Turkish-Iraq Tension Worries Economy

Turkey

Economic News

22 Jul 2010
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Growing tension between Turkey and Iraq is eating away at business confidence and sending ripples across the global economy.



Reports on June 6 that up to 3500 Turkish troops had crossed the border in what was said to be a hot pursuit operation against militants of the Kurdistan Workers' Party (PKK) sent the international spot price of oil up to a nine month high of $71. Partly on the back of the reported incursion, the Istanbul Stock Exchange shed 2.2% on June 7, with even greater losses the next day as the Turkish Lira eased against the dollar and the euro. Though the falls on the market eased into the following week, shares still bled away another 2% up to June 13.



While the Turkish government and the armed forces were quick to deny that there had been any movement over the Iraqi border, these denials did little to ease market fears. Though Ankara has said it did not launch any strike into Iraq, both civil and military officials said Turkey had the right to do so to protect national interests.



Over the past few months the PKK, which has staged a 20-year long insurrection against the Turkish state in a battle to found an independent Kurdish homeland in the south east of Turkey, has ramped up its attacks. Most of the group's active militants are based in camps in northern Iraq, infiltrating across the mountainous border between Turkey and Iraq to carry out attacks or to plant mines mainly targeting the region's road and railway network.



A splinter group of the organisation, the Kurdistan Freedom Falcons, has also threatened to target the country's lucrative tourism industry, which brought in around $16bn in foreign currency last year.



In the most recent incidents, seven Turkish soldiers were killed in an attack on an outpost in the south eastern province of Tunceli on June 4, a further four died in a mine blast in Siirt, a province close to the Iraqi border. And on June 9, lieutenant colonel Melih Gulova, major commander Ramazan Armutlu and one private were killed when a remote-control explosive planted by PKK terrorists on a road in Guclukonak town in the south-eastern city of Sirnak went off as their military convoy was passing by.



In response to these attacks and other incidents, Turkey's army has moved reinforcements up to the border region and announced it was maintaining restricted access to parts of two provinces along the border with Iraq to facilitate troop movements and training exercises.



Though the immediate prospect of a military strike into Iraq receded by June 13, with Prime Minister Recep Tayyip Erdogan saying the focus of the fight against terrorism should be within Turkey's borders, a meeting of Turkey's senior government and army commanders late on June 12 did not rule out a cross-border operation.



Turkey's sabre-rattling may have had an effect, with the PKK issuing a statement on June 12 saying it would halt offensive action inside Turkey but would defend itself if its members were attacked. However, it also called on the Turkish military to put a stop to its own operations, a call that has always met a negative response when made in the past.



While there have been widespread calls for Turkey's armed forces to launch a strike against the PKK bases in northern Iraq, and the military said it would gladly answer if the government authorised an operation, there are concerns that such actions would hit hard at an economy that is still recovering from earlier years of instability and high inflation.



One of those to voice these concerns was Arzuhan Dogan Yalcindag, the chairwoman of Turkish Industrialists and Businessmen's Association (TUSIAD), Turkey's largest business lobby group. On June 8, Yalcindag said she hoped Turkey would not be forced into a position where it would be compelled to send troops into Iraq.



"If such an incident occurs, of course it would have negative impact on the economy and financial markets," said Yalcindag. "I hope we will not encounter such a development."



Another to flag concerns over the economy should Turkish forces enter Iraq was Kristin Lindow, the vice president of the international credit ratings agency Moody's. Speaking at a conference in Istanbul on June 5, Lindow said that a cross border operation would add a new element of political uncertainty to the country's mix, which in turn could affect Turkey's credit ratings.



Though a military strike into Iraq against the PKK may be popular with the Turkish public, Ankara has been warned off by the US, the EU and Iraq itself, all major trading partners. In particular, Washington is concerned that US troops on the ground in the north of Iraq could find themselves in the firing line, and that its local allies, the Iraqi Kurds, would side with the PKK.



Turkey has long been frustrated with the perceived lack of action by the US and Iraq in combating the PKK, though both countries have declared the group a terrorist organisation.



While previous cross-border operations conducted by the Turkish armed forces have failed in their ultimate objective of eradicating the PKK and any such strike in the near future may harm both the local economy and Turkey's relations with its allies and neighbours, pressure is mounting for some form of direct action to halt the climbing death toll.
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