Baghdad and Erbil, Reuters—Iraq filed for arbitration against Turkey on Friday after European markets bought the first load of oil to be carried by pipeline from Iraqi Kurdistan.
The request was filed with the Paris-based International Chamber of Commerce (ICC) and also targets Turkish state-owned pipeline operator BOTAS for its role in facilitating oil exports from Kurdistan without the Iraqi federal government’s consent.
“By transporting and storing crude oil from Kurdistan, and by loading that crude oil onto a tanker in Ceyhan, all without the authorization of the Iraqi Ministry of Oil, Turkey and BOTAS have breached their obligations under the Iraq–Turkey Pipeline Agreement,” the government said in a statement.
Both BOTAS and Turkey’s Ministry of Energy said they had yet to receive any information about the arbitration from either the ICC or the Iraqi government.
Earlier on Friday, the Kurdistan Regional Government (KRG) said the tanker, carrying more than 1 million barrels of crude, was bound for Europe, and that revenues from the sale would be deposited in Turkey’s Halkbank.
Kurdistan finished building the pipeline to Turkey late last year and has been using it to pump oil into storage tanks at Ceyhan, bypassing the state-run system. Before that, the Kurds exported smaller volumes by truck.
“This is the first of many such sales of oil exported through the newly constructed pipeline in the Kurdistan region,” the KRG said in a statement.
It added that the oil revenue would be treated as part of the region’s share of the Iraqi national budget. Baghdad has cut funds to the region this year as punishment for the Kurds’ moves to export crude independently.
The KRG said it remained open to negotiations with Baghdad and would comply with United Nations obligations by setting 5 percent of the revenue aside in a separate account for reparationa for Iraq’s invasion of Kuwait in 1990.
Turkish Energy Minister Taner Yıldız said on Friday the first cargo had been sold into the Mediterranean spot crude market: “This crude oil will possibly go to Italy or Germany,” he said in comments broadcast on TRT television.
The pipeline brings a new oilstream onto global markets, one which will compete with well-established sour grades.
The Kurdish crude in tanks at Ceyhan is a mixture of two grades, Taq Taq and Tawke, market sources said. The tanks contain a small amount of Kirkuk, which was left over in the pipeline when it was shut down at the beginning of March.
The stream is currently a medium sour grade. The oil in storage has an API gravity of around 31.3 degrees, with a sulfur content of about 2.7 percent, according to laboratory reports by a local shipping agent that were seen by Reuters.
The grade is close to Iraq’s Kirkuk grade, which has an API gravity of around 31-32 degrees and a sulfur content of around 2.0 percent to 2.5 percent.
Russian Urals, the most traded sour grade in the Mediterranean market, has a much lower sulfur content than the Kurdish oil but its API gravity is quite similar. Urals has a sulfur content of around 1.1 percent to 1.3 percent and an API gravity of around 30–31 degrees.