that it begun diverting production from the fields it operates in northern Iraq into storage on 25 March. DNO operates the Tawke and Peshkabir fields, which together produced 107,100 b/d in 2022. The company said its storage facilities can "accommodate several days' production" from the fields.
Meanwhile, London-listed Genel Energy, which partners DNO at Tawke and Peshkabir, said public statements made by Baghdad and the KRG since the ruling have led it "to believe the shut-in will be temporary". The company said it is continuing to produce and is sending the oil into storage. As well as its stakes in Tawke and Peshkabir, Genel also holds a 30pc operating interest in the Sarta field and a 44pc stake in Taq Taq, which produced 4,710 b/d and 4,490 b/d last year, respectively.
London-listed Gulf Keystone, whose only producing asset is northern Iraq's Shaikan oil field, said that it has "curtailed" its production since being informed of the halt to exports to Turkey. But like Genel, it said it believes the suspension will be temporary. It said its "facilities have storage capacity that allow continued production at a curtailed rate over the coming days, after which the company will suspend production". Shaikan produced 44,200 b/d of crude in 2022, although Gulf Keystone announced just last week that it has since managed to boost output to a record 55,00 b/d.
How long is too long?
The last cargo of Kirkuk blend to leave Ceyhan was on board the Aframax Mareta, according to data from oil analytics firm Vortexa. The tanker left the port on 24 March and is expected to arrive at Ashkelon in Israel on 29 March. Somo awarded an April-loading cargo of Kirkuk blend to Greek refiner Motor Oil Hellas via a spot tender earlier this month, according to market participants. The cargo was planned to load from Ceyhan on 3-5 April. Market sources say it is not possible to redirect exports from fields in northern Iraq to another port.
It is unclear how long the disruption will persist, but increased diplomatic activity between the two sides has raised hopes of a quick resolution, either temporary or lasting, to the dispute. Lawk Ghafuri, the KRG's head of foreign media affairs, said over the weekend that the decision of the ICC's International Court of Arbitration "will not impede our relations with the Iraqi federal government".
KRG prime minister Masrour Barzani said a delegation from his administration was due to arrive in Baghdad on 26 March to discuss how to overcome the impact of the court ruling. "Our recent understandings with Baghdad have laid the groundwork for us to overcome the arbitration ruling," he said. "A team from the KRG will visit Baghdad…to build on the goodwill of our discussions."
