On the morning of March 25, 2023, Turkey halted oil exports from the Kurdistan Region to the Ceyhan port, following a ruling by the International Court of Arbitration in Paris.

This ruling, issued on February 13, 2023, came after nearly nine years of deliberation on a complaint filed by the Iraqi federal government against Turkey. The complaint concerned Turkey’s role in facilitating independent oil exports from the Kurdistan Region—without Baghdad’s approval—through the Iraq-Turkey pipeline.

Since 2003, the KRG had been exporting oil via tanker trucks, primarily to Turkey and Iran. However, this practice has deeper roots. In the 1990s, the former Iraqi regime engaged in oil sales with assistance from the KDP—an arrangement that also benefited Turkey. At the time, The New York Times reported: “Thousands of trucks transport millions of tons of oil, diesel fuel and other refined products to Turkey annually… In addition, [U.S.] administration officials say, the smuggling benefits the [KDP], which taxes the oil as it passes through its territory.”

Between 2003 and 2013, KRG oil exports by truck—involving both ruling parties, the KDP and PUK—increased 190-fold. However, efforts to report on these exports, often referred to as “smuggling,” were met with pushback. Several journalists who covered the issue faced defamation lawsuits and were brought to court, reflecting attempts to suppress critical reporting.

From 2007 onward, there were efforts to export KRG oil through Iraq’s state oil marketer, SOMO. However, only about a quarter of the KRG’s oil was ultimately sold via SOMO.

In 2010, the KRG began constructing its own pipeline, which was completed in late 2013. The pipeline enabled direct delivery of Kurdish oil into Turkish territory, connecting to the existing Iraq–Turkey pipeline and onward to the port of Ceyhan and international markets. This development marked a turning point, sparking a prolonged dispute between Baghdad and Ankara over control of pipeline access and questions of sovereignty.

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In 2015, under Prime Minister Haider al-Abadi, the Iraqi government filed a formal complaint at the Paris-based arbitration court, accusing Turkey of violating the 1973 bilateral agreement by permitting Kurdish oil exports through the pipeline without Baghdad’s consent. Iraq demanded $26 billion in compensation.

The court case centered on Turkey’s role in transporting Kurdish oil via the Iraqi pipeline network on Turkish territory. Iraq argued this breached its sovereignty and contractual agreements under the 1973 accord.

When Adel Abdul Mahdi became Prime Minister in 2019, he paused the arbitration proceedings, offering a new window for diplomatic resolution between Ankara and Erbil. However, the case remained unresolved.

Despite participation by both the KDP and PUK—Kurdistan’s dominant parties—in Mohammed Shia al-Sudani’s cabinet, the court ultimately ruled against Turkey and, by extension, the KRG’s oil export model.

With the suspension of pipeline exports, Kurdistan’s oil governance infrastructure effectively collapsed. The Ministry of Natural Resources remains under an “acting” minister, and the Kurdistan Regional Oil and Gas Council has convened only once during the current cabinet’s tenure.

Oil as the Primary Revenue Source

When pipeline oil exports were halted, the Kurdistan government relied on oil sales for 77% of its revenue, exporting approximately 400,000 barrels daily.

Despite this, when oil exports stopped on March 25, 2023, the KRG had not yet distributed government employee salaries for February 2023. At that time, Kurdistan’s Ministry of Finance stated that for February 2023, the Ministry of Natural Resources had only transferred 50% of the oil revenue to the Ministry of Finance, meaning that out of 680 billion dinars in oil revenue, only 340 billion dinars were given to the Finance Ministry.

The Federal Court Ruling Preceding Paris

A year prior, on February 15, 2022, Iraq’s Federal Supreme Court ruled on a separate but pivotal complaint filed by the federal Oil Ministry. The court declared the KRG’s 2007 Oil and Gas Law unconstitutional, requiring the handover of all oil and gas operations to Baghdad.

Key points of the ruling included:

• – Law No. (22) of 2007 was annulled.
• – The KRG must transfer all oil output—both from Kurdish fields and disputed areas—under its jurisdiction to the federal government.
• – Baghdad could nullify contracts signed by the KRG with foreign entities.
• – Iraq’s Oil Ministry and Federal Financial Audit Office were granted authority to audit all KRG oil contracts and assess Kurdistan’s share of the federal budget.

This ruling occurred amid heightened political tensions following Iraq’s October 2021 elections, which had divided the Shiite political landscape. For the first time since 2003, the KDP and PUK aligned with opposing Shiite blocs—Barzani with Muqtada al-Sadr’s nationalist, anti-Iranian camp, and the PUK with the Iran-aligned Coordination Framework. The court’s decision came during this polarized moment.

