WATCHING THE WORLD TURKEY'S IRAQ GAMBIT

With Roger Vielvoye from London Just as Iraq looked ready to accept terms set by the United Nations for resuming oil exports, Turkey has stepped in with a claim for higher transit fees on oil piped from Iraq to the export terminal at Ceyhan on the Mediterranean coast of Turkey. The Turks have asked for a single payment of $264 million for transit fees and the cost of restarting the line after a 14 month standstill. It would come from the U.N. oil escrow account to cover oil sales worth $1.6

Oct. 14, 1991

3 min read

Just as Iraq looked ready to accept terms set by the United Nations for resuming oil exports, Turkey has stepped in with a claim for higher transit fees on oil piped from Iraq to the export terminal at Ceyhan on the Mediterranean coast of Turkey.

The Turks have asked for a single payment of $264 million for transit fees and the cost of restarting the line after a 14 month standstill. It would come from the U.N. oil escrow account to cover oil sales worth $1.6 billion over a 6 month period specified for humanitarian purposes.

In Baghdad, the Turkish claim got an icy reception. But it cannot be ignored because it has been officially lodged with the U.N. and the pipeline through Turkey to the Mediterranean is the only operational export outlet for Iraqi oil.

ANOTHER DELAY FOR IRAQI EXPORTS

The net result of the Turkish demand could be another, perhaps lengthy, delay in bringing Iraqi oil back onto the market.

Despite their protests about humiliating U.N. terms for resuming exports, the Iraqis were preparing for a resumption in overseas sales during the fourth quarter, possibly as early as next month, to cash in on an expected yearend increase in demand for crude from the Middle East.

Given Iraqi anger at the Turkish demand and the fact that the U.N. will have to approve the new allocation of funds from the escrow account, it would seem unlikely Iraqi exports will resume in November. Industry sources think the Iraqis will be lucky if they can get oil flowing again before the New Year.

Under the prewar agreement covering transit fees for Iraqi exports to Ceyhan, the Turks received 77/bbl for the minimum flow rate of 750,000 b/d. Fees then drop to 45/bbl as throughput builds to a maximum of 1.6 million b/d. The lump sum payment demanded by Turkey is equivalent to quadruple these transit fees.

In an official statement the Turkish Foreign Ministry said transit fees laid down in bilateral agreements covered uninterrupted flow under normal conditions. The ministry added that use of the pipeline to meet U.N. resolutions was not normal and would not be uninterrupted.

The $1.6 billion proceeds from Iraqi oil sales have already been reduced to $933 million by the requirement to meet war reparations and administrative expenses. If the Turkish claim is successful, the cash available for humanitarian purchases of food and medical supplies would be reduced to $669 million.

TURKEY'S OTHER WINDFALL

Meanwhile, Turkey is receiving a further reward for supporting the allied cause during the war to expel Iraq from Kuwait. Over the next 5 years Turkey will take delivery of $1 billion worth of free oil from Saudi Arabia.

For the Turks it will be the second gift of crude from the Saudis. A year ago, Turkey's state owned refining company, Tupras, started to receive about 180,000 b/d of free crude.

The Saudis made available about $1.2 billion worth of crude, and deliveries under this agreement were completed last month.

The additional $1 billion worth of free crude will be divided into five equal allotments, the first of which will be drawn down by Tupras this month. Receipts from the use of the Saudi oil will diverted into a fund for modernizing the Turkish military.