Republic of Iraq v. Republic of Turkey
ICC · Investment (ICSID and treaty) · France · 13 Feb 2023
Why it matters
This is a landmark interstate arbitration under ICC rules concerning a bilateral pipeline treaty. It clarifies the obligations of a transit state when a subnational entity (KRG) seeks to export oil without the central government's consent. The award addresses key issues of state responsibility, force majeure, and the interplay between treaty obligations and domestic constitutional arrangements. It also provides guidance on the calculation of damages for breach of a long-term infrastructure agreement.
Summary
The dispute arose from the Republic of Iraq's claim that Turkey breached the Iraq-Turkey Pipeline (ITP) Agreements by allowing the Kurdistan Regional Government (KRG) to transport, store, and load crude oil from the Kurdistan Region through the pipeline to the Ceyhan terminal without Iraq's consent. Iraq argued that under the ITP Agreements, Turkey was required to follow the instructions of Iraq's Ministry of Oil regarding the use of the pipeline. Turkey contended that it was entitled to allow KRG oil because Iraq had lost control over the KRG, and that suspending performance would violate jus cogens obligations (prevention of genocide) given the humanitarian situation in the KRG. The Tribunal, seated in Paris under ICC Rules, found that Turkey breached the ITP Agreements by failing to follow Iraq's instructions. It rejected Turkey's force majeure and necessity defences, holding that the situation did not meet the high threshold for those doctrines. The Tribunal also dismissed Turkey's counterclaims for minimum guaranteed throughput fees and other expenses. Iraq was awarded damages for lost profits and other losses, calculated based on the discounted sale price of KRG oil and unpaid transportation fees. The award is significant for its detailed analysis of state responsibility in the context of pipeline transit and the limits of necessity as a defence.
The detail
Parties: Republic of Iraq v. Republic of Turkey
Case number: ICC Case No. 20273/AGF/ZF/AYZ/ELU
Outcome: The Tribunal found Turkey in breach of the ITP Agreements for allowing the Kurdistan Regional Government (KRG) to transport, store, and load crude oil through the pipeline without Iraq's consent, and ordered Turkey to pay damages to Iraq. Turkey's counterclaims were largely dismissed.
Quantum: Approximately USD 1.4 billion (plus interest and costs, as detailed in the award)
Applicable law: ICC Rules of Arbitration (2012); French law as the law of the seat; international law, including the law of treaties and state responsibility; the ITP Agreements (1973 Agreement, 1976 Protocol, 1985 Addendum, 2010 Amendment)
Issues in play: The dispute involved the interpretation of the ITP Agreements, particularly whether Turkey was obliged to follow Iraq's instructions regarding the use of the pipeline by the KRG. Also at issue was whether Turkey could suspend performance due to force majeure or necessity, and whether Iraq had exclusive rights to control oil exports from the Kurdistan Region.
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