Iraq, 10 years on: The US won the war, Iran won the peace and Turkey won the contracts

Financial Times (UK) Wednesday, March 13, 2013, p.1

By Daniel Dombey in Istanbul and Funja Guler in Ankara

A new candidate has emerged as the true victor of the Iraq war. A decade after Turkey infuriated Washington by blocking the deployment of US troops through its territory for the 2003 invasion, its businessmen are proving the champions in the battle for the Iraqi market.

Although its relations with Baghdad are bitter , its 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 voluminous oil reserves , demand for Turkish goods will climb by more than $2bn a year.

Turkish contractors have also been doing rich business, working on $3.5bn 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 – gas turbine plants in the Mosul and Karbala regions – earning more than $800m from the Iraqi government.

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

It is the Kurdish-governed north of the country that accounts for the bulk of Turkey’s business, absorbing some 70 per cent of Turkey’s exports to Iraq.

In contrast, Ankara’s relationship with the rest of Iraq is becoming increasingly poisonous, with political disputes leading Baghdad to hold back on awarding new government contracts to Turkish groups.

As Ankara’s economic and diplomatic ties with the Kurdish government expand, around 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 constant flow of goods makes 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 un-daunted 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 large scale 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 own growing hunger for energy and knit the two territories still closer together, a prospect that enthuses some analysts.

The booming economic ties between Iraq and Turkey, however, have a troubled political subtext. After the US 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 Mr Maliki of sectarianism. Mr Maliki’s government has already moved to bar Turkish companies from further large scale 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.

At present, however, tensions are rising still higher 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, the 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. »