Brent crude oil and WTI crude oil rose more than 5% to $78 per barrel and $73 per barrel respectively on Monday; Earlier, it was reported that Türkiye's Ceyhan Port stopped pumping crude oil from the Kurdistan pipeline. The latter was made after an arbitral award in favour of Iraq and opposed Türkiye's transportation of Kurdish oil without Baghdad's prior approval.

This is a long-standing issue in modern Iraq, based on a dispute between the KRG Kurdistan Regional Government (an oil rich semi autonomous region in northern Iraq) and the Federal Government of Iraq over who has the right to control the oil resources and revenues of the Kurdistan region.

Market reaction:

The crude oil price rebounded sharply from a 15 month low because of news that Kurdistan's crude oil export from Ceyhan Port was closed for the fourth day.

According to Reuters, crude oil exports from the northern Kirkuk oil field in the Kurdistan region account for about 0.5% of the global oil supply, that is, 470000 barrels per day (bpd). The previous decision of the arbitration case confirmed that Iraq agreed to the need to transport oil from Türkiye, which indicates that this may also force the Kurdistan region to reduce oil production.

Before the closure, the 1000 kilometer Kirkuk Ceyhan oil pipeline, Iraq's largest crude oil export line, transported approximately 400000 barrels of Kurdish oil and 70000 barrels of Iraqi oil to the global market through the Mediterranean every day.

Brent crude oil, 2-hour chart

Officials from the Iraqi Federal Government and the Kurdish Regional Government held a meeting in Baghdad on Sunday, but failed to reach an agreement on resuming crude oil flow, disrupting the already tense global supply market of 470000 barrels per day.

Last Thursday, the International Chamber of Commerce ruled that Iraq opposed Türkiye in the dispute over the flow of crude oil in Kurdistan. Iraq once argued that Türkiye should not allow Kurds to export oil through the Iraq Türkiye pipeline and the Port of Ceyhan in Türkiye without the approval of the Iraqi federal government.

After the ICC made its decision, Türkiye told Iraq that it would respect the ruling, while Baghdad stopped Kurdistan exports.

The authorities in Ankara, Baghdad, and Erbil are still discussing an agreement to allow the resumption of oil exports to the Mediterranean port of Ceyhan through pipelines.

Iraq's oil production:

According to the recent OPEC+supply policy agreement, Iraq's crude oil production target is to reach 4.43 million barrels per day by December 2023. Due to a lack of investment in energy infrastructure, the country is working to increase additional supply barrels and extract its huge oil reserves.

Therefore, since 2016, Iraq's production has been stagnant at around 4.5 million barrels per day, delaying the country's goal for 2027-2028 to reach a production capacity of 7 to 8 million barrels per day in the absence of local and foreign investment under the threat of long-term military and civil war, political infighting, and Islamic State terrorism.