Vinson & Elkins and Cleary Gottlieb Secure $2 billion award for Iraq in ICC Arbitration Against Turkey

Vinson & Elkins and Cleary Gottlieb Secure $2 billion award for Iraq in ICC Arbitration Against Turkey

In a successful representation, Vinson & Elkins and co-counsel Cleary Gottlieb acted on behalf of the Republic of Iraq in an ICC arbitration filed in May 2014 against the Republic of Turkey.

The dispute arose from Turkey's breach of a crude oil pipeline agreement that Iraq and Turkey had signed in 1973, known as the ITP Agreement, for the purchase and supply of crude oil.

The Houston and Dubai teams of Vinson & Elkins comprised James Loftis (partner), Robert Landicho (counsel), Mina Morova, and Kylie Terry (associates).

The team from Cleary was headed by Andrew A. Bernstein (senior counsel) and included Laurie Achtouk-Spivak (partner) and Zeineb Bouraoui (associate).

As a result of Iraq's interpretation of the crucial treaty provisions, the tribunal ruled in its favour and ordered Turkey to pay net damages to Iraq.

The award issued by the ICC stemmed from Turkey's involvement in aiding the Kurdistan Regional Government (KRG) to illegally export crude oil from Iraq, which began in late 2013. This allowed the KRG to export crude oil produced in the Kurdistan Region without the knowledge of the Iraqi government unless they intervened militarily to stop it.

Turkey then cut off Iraqi access to the loading port in Ceyhan, Turkey, preventing Iraq from monitoring loading, and began loading crude oil carriers at the KRG's instructions, disregarding the Iraqi federal government's instructions.

In doing so, Turkey violated an explicit provision of the ITP Agreements that granted the Iraqi federal government sole control over loading. Iraq successfully argued for its interpretation of the key treaty provisions and was awarded net damages.

In May 2014, Iraq filed for ICC arbitration under the resolution clause of the amended ITP Agreement, shortly after the first tanker was loaded.

The arbitration proceedings took several years due to the unfortunate passing of two of the arbitrators who needed to be replaced. After a jurisdictional phase, hearings on the merits, and final oral arguments in April and July 2019, there was a further argument on new evidence in July 2022.

Sir David A. R. Williams KNZM KC (President), Sir Christopher Greenwood GBE CMG KC, and H.E. Judge Peter Tomka comprised the reconstituted arbitral tribunal that issued its final award on February 13, 2023, and notified it to the parties in March 2023.

The tribunal found Turkey liable for violating several provisions of the ITP Agreement, notably for loading Iraqi crude oil at the Turkish Port of Ceyhan on the instructions of the KRG, and in violation of the instructions issued by the Iraqi Ministry of Oil, since May 2014.

The tribunal ordered Turkey to load all crude oil in the storage tanks at the Port of Ceyhan in accordance with the instructions of the Iraqi Ministry of Oil, as required by the ITP Agreement.

The Tribunal directed Turkey to compensate Iraq with US $1.998 billion for violating the ITP Agreement. Although Turkey filed smaller counterclaims, the Tribunal acknowledged some of them and decided that Iraq should pay Turkey approximately US $500 million plus interest, which mainly pertained to transportation fees that were unpaid or underpaid since 1990.

After setting off the amounts owed by Iraq to Turkey, the Tribunal ordered Turkey to pay Iraq a net sum of US $1.471 billion, excluding any interest.