The Iraq-Turkey Arbitration: Turning Risk into Opportunity

Michael Knights*

The Iraq-Turkey Pipeline (ITP) was built by Iraq and Turkey in the 1970s and is governed by an agreement that states neither side can grant third-party access to the oil pipeline without permission from the other. In May 2014, Iraq’s signatory – the State Oil Marketing Organization (SOMO) –filed a lawsuit in the International Chamber of Commerce’s International Court of Arbitration (ICA) in Paris against the Turkish signatory, Turkey’s pipeline operator Botas. SOMO claimed that Botas gave illegal third-party access to the pipeline to the Kurdistan Regional Government without SOMO’s approval.

Though the case has moved slowly, interrupted by numerous hurdles (the death of arbitrators, COVID-19, changes of government), it is reaching the point at what the ICA will issue a decision in 2022. According to the terms of the 1973 ITP agreement, it seems likely that Iraq will win. Then, as soon as ninety days later, an award will follow, possibly requiring Turkey to pay Iraq billions of dollars in damages. Appeals and jurisdictional arguments would certainly follow, further poisoning Iraq-Turkey relations (which are already strained).

Or, Iraq and Turkey, and a contact group of international partners could turn a bad situation into a good one. If the arbitration were settled without an award being calculated, Ankara might avoid public humiliation, which would be valuable to a pipeline transit country and aspiring energy hub like Turkey.

What would Iraq get?  Probably the release of more Tigris water, subsidized Turkish electricity imports, trade benefits, and the return of the marketing of Kurdistan crude to SOMO, which could open the door to a broader Baghdad-Kurdistan deal on energy sector integration. There might even be the setting to discuss the withdrawal of Turkish forces from the Bashiqa base near Mosul and other cooperative security arrangements.

Iraq should signal now that it wants such a settlement and Turkey should signal that Iraq will get more in the deal if the case is settled before decision or before award. If both sides are smart, a deal could be on the table when Iraq’s next government is formed after the October 2021 elections.

Michael Knights is an American scholar at the Washington Institute for Near East Policy