Turkiye Seeks Damages from Iraq in Kurdistan Oil Dispute

When Iraq in April asked a US federal court to enforce an arbitration ruling against Turkey, seeking US$1.4 billion damages in relation to crude oil exports from its autonomous Kurdistan region, everyone was caught off guard in Ankara. Iraq had not notified Turkish officials, let alone tried to have a conversation on how to proceed after the International Chamber of Commerce (ICC) ruled that Turkey had breached its contract by directly trading oil with the Kurdish Regional Government (KRG) between 2014 and 2018. Furious Turkish officials promised, in private conversations, that they would make Iraq pay. And on Thursday, they took a step in that direction and asked the court to make Baghdad pay Ankara. Turkey argued at the US District Court for the District of Columbia that Iraq should pay Ankara a net sum of US$956 million in damages after interest rate calculations on an arbitration ruling that initially granted a net sum of US$1.4 billion to Baghdad. The ICC awarded US$1.9 billion to Iraq but also awarded more than US$500 million to Turkey for its counterclaims of low capacity at the pipeline and unpaid transportation fees going back to the 1990s. All awards have pending interest rates. “When prejudgment interest is properly calculated in accordance with the tribunal’s directions in the award, it is clear that the Court must enter judgment in favour of Türkiye, not Iraq, in the amount of US$956,946,766 plus the additional post-award, prejudgment interest owed by Iraq from August 31, 2023 to the date of the Court’s judgment,” the lawyers for Turkey argued in a motion on Thursday. “The pre-award interest due on the amounts that the tribunal awarded to Türkiye greatly exceeds the pre-award interest due on the amounts that it awarded to Iraq. “That is because some of Iraq’s breaches of the treaties occurred more than three decades ago, while all of Türkiye’s breaches occurred between 2014 and 2018, and the tribunal ordered each side to pay pre-award interest on each amount owed from 1 January of the year following which the amount was incurred, compounded annually to the date of this Award.”

In favour of Turkey

The Turkish calculations attached to the motion indicate that Iraq gets US$2.6 billion in damages and interests from the award, while Turkey gets US$3.5 billion in damages and interests, making Ankara the beneficiary of a net US$919 million award as of the date of the ICC ruling in March 2023. An additional US$37.7 million interest rate was added between March and August to the amount because of post-award interest. The motion said Turkey already sent a letter to Iraq on 28 August, recalling the ICC decisions on interest, providing the calculations and demanding the prompt payment of US$956 million. Iraq had not responded to the letter, according to the motion. The lawyers for Turkey also accused Iraq of using the US court as a forum for a public relations campaign against Ankara, including by publicising the ICC award. “While this objective is improper, Türkiye does not oppose Iraq’s request for entry of an order confirming, recognizing, and enforcing the arbitral award,” the motion said. “The Court must enter judgment in favor of Türkiye, not Iraq.”

Devastating earthquakes

After the ICC ruling, Turkey stopped the oil flow at the pipeline, corresponding to about 0.5% of global supply, citing the need for repairs because of corrosion and damage following the devastating 6 February earthquakes that hit southern Turkey. Turkish and Western sources have described the initial ICC ruling in favour of Iraq as a hollow victory because the arbitration had rejected most of Baghdad’s claims and awarded it less than 7% of the damages it sought, and granted most of Turkey’s counterclaims, awarding it 40% of what it was seeking. Turkish and Iraqi officials had been negotiating a deal to end the stalemate. Turkey wants Baghdad to withdraw a second ICC court case regarding the period after 2018, and find a mutual ground to work out the award. Ankara also asked Iraq to find out a payment system that could satisfy both the KRG and Baghdad.