Targeting Trade

Turkey

Economic News

22 Jul 2010
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Fixed in the crosshairs of militant Islamist groups, this month saw Turkish lorry drivers and businessmen subject to a fresh series of kidnappings and murders in neighbouring Iraq. Yet, Ankara's concern not to forgo trade and business opportunities across the border - along with its commitment to regional stability - has left the government determined to continue trading, despite the growing risks.



Workers in construction and logistics companies can testify to the frightening reality of that risk too. With 10 of its employees held at gunpoint, the Ankara-based Vinsan had little option but to suspend operations across the border in September. The company hopes that abandoning its stake in a $160m road tender should precipitate the release of company employees held by the Salafist Brigades of Abu Bakr al-Siddiq. But such compliance has fuelled the kidnapping rampage in Iraq, with such companies as Bilintur, Kahramanli, Oztur and Atahan Lojistik also having fallen prey to the demands of the militants.



The recent spike in killings and abductions has left truck drivers justifiably jittery, with news of the murder of a Turkish trucker in Mosul further eroding confidence in mid-September. Meanwhile, the decision by Turkey's transporters' association to suspend the delivery of goods to US forces at the beginning of August has sent strong signals to those who continue to venture across the border.



No surprise then that Turkish trade figures have had to be recently revised thanks to the level of turmoil next door.



"Had it not been for the war, Turkey's exports would have reached $4bn-5bn in 2004," Turkish State Minister Kursad Tuzmen said during an interview with the OBG last week. "But for the year we can expect $1.8bn."



Since the US-led invasion, trade with Iraq had been improving too, thanks to the lifting of UN sanctions. Exports from Turkey to Iraq between January and July 2004 rose from $778.6m during the same period last year to $885.9m, according to the Turkish Under-secretariat of Foreign Trade. But this growth is not expected to keep any momentum so long as cross-country trips in Iraq continue to prove risky.



Such fears have also been reflected in the reduced level of gasoline being taken into Iraq through Turkey. Oil traders assert that gasoline exports to Iraq have fallen to 30,000-50,000 tonnes per month this year, down from 60,000-100,000 tonnes a month in 2003. The reason cited is the security risk. While Swiss-based Litasco, the trading branch of Russian oil producer Lukoil, supplies the majority of diesel and gasoline to Iraq, several smaller Turkish companies have stakes in the trade as well.



Efforts by Turkish and Iraqi authorities to mitigate the risks faced by truckers have therefore been growing increasingly crucial. Turkish Transportation Minister Binali Yildirim last week encouraged drivers to deliver supplies to Iraq through Syria: an approach that would enable Turkish truckers to travel along supposedly safer routes whilst spending less time in Iraq. Unloading goods at storage centres in secure regions along the Zakhu-Mosul route should also minimise exposure as supplies are handed over to the Iraqi lorries for national distribution. In conjunction, Iraq and Turkey have agreed to increase the number of train journeys entering Iraq via Syria from four to six times a day as part of an effort to increase the use of alternative forms of transport.



These initiatives are consistent with the planned opening of a second customs point between Iraq and Turkey. A necessary move given that Habur sees 1400 trucks pass through its gates every day, according to Turkish officials from Sirnak province. To facilitate trade further, the Iraqi authorities have drawn up plans to construct a highway leading to Baghdad via Mosul. If security measures prove reasonably effective, Turkey may just be able to see trade with Iraq reach $5bn by 2005 - a figure set by the Turkish Ministry of International Trade.



Although constituting a mere 1.7% of all Turkish trade in 2003, exports to Iraq remain of significant relevance to Turkey. This is particularly the case for the south-east of the country, which remains economically depressed and underdeveloped. During his September visit, Guenther Verheugen, the EU commissioner for enlargement, pointed to the need for further investment in the region. An injection of money from trade could essentially help fill local coffers. Given these conditions, it came as no surprise when Tuzmen recently reiterated the fact that Turkey "did not have the luxury of halting trade with Iraq".



Meanwhile, Iraq and Turkey have been concerned to secure more consistent energy supplies. A series of attacks upon pipelines carrying Iraqi crude oil to Turkey in early September immediately forced production down from 400,000 to 250,000 barrels a day, according to the Northern Oil Company. Although pumping capacity has since outstripped that registered in early September, the prospect of further disruption through sabotage is more than likely. Interim Prime Minister Ayad Allawi thus claims that the act cost Iraq over $2bn in oil over the last 17 months; a figure that has obvious implications for Turkey's energy needs and Iraq's wealth as a trade partner.



This has not deterred investment plans however, with Ankara laying proposals on the table to develop the Gharraf Oil Field under a production-sharing model. In the meantime, the Turkish Petroleum Corporation (TPAO) is looking to see to the rehabilitation and development of oil fields in Basra. While efforts to improve Iraq's oil production capacity carry the risk of disruption - as faced by the Kirkuk-Yumurtalik pipeline and Basra terminals - the benefits and potential gains from business remain tempting enough.



With the risks still high though, while trade and investment may grow in the coming years, levels are unlikely to reach their full potential. But Ankara, along with a number of select investors, has decided to weather the storm.

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