Turkey Hopes for Oil Windfall in a Turbulent Iraq

Suspected saboteurs exploded an oil pipeline from Iraq to Turkey on August 16, choking efforts by occupied Iraq to export the resource. Official word says the pipeline, which runs from Kirkuk in Iraq's north to the Turkish port city of Ceyhan, will resume deliveries within ten days. But the attack reveals how long Turkey's wait for oil profits after the fall of Saddam Hussein may be.

Before the most recent attack, another pipeline, from Kirkuk to Yumurtalik, had blown up on multiple occasions after United States-led forces laid claim to Iraq in April. The Kirkuk-Yumurtalik pipeline resumed deliveries on August 14, though looting remains a problem. Turkey is trying to surmount a backlog of Iraqi oil, held in Ceyhan storage tanks during the United Nations' embargo of Iraqi crude, in order to sell new supply from the Kirkuk pipelines. Dealers and diplomats are reported to expect oil tankers to begin exporting oil from Ceyhan storage tanks within days, but the process has been subject to delays due to explosions. Once exports begin steadily, Turkey would be in a position to collect some $500,000 per day in transit fees. This volume could rise if Iraqi production stabilizes. (Transit fees run between 43 cents and 75 cents per barrel.)

The United Nations' Oil-For-Food program, established in 1995, always allowed Turkey to import enough Iraqi petroleum to manage tariff fees for the Kirkuk-Yumurtalik pipeline. On May 22, a United Nations Security Council resolution gave the program a six-month extension. Currently, the military occupation controls the investment of oil revenues. Turkey will watch developments closely, since it both provides foodstuffs to Iraq and hopes to export Iraqi oil. [For more on the prospects for Iraq's oil industry, see the Open Society Institute's Iraq Revenue Watch].

Turkey would like to facilitate the flow of oil in Iraq for diplomatic reasons as well. Prime Minister Recep Tayyip Erdogan drew angry rhetoric and possible reprisals from US President George W. Bush after Turkey's parliament voted to close the country's military bases to the American-led coalition before the invasion of Iraq. [For background, see the Eurasia Insight archive]. The government is now weighing the idea of sending troops to Iraq as peacekeepers, which would serve in part as a conciliatory gesture to the Bush administration. Already, Turkey has supplied gasoline to Basra and other fuel-starved regions of occupied Iraq.

The government pins some of its strongest hopes on the Kirkuk-Yumurtalik pipeline, which ran at about half its capacity in the 1990s after running at full potential during the Iran-Iraq war. Turkey made a total of about $200 million per year in transit fees when the pipeline ran at capacity. A friendly Iraqi government and an efficient patrol protecting the pipelines could restore this and other routes, potentially reversing what the government says was a loss as big as $40 billion in scrapped oil sales, transit fees and port fees.

If the pipeline does become a steady source for Turkey's fragile economy, it would represent a break with history. At various times since Turkey built the pipeline in 1977, it has had to sit idle because of bombings, surveillance, or provocations by Saddam's government. American warplanes struck the pipeline more than once during the Clinton administration, triggering a need for considerable maintenance and technology update. Optimists cite the pipeline as a possible investment target for private businesses seeking to profit in Iraq's reconstruction. According to wire reports, military commanders expect that the pipeline could gain 350,000 barrels of capacity, a 70 percent hike over its current maximum, if workers can complete major repairs by December.

Turkey, facing pressure to increase output from the International Monetary Fund and uncertain about aid from a snubbed Bush administration, needs to gain the stability that oil hubs can enjoy. [For background, see the Eurasia Insight archive]. Turkey has invested hefty time and resources in another pipeline under construction, from Baku in Azerbaijan through Tbilisi to Ceyhan. [See related story]. From the Ceyhan port, one can see big pipes being towed away by boats and hammered down under the sea to build a new terminal for the Baku-Tbilisi-Ceyhan pipeline, next to the Kirkuk-Ceyhan terminal. An official with Botas, Turkey's state pipeline company, presents Ceyhan as the "junction of Middle Eastern and Caspian energy basins" and calls the forked path from Azerbaijan and Iraq "the Silk Road of oil." Recent explosions, though, indicate how shaky Turkey's claim on oil riches remains.