By Daniel Dombey

For much of the world, the word “Iraq” may still be a synonym for the violence that erupted after the 2003 US invasion and the sectarianism and instability that remains.
That is not how Kemal Cakmak sees things.

For this exporter based in the Turkish city of Gaziantep, as for legions of his fellow businessmen, Iraq – particularly the north – is a land of opportunity.

His Besler group exported some $200m of pasta, animal feed and sunflower oil to the country last year. Its experience is part of a wider trend benefiting Turkish business.

Taking in $10.8bn of Turkish goods and services last year – more than any other market save Germany – Iraq is well on the way to becoming what officials in Ankara forecast it to be: Turkey’s single biggest export destination.
While political tensions threaten to disrupt the onward march of Turkish entrepreneurs further south into the country, when Mr Cakmak talks about Iraq he describes an all-but-irreversible process, the triumph of geography over European-drawn borders.

“Every year our exports to the Iraqi market increase by 20 to 30 per cent,” he says, citing figures that mirror the general rise in Turkish exports to Iraq in recent years.

“Because Iraq doesn’t have industry like we do, it is very dependent on Turkey, on Turkish products ... political tension affects our trade very little.”

But the broader political sweep has had enormous impact on the trading relationship over the past three decades.
After seizing the opportunity of the 1980s Iran-Iraq war to increase exports to both countries, Turkey was barred from the Iraqi market by 1990s sanctions, about which Turkish officials still complain.

To an extent, the post-2003 surge in exports simply restores Turkey to the path it was on before. But it has also served as both cause and consequence of a big geopolitical shift: Ankara’s blossoming relationship with the autonomous Kurdish Regional Government, or KRG, of northern Iraq.

Mr Cakmak’s operations serve as an example. All of his group’s exports are sent to the northern Iraqi town of Zakho, from where Kurdish middlemen distribute them to the rest of the country.

Overall, some 70 per cent of Turkey’s exports to Iraq go to the KRG, with anything between a third to a half of that total sold on to the south.

If many Turkish groups’ relationship with southern Iraq is at arm’s length, the reverse is true for the KRG, where some 1,000 Turkish companies are active. They account for about half of all foreign groups on the territory.

This phenomenon – the emergence of northern Iraq or what Ali Babacan, Turkey’s deputy prime minister, describes as “economically, a natural extension of Turkey” – is now a key component of Ankara’s thinking.

Before, it was virtually routine for Turkish troops to cross over the border in operations against the fighters of the outlawed Kurdistan Workers Party or PKK. Now, Ankara regards Massoud Barzani, KRG president, as a key regional ally and is in peace talks with the PKK, which is pulling its fighters out of Turkey and back to bases in Iraq.

One consequence may be to increase exports to Iraq from Turkish Kurdish centres such as Diyarbakir, which has profited less from trade to date than has Gaziantep, despite being closer to the border and having stronger cultural links.

Bigger economic stakes are also in play, notably energy-hungry Turkey’s interest in KRG’s oil and gas resources.

Turkish officials say a framework deal has been struck between Turkish state-owned groups and the KRG to take stakes in the Kurdish oil and gas sector. To date, there has been no official announcement, because of the sensitivity of the issue.

Nouri al-Maliki, Iraq’s prime minister, says an agreement is unconstitutional without Baghdad’s backing and the US has publicly warned Ankara that it could contribute to the further break-up of Iraq.

Tensions have already flared between Sunni-majority Turkey and Mr Maliki’s Shia-led government in a Middle East increasingly characterised by rivalry between Turkey and Iraq’s ally, Iran.

One casualty may be Turkish contractors, who worked on some $3.5bn worth of projects in Iraq last year.
Officials in Ankara acknowledge that Turkish groups are now effectively barred from larger contracts in the south of the country.

Mr Maliki’s government formally removed TPAO, the Turkish state oil company, from an exploration deal last year.

Nonetheless, for now at least, Turkish confidence remains almost impossible to dent.
“As Turkish entrepreneurs perform well in Iraq”, says Husnu Ozyegin, one of Turkey’s leading business figures, “the Iraqis will have more confidence in Turkish contractors than in some European company they do not know.

“And the logistics will not change,” adds Mr Ozyegin. “The easiest way to get into northern Iraq is through Turkey.

“If European companies go there to do construction where are they going to find the workers? Turkish engineers and workers just need to get on a bus from Gaziantep.”


The Financial Times