MONTREAL, Canada – Legal trade experts say Baghdad’s attempt to stop Iraqi Kurdistan’s crude oil exports to Europe is unlikely to immediately impact the Kurdish region’s oil trade, which is on the rise despite a looming legal battle and unprecedented violence by Islamic militants in northern Iraq.
Iraq last month filed for arbitration against Turkey to halt all oil exports from the Kurdistan Region to Europe, claiming Turkey and its and its state-owned pipeline operator BOTAŞ were illegally facilitating oil exports from the Kurdistan Regional Government (KRG) by not first receiving Baghdad's approval.
Baghdad is claiming $250 million in damages in the arbitration, which was filed with the International Chamber of Commerce in Paris. In a statement, Baghdad’s Oil Ministry claimed Turkey was violating the 1973 Iraq-Turkey Pipeline Agreement by not receiving the Oil Ministry’s permission to transport crude oil from Iraqi Kurdistan.
While the row could have major consequences for the KRG and is a significant step by Baghdad to stop oil exports from the semi-autonomous Kurdish region, the KRG will not be drawn into the arbitration because the dispute is between Turkey and Iraq, according to former International Chamber of Commerce officials.
“Until a final decision is rendered or a judicial or arbitral injunction is ordered, it will be business as usual,” former International Chamber of Commerce arbitrator Nabil Antaki told Rudaw. Based in Montreal, Antaki is an expert in Euro-Arab business disputes. Many International Chamber of Commerce legal disputes take 18 months to resolve.
Other potential scenarios that could disrupt trade include the arbitrators or an Iraqi Kurd ordering the KRG to cease oil exports to Turkey, but those are unlikely and an Iraqi court’s decision may not be binding in international courts, legal experts said.
Meanwhile, Turkey’s Oil Minister announced on Monday that a tanker of crude oil from Iraqi Kurdistan is set to leave Turkey’s Ceyhan port on June 22 for an undisclosed location, Reuters reported. The shipment, estimated at 1 million barrels, is the third in the past few weeks, despite an onslaught by Islamic militants who have claimed neighboring Nineveh province and other areas of northern Iraq.
Although the KRG’s oil exports are continuing to ramp up despite the legal dispute and rising violence, if it is determined that Turkey is in violation of the Iraq-Turkey agreement the case could have wide-reaching implications for Iraqi Kurdistan’s oil trade, which has just begun using Turkey as a gateway to lucrative European markets. Iraq claims it has the right to develop all oil deals, while the KRG maintains it can manage oil in its territories and share the revenue with the rest of Iraq as mandated by the Iraqi constitution.
The arbitrators are exclusively tasked with determining if Turkey is violating the agreement between the two countries, and will not decide on the legality of Kurdish exports under the Iraqi constitution, experts said. The arbitrators also will not have a say over the legitimacy of the power of the central government over Kurdish oil and gas management.
“The arbitrators cannot challenge the legitimacy of the Iraqi constitution. All the arbitrators can do is decide on the dispute,” Antaki said.
Paris-based arbitration attorney Eliseo Castineira, who managed cases International Chamber of Commerce cases in Europe, the Middle East and Africa, told Rudaw, “The question of Kurdistan’s potential liability towards Iraq is not a question that will be decided during this arbitration.”
“It is a contractual dispute between Iraq and Turkey,” Castineira added. “Should a breach of contract be established towards Iraq, it would be irrespective of the relationship between Kurdistan and Iraq.”
“Kurdistan is not party to this arbitration, and arbitrators will decide this case on the basis the agreement, to determine whether there has been a breach of the contract on the part of Turkey against Iraq, within the framework of the obligations that they have agreed,” Castineira said.
In a statement, the KRG maintained that Kurdish oil exports to Turkey are valid and said Baghdad’s legal “threats will fail.”
Castineira said the arbitrators will probably need to first determine if BOTAŞ is a party to the arbitration before deciding if Iraq should receive damages, which could draw out the legal dispute.
By naming both BOTAŞ and the Turkish government in the arbitration, Iraq could be awarded more in damages. And if Turkey continues importing Kurdish crude oil and is found in violation of the agreement, Iraq could be awarded further damages based on the amount of crude oil that has been exported.
“It is difficult to evaluate how much time is going to be needed for the arbitration; it also depends on the parties’ themselves, their diligence in appointing an arbitrator, and the availability of the arbitrators to deal with this case,” Antaki said.
The Iraqi government called international oil companies not to buy cargos of crude oil exported from Kurdistan. Iraq warned it would take legal action against any buyer of what it calls "stolen and smuggled" oil from the Kurdistan region.
The KRG assured its contractors and partners, including its transporters and traders, that it will not allow Baghdad to interfere with the KRG’s oil exports. However, Castineira said, “Buying from Turkey could constitute a breach of agreements that may have been entered into between Iraq and foreign companies, should those agreements exist.”
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