Although Turkey’s relations with Baghdad are increasingly bitter, its exports to Iraq have in the past decade soared by more than 25 percent a year, reaching $10.8 billion 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 $2 billion a year. Turkish contractors have also been doing rich business, working on about $3.5 billion of construction projects last year, according to businessmen and officials.
One company, Calik Energy, boasts that 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 $800 million 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 percent 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 makes the journey to Kurdish markets. Turkish products dominate the regional capital of Irbil, from the old covered souk to modern showrooms in residential neighborhoods.
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 diaper sector.
Sales to the country account for 90 percent of the Altunkaya group’s annual $400 million exports and have been rising by 50 to 60 percent 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 neighboring 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 traveling 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 gas fields 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 U.S. pullout from Iraq in December 2011, relations between Ankara and Baghdad have sharply deteriorated, with Nouri al-Maliki, the 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 Maliki of sectarianism. 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 Egeli, while noting that Maliki’s writ does not run in northern Iraq.
Some exporters worry that 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,” Aksoy says. “But when it becomes a normal country without security issues, the U.K. 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. Maliki says such an agreement would be unconstitutional. The United States warns that a deal in defiance of Baghdad could further splinter Iraq, push Maliki closer to Iran and shut off Turkish companies from 80 percent of Iraq’s markets.
As Francis Ricciardone, U.S. ambassador to Ankara, told Turkish media recently: “If I was a Turkish producer . . . I certainly wouldn’t want to jeopardize my access to those consumers.”
— Financial Times
Funja Guler in Ankara contributed to this report.