Publication: Eurasia Daily Monitor Volume: 4 Issue: 170

Turkish companies active in northern Iraq say that political tensions between Turkey and the Iraqi Kurdish authorities have severely damaged their ability to do business in the region. Many are now preparing to wind up their operations in northern Iraq and return to Turkey (Milliyet, September 14).

Tensions between Turkey and the Iraqi Kurds are nothing new. Ankara has long suspected that, despite their public commitment to Iraq’s territorial integrity, the Kurds in the north of the country really aspire to independence — something that Turkey fears would fuel separatist sentiments among its own restive Kurdish minority. Nevertheless, since the U.S.-led invasion and subsequent occupation of Iraq in 2003, economic ties between Turkey and northern Iraq have boomed. In April 2007, annual bilateral trade grew to around $5 billion, and Turkish contractors were believed to have secured $2 billion worth of contracts in northern Iraq. A total of 1,200 Turkish companies were estimated to be operating in northern Iraq, employing around 14,000 expatriate Turks (see EDM, July 30).

However, in early summer 2007 political relations were increasingly strained by the Iraqi Kurdish authorities’ refusal to move against the separatist Kurdistan Workers’ Party (PKK), which has been using camps in the Qandil Mountains, close to Iraq’s borders with Turkey and Iran, as a platform for its insurgency in eastern Anatolia. In the run-up to the Turkish general election of July 22, politicians competed with each other to issue harsh warnings to the Iraqi Kurdish authorities, including the repeated threat to launch a cross-border military operation to strike at the PKK camps.

Turkish businessmen operating in northern Iraq say that the result was a boycott of Turkish consumer goods, which have now been mostly replaced by products from Jordan, Syria and Europe. They complain that they have also been increasingly excluded from lucrative contracts awarded by the Iraqi Kurdish authorities, particularly for infrastructure.

“The big companies are now all looking just to complete their unfinished projects and leave,” said Ahmet Acar, president of the Businessmen’s Association, which is based in the Iraqi Kurdish city of Arbil (Milliyet, September 14).

Other Turkish businessmen active in northern Iraq said that the situation had been made more difficult by the Turkish government’s refusal to engage politically with the Iraqi Kurdish leadership. They noted that in the last six months around 10 countries had opened consulates in Arbil, but that the sole Turkish diplomatic representative in the city was still operating out of a local hotel room.

Guntekin Koksal of the Turkish oil company Petoil noted that their local joint venture had begun drilling for oil in northern Iraq’s Bin Bavi field in August 2006, but they were finding it difficult to export the oil along the existing pipeline to the Turkish Mediterranean port of Yumurtalik.

“In order to transport the oil we need to use the Kirkuk-Yumurtalik pipeline but we can’t because the necessary agreement hasn’t been signed with Turkey,” said Koksal (Milliyet, September 14).

The reason is that Turkey would have to sign any agreement with the Kurdish Regional Authority (KRA), which administers northern Iraq, and it is reluctant to do so because it fears that it would amount to de facto recognition of a Kurdish political entity in the north of the country.

In addition to affecting the profits of Turkish companies operating in northern Iraq, the downturn in economic relations also threatens to come with a domestic political cost for Turkey. The boom in bilateral trade since 2003 gave a much needed boost to the local economy in southeastern Anatolia, which has traditionally been both the most underdeveloped region of the country and the most fertile recruiting ground for indigenous violent militant groups, whether Islamist, Kurdish nationalist, or leftist.

But in the short-term there appears little prospect of easing tensions. Turkey has welcomed the decision to postpone a referendum over the future status of the city of Kirkuk, which Ankara had feared would opt to join the KRA and eventually serve as the capital of an independent Kurdish state (Al Sabaah, September 12). It also reacted positively to Iraqi President Celal Talabani’s recent call for all militant groups, including the PKK, to leave northern Iraq (Hurriyet, September 8).

However, it continues to be frustrated by the Iraqi authorities’ failure to back words with deeds. During a visit to Ankara on August 7, Iraqi Prime Minister Nouri al-Maliki promised that the Iraqi government would send a delegation to Turkey within two weeks to discuss concrete measures to be taken against the PKK presence in the Qandil Mountains (see EDM, August 8). The delegation has yet to arrive.

Inside Turkey, the PKK has been continuing its insurgency. A day rarely passes without a report of a PKK attack, often including deaths and injuries, appearing in the Turkish media. Despite its landslide victory in the July 22 elections (see EDM, July 23), there is little doubt that the second term of the moderate Islamist Justice and Development Party (AKP) will be considerably more challenging than the first. At a time when the pace of economic growth is slowing, Turkey’s EU accession process has stalled and there are tensions between Islamists and secularists over the AKP’s draft for a new constitution, taking a tough line with the PKK and the Iraqi Kurds is probably the only issue on which all of the political actors in Turkey are agreed.