Iraq Secures Major Victory in Long-Standing ICC Arbitration Against Turkey

Cleary Gottlieb, along with co-counsel Vinson & Elkins, successfully represented the Republic of Iraq (Iraq) in an ICC arbitration it brought in May 2014 against the Republic of Turkey (Turkey) and arising out of Turkey’s violations of a crude oil pipeline agreement for the supply and purchase of crude oil concluded between Iraq and Turkey in 1973 (ITP agreement).

This award stems from Turkey’s role in assisting the Kurdistan Regional Government (KRG), the official executive body of the semi-autonomous Kurdistan Region of northern Iraq (KRI), to export crude oil illegally from Iraq starting from late 2013, when the KRG connected pipelines from oil fields in the KRI to one of the pipelines that Turkey’s state-owned pipeline company, BOTAŞ, operates as part of the Iraq-Turkey pipeline system. The pipelines lead from Kirkuk in northern Iraq, through the KRI, and then to the Turkish port of Ceyhan on the Mediterranean Sea.

The pipelines were constructed and operated under the ITP agreement, which provides that Turkey may only transport, store, and load crude oil on the instruction of the Iraqi Ministry of Oil.

In November 2013, Turkey entered into an energy framework agreement with the KRG, and began transporting oil for the KRG shortly thereafter, storing the oil in tanks that Turkey dedicated for the KRG in Ceyhan. The Iraqi Ministry of Oil repeatedly instructed Turkey and BOTAŞ to cease these activities, but the Ministry’s instructions were ignored. The first tanker was loaded in May 2014 and loadings have continued ever since.

Iraq initiated ICC arbitration in May 2014 pursuant to the resolution clause contained in the ITP agreement (as amended), shortly after the first tanker was loaded. The arbitral tribunal upheld its jurisdiction over Iraq’s claims in June 2016. After the jurisdictional ruling, two of the arbitrators tragically passed away (in 2018 and 2021) and had to be replaced.

The arbitral tribunal, as reconstituted, was composed of Sir David A. R. Williams KNZM KC (President), Sir Christopher Greenwood GBE CMG KC, and H.E. Judge Peter Tomka. The tribunal issued its final award on February 13, 2023, and notified it to the parties in March 2023. The tribunal found Turkey liable for breaching various provisions of the ITP agreement. In particular, the tribunal found that Turkey has been in breach of the ITP agreement since May 2014 because it loaded Iraqi crude oil at Ceyhan at the instructions of the KRG and in breach of the instructions issued by the Iraqi Ministry of Oil. The tribunal also ordered Turkey to load all crude oil in the storage tanks at Ceyhan in accordance with the instructions of the Iraqi Ministry of Oil, as required by the ITP agreement.

The tribunal ordered Turkey to pay Iraq the total amount of $1,998 billion plus interest, in compensation for Turkey’s breaches of the ITP agreement. The tribunal also accepted some smaller counterclaims made by Turkey and ordered Iraq to pay Turkey approximately $500 million plus interest, which mostly correspond to outstanding or underpaid transportation fees from 1990. After set-off of the amounts owed by Iraq to Turkey, the tribunal ordered Turkey to pay to Iraq the total amount of $1,471 billion plus interest.