Oil & Gas

Turkey’s decision to terminate its 52-year-old oil pipeline agreement with Iraq appears to be driven by growing security concerns and political tensions. Recent drone attacks on oilfields in the Kurdistan region led several foreign oil companies to suspend production, undermining the viability of crude exports through the Kirkuk-Ceyhan pipeline. Analysts believe these attacks, coupled with Ankara's frustration over a 2023 arbitration ruling that ordered Turkey to pay Iraq $1.5 billion for unauthorized Kurdish oil exports, played a significant role in President Erdoğan's decree to formally end the agreement by July 27, 2026.

The 1973 Turkey-Iraq Crude Oil Pipeline Agreement allowed either side to terminate it with advance notice, and Erdoğan’s recent decree invokes that right. Although the 970-kilometre pipeline had the capacity to export around 500,000 barrels per day, it has been inactive for over two years due to disputes among Iraq’s central government, the Kurdish authorities in Arbil, and foreign oil operators. Ankara has reportedly been dissatisfied with the pipeline’s underutilization and Iraq’s unwillingness to drop legal claims against Turkey, further contributing to the breakdown of relations.

Security concerns also weigh heavily on the future of the pipeline. Iraqi experts note that no group has claimed responsibility for the recent drone strikes in Kurdistan, creating an unpredictable and risky operating environment. Furthermore, the cost of transporting oil via the pipeline—estimated between $17 and $20 per barrel—is significantly higher than shipping through the Strait of Hormuz, which costs less than $1 per barrel. As a result, Iraq is expanding its southern export infrastructure to handle up to six million barrels per day through the Gulf.

Despite Turkey’s formal notice to end the agreement, there are indications Ankara may seek a revised deal. A senior Turkish official expressed regret over the pipeline’s underuse and called for a “new and vibrant phase” that would benefit both nations. Meanwhile, Iraq and the Kurdistan Regional Government (KRG) have agreed on a plan to resume oil shipments, with KRG committing to supply 230,000 barrels per day to Iraq’s state oil company, Somo. Iraqi lawmakers are urging diplomatic dialogue with Turkey to prevent further financial losses and explore a potential path forward.