Erbil, Kurdistan Region, Iraq - The Kurdistan Regional Government of Iraq (KRG) understands, from a media announcement on 23 May 2014, that the Ministry of Oil of the Federal Government of Iraq (MOO) has filed a “Request for Arbitration” against the Republic of Turkey and a Turkish state-owned entity.

The motive of the MOO is, according to the announcement, to prevent the export of crude oil from the Kurdistan Region of Iraq through the Iraq-Turkey pipeline.

The MOO’s behaviour is inconsistent with previously established and accepted practice. It threatens Iraq’s oil export capacity and Iraq’s global diplomatic standing. The MOO also threatens Iraq’s relations with global oil traders and buyers. The MOO is acting in violation of the 2005 Iraq Constitution, in violation of Iraqi law, and in violation of international law. Its threats will fail.

MOO is inconsistent with established practice

The MOO’s announcement is inconsistent with established practice and policy on KRG oil exports.

The KRG has, with Federal Government knowledge, been exporting oil by trucking through Turkey and Iran for many years. This new pipeline export by the KRG is wholly consistent with the Constitution.

There is no clear reason why the MOO should now depart from established practice in circumstances where the KRG is increasing Iraq’s exports by pipeline at reduced transportation costs.

The MOO’s behaviour is a new and flagrant defiance of the KRG’s established rights under the Iraqi Federal Constitution.

MOO is violating the Constitution

The MOO’s behaviour is in violation of the Iraqi Federal Constitution and the KRG’s unequivocal constitutional rights.

In particular:

1. Neither the MOO, nor the MOO’s oil marketing agency SOMO, nor any other Federal Government agency, has exclusive authority under any provision of the Constitution, including Article 110, over the exploration, production, or export of oil and gas from the Kurdistan Region.

2. The KRG has an exclusive authority under Article 112 and Article 115 of the Constitution to manage oil and gas in the Kurdistan Region extracted from fields that were not in production in 2005 (“new fields”). All of Kurdistan’s export oil comes from new fields.

3. The KRG authority over the management of oil and gas includes the management of export. Because oil export is not an exclusive authority of the Federal Government, it is, in relation to Kurdistan oil and gas produced from new fields, an exclusive authority of the KRG.

4. The Federal Government has the qualified right, if it is sharing revenue in accordance with the Constitution, to jointly manage oil produced from fields that were developed pre-2005 in Kurdistan with the KRG (Article 112). However, no Kurdistan export oil comes from pre-2005 fields. In any case, largely because the MOO has been misleading the Federal Government, the Federal Government has not been sharing revenue in accordance with the Constitution.

5. The KRG has the right to receive revenues from its oil and gas exports directly from the purchasers of that oil and gas. The KRG has on numerous occasions indicated that it is prepared as a voluntary measure to share those revenues with the Federal Government if the Federal Government itself shares revenues in accordance with the Constitution. The KRG has shown such flexibility despite the fact that it has no obligation under Article 112, or any other provision of the Constitution, to share its revenues from new fields with the Federal Government. Article 115 of the Constitution, which establishes the KRG’s exclusive authorities, governs revenues from new fields.

MOO is misleading the Iraqi Federal Government

The MOO’s behaviour in launching the arbitration against Turkey is not only inconsistent with the Federal Government’s policy and practice on KRG oil exports, and in contravention of Iraqi law.

Unfortunately this behaviour is also part of a pattern in which the MOO misleads the Federal Government and the Federal Parliament.

In particular:

1. The MOO has consistently misrepresented to the Federal Government the extent and nature of the KRG’s oil exports.

2. The MOO has consistently misrepresented to the Federal Government the scale of the KRG’s direct receipts from oil and gas sales.  Most importantly, the MOO has neglected to report to the Federal Government that the vast majority of the KRG’s oil export revenue is received directly by SOMO. The benefits of the KRG’s export have been accepted by the Federal Government and enjoyed by all Iraqi citizens.

3. The MOO’s misrepresentations have prevented the Federal Government from sharing revenues in accordance with the Constitution and has caused the Federal Government to wrongly restrict the KRG’s allocation of federal funds and annual budget entitlements.

In these circumstances, the KRG asserts its constitutional right to receive Kurdistan oil export revenue directly. The KRG is prepared, as always, to account to the Federal Government for its petroleum receipts, provided that the Federal Government itself shares revenue in accordance with the Constitution.

The KRG will not allow Kurdistan Region petroleum to be the subject of arbitrary and discriminatory export prohibitions.

MOO is isolated and will fail

The MOO is, with its behaviour, isolating itself. The MOO is, with its announcement, potentially damaging Iraq’s petroleum industry and Iraq’s petroleum revenues.

The MOO is also, if the 23 May announcement is accurate, now prepared to damage Iraq’s relations with Turkey and other friends of Iraq.

The MOO has, in the past, taken similar self-defeating steps. In particular, it tried to protest against the exercise by the KRG of its lawful authority over the exploration and development of new fields in the Kurdistan Region.

The MOO’s efforts to blacklist oil and gas companies investing in the Kurdistan Region have failed. Since the KRG’s 2007 Oil and Gas Law, the KRG has entered into more than 50 production sharing contracts with oil and gas companies from some 23 countries around the world, including Turkey, the USA, the UK, France, Norway, Russia, China, South Korea, Canada and Australia.

All of Iraq’s neighbours, all of Iraq’s friends, and indeed the Iraqi Government as a whole, understand the Iraqi Constitution. The MOO should step into line. The MOO should cease its unhelpful practices and engage in constructive dialogue with the KRG.

MOO’s arbitration is illegitimate

The MOO’s behaviour tries to transform a matter of settled Iraqi constitutional law into an international dispute. These efforts are misguided and can only harm the Federal Government. The MOO has not even attempted to raise its concerns with the KRG or Turkey through polite dialogue as required under the Iraq-Turkey pipeline agreement.

The KRG will vigorously defend its rights under the Constitution. Any arbitration between the MOO (or any other Iraqi agency) and Turkey regarding the export of oil from the Kurdistan Region of Iraq that does not include the KRG in such arbitration is illegitimate, against Iraqi constitutional law, and against international law.

KRG: business as usual

The KRG assures its contractors and international partners, including transporters and traders, that it will not allow hollow threats from the MOO to interfere with the KRG’s oil export regime. The MOO and SOMO have been made fully aware of the KRG’s international shipments of crude oil. MOO’s recent harassment of crude oil transport ships is futile and must cease.

The KRG will continue to act in accordance with the Iraqi Constitution, with the best interests of the people of Iraq, and with the KRG’s policy of friendly and mutually beneficial relations with all Iraq’s neighbours, including Turkey.

The KRG warns against any internationalising of this Iraqi domestic constitutional issue by attempting arbitration processes obstructing the KRG’s constitutional right to sell its oil to the international market.  

The KRG remains, as always, ready to engage with its responsible partners in Baghdad to resolve any internal Iraqi oil and gas matters.

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As per KRG's agreement with the Iraqi government and under the 2015 Budget Law


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