In its final months, Mustafa al-Kadhimi’s government began implementing the ruling. Oil Minister Ihsan Abdul Jabbar contacted international oil companies operating in Kurdistan, urging them to renegotiate their contracts with Baghdad. However, these companies—holding production-sharing agreements with the KRG—refused to switch to Iraq’s standard service contracts. Jabbar’s pressure campaign ultimately failed.

In October 2022, following a prolonged deadlock, a new government formed under Sudani. The Coordination Framework, KDP, PUK, and Sunni parties created the State Administration Coalition. Despite initial optimism and Sudani’s pledge to resolve the oil and budget dispute through a long-delayed federal oil and gas law, negotiations collapsed—again—without an agreement.

By early 2023, KRG and federal delegations launched a new round of talks. Sudani promised to submit a draft oil and gas law within six months. But like earlier efforts, this initiative stalled.

Now, ahead of Iraq’s scheduled elections in October 2025, the oil and budget crisis remains unresolved. The pipeline remains shut.

Two Years On: Exports, Revenue, and Stalemate

Following the pipeline shutdown, the KRG resumed exports by truck, smuggling roughly 320,000 barrels per day to neighboring countries. However, transparency remains limited. While the Finance Minister has confirmed the oil is sold at $31.3 per barrel—of which 55% goes to the KRG and 45% to foreign firms—finer revenue details remain undisclosed.

In 2024, the KRG sold 111.6 million barrels by tanker, generating $3.493 billion (approximately 4.61 trillion dinars at an exchange rate of 1,320 dinars per dollar). Of this, $1.921 billion (2.535 trillion dinars) went to the KRG, while $1.571 billion (2.074 trillion dinars) went to the companies.

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Due to the financial strain caused by the Paris arbitration ruling and the export suspension, the KRG, under Prime Minister Masrour Barzani, was forced to concede key powers in Iraq’s three-year budget law (2023–2025). The law stipulates that Kurdistan’s oil must be marketed by Iraq’s state oil company (SOMO), and revenues will now be deposited directly into the federal treasury in Baghdad, in exchange for the KRG receiving its monthly budget share. This law came into effect in June 2023.

Though Turkey officially informed Iraq in October 2023 of its readiness to resume exports under the new framework, Baghdad has yet to authorize the restart.

Like its predecessor, al-Sudani’s government has pressured oil companies in Kurdistan to amend their contracts. It proposed a shift to “profit-sharing” agreements, but the firms continue to insist on maintaining their original production-sharing contracts.

On February 2, 2025, Iraq’s parliament approved an amendment to the budget law, raising the recognized production and transportation cost per barrel in Kurdistan from $6 to $16. Within two months, a joint committee—or a foreign consultancy—is expected to assess the actual per-barrel cost across Kurdistan’s oilfields.

On February 28, 2025, Iraq’s Oil Ministry announced the resumption of oil exports, requesting 185,000 barrels per day from the KRG and outlining a plan to scale up deliveries to the budgeted 400,000 barrels per day.

A key issue is that Iraq has stated it will only cover $16 per barrel in production costs for oil that is exported—excluding the portion retained for domestic consumption within the KRG. However, the KRG and international oil companies argue that Baghdad should cover production costs for both exported and domestically consumed oil.

In a mid-March meeting, Iraq’s Parliamentary Oil and Gas Committee hosted Oil Ministry officials. MP Rebwar Abdulrahman reported that the ministry’s undersecretary cited four unresolved issues:

• – The KRG demands 46,000 barrels daily for domestic consumption.
• – Another 69,000 barrels are claimed for oil company entitlements.
• – The KRG objects to the foreign consultancy appointed to assess production costs.
• – The KRG now claims it can produce 300,000 barrels per day and wants Baghdad to pay for the entire amount, including the 115,000 barrels it retains.

The KRG has largely delegated negotiations with Baghdad to international oil companies, despite Baghdad lacking crucial information about the controversial contracts the KRG signed with these firms, according to the former Iraqi deputy oil minister. A significant point of contention involves outstanding payments. Oil companies are demanding compensation for oil delivered in late 2022 and early 2023, which the KRG received without providing payment. Now both Iraq and the KRG continue to deflect financial responsibility onto each other.

Payment timing presents another obstacle in the negotiations. Oil companies are insisting on advance payment ($16 production cost) before resuming production and export preparations. Meanwhile, Iraq maintains its position on a post-production payment system that would require companies to submit monthly invoices and accept a 30-60 day payment window. The companies remain unwavering in their demand for upfront payment.

Thus, two years after oil exports to the Ceyhan port were halted, the prospect of resuming Kurdistan’s pipeline exports remains uncertain. It will likely hinge on both external pressure and political understandings between Kurdish and Iraqi factions ahead of the upcoming general elections.