Iraq-Turkey Oil Deal Hinges on Fragile Relations

Baghdad and Ankara have signed a one-year interim deal to allow Iraq to move its oil through the Iraq-Turkey Pipeline (ITP) corridor, but the agreement's future is uncertain due to past disputes between the two countries. The ITP corridor, which comprises two separate pipelines treating them as a single mechanism, has a capacity of 1.5 million barrels per day, but currently only exports around 170,000-200,000 barrels per day of Iraqi crude through Turkey.

The new deal implements a transit target of 750,000 barrels per day (bpd) of Iraqi crude, significantly higher than the current level, and will focus on European and American buyers who can access the oil without it passing through the Strait of Hormuz, which has been blockaded. Demand for Iraqi crude remains strong in Western markets due to the effective blockade of the Strait and a shortage of other supplies.

However, Iraq's past disputes with Turkey over independent oil sales from its Kurdistan Region have left deep fissures in their relations. The Kurdistan Region had planned to export 1 million bpd by the end of 2015 but was blocked by Baghdad due to concerns that large unmonitored revenue streams could be turned into a financial base for an eventual Kurdish breakaway.

The U.S. and E.U. played key roles in facilitating this latest one-year deal, with a senior source in the E.U.'s energy security complex stating that 'the 750,000 barrels per day flow requirement for Iraq is not as high as had been expected from Turkey.'