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

The Vinson & Elkins teams in Houston and Dubai included partner James Loftis, counsel Robert Landicho, associates Mina Morova and Kylie Terry. The Cleary team was led by senior counsel Andrew A. Bernstein, partner Laurie Achtouk-Spivak and associate Zeineb Bouraoui.

Iraq prevailed on its interpretation of the key treaty provisions and Turkey was ordered to pay Iraq net damages, as discussed below.

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. As a result, unless Iraq intervened militarily to stop it, the KRG was able to use the connection to export crude oil being produced in the Kurdistan Region without Baghdad knowing how much was being exported. Turkey then cut off Iraqi access at the loading port in Ceyhan, Turkey, so Iraq could not monitor loading, and began loading crude oil carriers at the KRG’s instructions and disregarding the Iraqi federal government’s instructions. In doing this, Turkey ignored an express provision of the ITP Agreements, which gave sole control of loading to the Iraqi federal government.

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 arbitration took many years, in part because two of the arbitrators tragically passed away and had to be replaced. After an earlier jurisdiction phase, there were hearings on the merits and final oral arguments in April and July 2019, with further argument on new evidence in July 2022.

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 the Turkish Port of 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 the Port of 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 USD $1.998 billion, 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 USD $500 million plus interest which mostly correspond to outstanding or underpaid transportation fees since 1990. After set-off of the amounts owed by Iraq to Turkey, the Tribunal ordered Turkey to pay to Iraq the total amount of USD $1.471 billion. All amounts are before interest.