Turkey’s runoff presidential election further complicates the restart of a key oil pipeline

The restart of the Iraqi-Turkey pipeline faced further delays as Turkey’s presidential election failed on Monday to come up with a clear winner.

The country is headed for a runoff election after Turkey’s President Recep Tayyip Erdogan led his challenger Kemal Kilicdaroglu, in terms of votes, but was apparently short of 50% of votes needed to win.

Read: Turkey ETF tumbles over 9% as presidential election heads for runoff

Also see: Turkish stocks tumble and dollar reaches new high vs. lira after election stalemate

The Iraq-Turkey crude-oil pipeline, also known as the Kirkuk-Ceyhan pipeline, has been shut since late March following a court ruling that said Turkey had been allowing Kurdistan to export oil through the pipeline without permission from Iraq.

Iraq’s semiautonomous Kurdistan Regional Government said on May 11 that Iraq’s State Oil Marketing Organization (SOMO) has asked Turkey to resume oil exports via the Turkish port of Ceyhan, said Jim Burkhard, vice president and head of research for Oil Markets, Energy & Mobility at S&P Global Commodity Insights. The pipeline from northern Iraq to Ceyhan, Turkey typically handles about 450,000 barrels a day of Iraqi crude oil exports.

“The Kurdish regional government and the Iraqi Ministry of Natural Resources are waiting for Turkey to respond to the request to reopen the pipeline,” Burkhard told MarketWatch in emailed commentary, but for now, it remains closed.

SOMO “has signed contracts with the off takers of oil produced in the Kurdish Regional Government area,” he said. “However, it is not clear when Turkey will reopen the pipeline.”

The uncertainty surrounding the outcome of Turkey presidential election complicates that potential reopening.

“Turkey is holding up Kurdistan’s oil exports as a bargaining chip to force the other side to renegotiate the terms of their legal settlement,” said Manish Raj, managing director at Velandera Energy Partners. He said Turkey owes to Iraq $1.5 billion pursuant to an arbitration ruling, but doesn’t want to pay that amount. 

“By holding up oil exports worth approximately $40 million per day, Turkey is using advantaged position to strongarm Iraq to drop its demand or settle for a lower amount,” Raj told MarketWatch. “We believe that this curtailment is temporary, since both parties are motivated to resume oil flows.”

Still, the amount of barrels, about 450,000 barrels a day, held up by Turkey “doesn’t move the needle for global trade volumes,” said Raj. The International Energy Agency expects world oil demand to reach a record 101.9 million barrels a day this year, according to an April report. The IEA will release its May oil market report on Tuesday.

On Monday, the rise in oil prices “reflect traders brushing off the recent price declines as perhaps overdone, prompting investors who have been on the sidelines to pull out their wallets to buy the dip,” said Raj.

U.S. benchmark West Texas Intermediate crude



saw its June contract trade up by $1.33, or 1.9%, at $71.37 a barrel on the New York Mercantile Exchange in Monday dealings. The July contract for global benchmark Brent crude



traded at $75.46 a barrel on ICE Futures Europe, up $1.29, or 1.7%.

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