Turkey aims to boost oil flows through the 986-kilometer pipeline from northern Iraq to Ceyhan, seeking to operate it at full capacity of 1.5 million barrels per day before the current agreement expires next month. A Turkish official said Ankara wants a five-to-10 year deal with Baghdad, plus fees for unused capacity, rather than the short-term extension Iraq prefers.

Negotiations come after years of tension between the neighbors. The International Court of Arbitration ruled Turkey must pay $1.5 billion in compensation for shipping KRG oil without Baghdad's approval from 2014-2023. The pipeline shut after February 2023 earthquakes in southern Turkey, reopening only in September. Current exports run at roughly 180,000 barrels per day, far below Turkey's target and even Iraq's modest goal of 770,000 barrels daily.

SOMO's director general Ali Nizar said talks are progressing positively, with a draft agreement ready. However, failure to reach terms could see Turkey ask Iraq to halt flows entirely. President Recep Tayyip Erdogan would decide any termination. The dispute highlights ongoing friction over Kurdish oil exports and Turkey's role as a regional energy transit hub.

For energy markets, the pipeline represents a critical export route for Iraqi crude. Higher flows would boost Iraq's revenue but require Turkey to drop its fee demands. The July 27 deadline creates urgency for both sides to bridge their differences on pricing and duration.