Turkey emerges as true Iraq war victor

The Americans won the war, the Iranians won the peace and the Turks won the contracts.

Turkey, which blocked the deployment of US troops through its territory during the 2003 invasion that toppled Saddam Hussein, is emerging 10 years on as one of the prime beneficiaries of the battle for the Iraqi market.

Although its relations with Baghdad are increasingly bitter, Turkey’s exports to Iraq have in the past decade soared by more than 25 per cent a year, reaching $10.8bn in 2012, making Iraq Ankara’s second-most valuable export market after Germany.

Ozgur Altug, an economist at BGC Partners in Istanbul, predicts that as Iraq grows richer because of its oil reserves, demand for Turkish goods will keep climbing – by more than $2bn a year. Turkish contractors have also been doing rich business, working on about $3.5bn of construction projects last year, according to businessmen and officials.

One company, Calik Energy, boasts it is building the two biggest projects in the Iraqi power sector, two gas turbine plants in the Mosul and Karbala regions, earning more than $800m from the Iraqi government in the process.

While Iran is seen as the most influential outside power in Iraq today, on Baghdad’s streets Turkey’s presence is more visible than that of any other country, with everything from malls to furniture stores to pavement bricks bearing a Turkish trademark.

But it is the Kurdish-governed north that accounts for the bulk of Turkey’s business, absorbing about 70 per cent of Turkey’s exports to Iraq. In contrast, Ankara’s relationship with the rest of the country is becoming more poisonous, with political disputes leading Baghdad to hold back on giving new government contracts to Turkish groups.

As Ankara’s economic and diplomatic ties with the Kurdish government expand, about 1,000 Turkish businesses are working in the north, including some of Turkey’s best known banks, retailers and hotels.

Hundreds of trucks a day clog up the land border between northern Iraq and Turkey as a flow of goods make the journey to Kurdish markets. Turkish products dominate the regional capital of Erbil, from the old covered souk to modern showrooms in residential neighbourhoods.

Less obtrusively, other groups are carving out markets for themselves. From his base in the southern Turkish city of Gaziantep, Adnan Altunkaya says his family-owned company commands two-thirds of the Iraqi nappy sector.

Sales to the country account for 90 per cent of the Altunkaya group’s annual $400m exports and have been rising by 50-60 per cent a year for the past two years. It has also just taken the leading position in the Iraqi olive market.

“Our business with Iraq is increasing constantly,” he says. “But of course it is affected by political tension.”

In large part, the success story represents Turkey’s return to its natural market, from which it was shut out since the 1980s by war, sanctions and instability. As a neighbouring state with an industrial base, rich agricultural heartlands and businessmen undaunted by challenging environments, Turkey has advantages others find hard to match.

“I have sold Turkish goods around the world and the easiest market is Iraq,” says Serif Egeli, a prominent Turkish businessman who has been travelling to the country for 40 years. “We have the same tastes: in other countries you have to make goods to local standards, but in Iraq you just label them in Arabic and they sell immediately. And logistically no one can compete with us.”

With Iraq’s Kurdish region seeking to reduce its dependence on Baghdad, the relationship with Turkey may soon move to another level – but one that is hardly immune to risk.

Turkey has been negotiating a deal with the Kurdish Regional Government to take a stake in the region’s oil and gasfields despite furious protests from Baghdad. It is an agreement Ankara hopes will help satisfy its growing hunger for energy and knit the two territories closer together, a prospect that enthuses some analysts.

The booming economic ties between Iraq and Turkey, however, have a difficult political subtext. After the US pullout from Iraq in December 2011, relations between Ankara and Baghdad have sharply deteriorated, with Nouri al-Maliki, Iraqi prime minister, pronouncing Turkey a “hostile state”. Iraqi officials say Ankara has been meddling in their affairs, tightening its relations with the Kurds and the minority Sunni populations in an effort to undermine the Shia-led government in Baghdad.

Turkey in turn accuses Mr Maliki of sectarianism. Mr Maliki’s government has moved to bar Turkish companies from further large contracts with Iraqi authorities. TPAO, the Turkish state oil company, was last year expelled from an exploration deal in the south of the country.

“It is a kind of hidden boycott,” says Mr Egeli, while noting that Mr Maliki’s writ does not run in Northern Iraq.

Some exporters worry Turkish goods could also be affected – for now perhaps a third of Turkey’s exports to the Kurdish north are sold on to the rest of Iraq and many Turkish companies have their eyes on the Iraqi market as a whole.

“There will be less construction and fewer exports this year,” says Ercument Aksoy, chairman of the Turkish-Iraqi Business Council. He argues that now there is a rare opportunity for Turkey, since if the country becomes more stable competitors from around the world will flood in.

“Turks are used to risky situations,” Mr Aksoy says. “But when it becomes a normal country without security issues, the UK will be there, the Dutch will be there and our figures will go down again.”

At present, however, tensions are increasing over Turkey’s plans to invest in the northern Iraqi energy sector. Mr Maliki says such an agreement would be unconstitutional. The US warns that a deal in defiance of Baghdad could further splinter Iraq, push Mr Maliki closer to Iran and shut off Turkish companies from 80 per cent of Iraq’s markets.

As Francis Ricciardone, US ambassador to Ankara, told Turkish media recently: “If I was a Turkish producer . . . I certainly wouldn’t want to jeopardise my access to those consumers.”