IRAQ - Focusing On The Non-Oil Sector - Part 6-W - Turkey.

As they try to secure their hold on a semi-independent north of Iraq and rebuild its economy, Kurdish leaders have turned in a surprising direction towards Turkey. The Los Angeles Times and the Washington Post on May 3 quoted officials of Iraqi Kurdistan as saying 314 Turkish firm had signed contracts for projects worth more than $1 billion.

Visitors to Kurdistan can fly into one of two airports built by firms based in Turkey, drive Turkish-built roads and see Turkish-built housing and university buildings. The two US newspapers quoted Ilnur Cevik, "a Turkish businessman whose Cevik Ler company claims more than $100 million in Kurdish government construction contracts", as saying: "Turkish companies are everywhere in [Iraqi] Kurdistan and doing everything".

There are at least three good reasons for this: Turkey's growing dependence on oil and natural gas; Iraqi Kurdistan's strategic location between Turkey and the oil-exporting Arab Gulf (GCC) countries; and the American military presence in Iraqi Kurdistan as well as in the rest of Iraq - notwithstanding a major US air base in Turkey.

Iraqi Kurdistan is crucial for the future security of two parallel crude oil pipelines running from oil-rich Kirkuk to Turkey's Mediterranean terminal of Ceyhan. This line has been sabotaged constantly by insurgents in Iraq. Turkey needs the co-operation of Iraqi Kurdistan in the future security of his infrastructure, which Ankara hopes will be re-opened as soon as a new Baghdad government has been formed.

Iraqi President Jalal Talabani, who is leader of the Patriotic Union of Kurdistan (PUK), on May 4 said in an interview with the US government-funded al-Hurra TV that a US-backed national unity government to be formed under Shi'ite PM Nouri (Jawad) al-Maliki will negotiate a peace agreement with the Sunni Arab insurgency. He predicted that the insurgency will soon come to an end under such a deal and that the Neo-Salafi jihadis will be defeated and driven out of Iraq, "because these are not Iraqis; they are murderers who just do evil things and will be finished".

The pipeline system to Ceyhan can be rehabilitated to run at the rate of 1.6m b/d, which prevailed during the 1980s. The saboteurs who have managed to keep this off line for most of the time since the US invaded Iraq in March 2003 are believed to be professional former members of Saddam's Ba'thist dictatorship. Talabani said these members of the insurgency were "honest Iraqi nationalists who now wanted peace with the Baghdad government.

Turkey also wants to revive a project to have a natural gas pipeline from Iraq built under a framework agreement with Baghdad signed in 1996. The proposed capacity of this is 10 BCM/year. Under another agreement signed in the more recent years, this was to be part of an integrated project to develop several fields of non-associated gas in the northern part of Iraq, with Ankara hoping the Turkish state-owned E&P company TPAO would be in the consortium that will develop these fields (see survey of Turkey in last week's APS Review - omt19TurkTradeMay8-06 & gmt19TurkpipelinesMay8-06).

Turkey is strongly, but quietly, opposed to Iran's nuclear ambitions. While it may or may not co-operate with the US in the event of a military confrontation, Ankara has keen interest in the US and its EU allies making sure that Tehran's nuclear programme is peaceful and under the watch of the IAEA (see sbme5-Iraq-9-strategy-May8-06). A highly-placed defence source in Ankara says Iran's military capabilities have been grossly exaggerated by Tehran in recent weeks (see news19-IranWarCapabltyMay8-06).

For much of the last century, Turks and Kurds have been bitter enemies. Starting in the 1930s, Turkey banned the language of its Kurdish minority and violently suppressed Kurdish independence movements on its soil. In recent weeks, Turkish security forces and Kurdish protesters clashed in riots that claimed more than a dozen lives.

Across the border, the Turkish government has opposed Kurdish moves towards self-rule in Iraq's three northern provinces. And Turkish leaders have accused the Kurds of harbouring militant groups which attack civilians and military targets in Turkey.

Today, however, leaders of Iraqi Kurdistan are seeking investment from Turkish firms and Ankara is encouraging the latter to respond positively. Officials in Iraqi Kurdistan say the influx of Turkish companies into their territory is part of a policy to thaw relations between Ankara and its wary neighbour.

The Post quoted Safeen Dizayee of the Kurdistan Democratic Party (KDP) which controls the western part of Iraqi Kurdistan as saying: "We really have been flooded with Turkish companies. This is healthy because it helps to develop good international relations. Naturally if Turkey, or any other country, has a vested interest here, their politicians are going to be obliged to be flexible".

The investment carries economic and political benefits for Turkey. Before the US-led invasion, officials in Ankara used to complain that UN sanctions on Iraq had cost Turkey US$60 billion in lost revenue. In Iraqi Kurdistan, some Turkish leaders see a chance to renew a large nearby market, which could strengthen their own economy.

"Northern Iraq is an especially lucrative market because it is the most stable part of Iraq and because it borders Turkey", said Turkish legislator Reha Denemec, a member of the ruling Justice and Development Party (AKP), according to the Post.

Douglas Mellor, an American living in Britain who advises the Kurdish government in Irbil, the capital of Iraqi Kurdistan where its parliament and presidency are based, as saying: "Many international institutions consider the risk in Irbil to be the same as the rest of Iraq". So Iraqi Kurdistan is inviting Turkish firms out of necessity, as many Westerners shy away from the area because of violence and violation of contracts.

Global companies such as Coca-Cola declined to send executives into any part of Iraq, Mellor said. Regional firms with more knowledge of Iraqi Kurdistan and its influential people are better able to exploit opportunities in Irbil and other Kurdish cities.

Turkish businesses, along with companies from Lebanon, Jordan, the UAE and, to a lesser extent, Iran, have launched an unprecedented building boom in Iraqi Kurdistan. "Until 1991, there were about 200 or so public projects over the past 120 years", said Dizayee, the KDP official, adding: "Since then, there have been about 1,200 projects".

Some Kurdish business owners in northern Iraq complain that Kurdistan's policy of lur-ing Turkish firms has sidelined them and forced them to pay off top functionaries of Kurdistan's ruling parties - the KDP and PUK - the latter controls the eastern part of the semi-independent region. An owner of a construction business in Irbil said he rarely won large contracts because the government put so few out to public bid. And when he did win a significant deal, it required taking a party official as a partner. There is a great deal of corruption in both parties, but mostly in KDP whose leader Mas'oud Barzani is the president of Kurdistan.

Party influence on businesses has hindered economic growth and goods available to Kurds. Cellphone users in Iraqi Kurdistan, for example, go with one of two companies, both with party ties Korek in the west or Asiacell in the east. Users of the two services can call international phone services but not to each other.

The Post quoted Cevik as saying he owed his success to his long personal relationships with Barzani and Talabani. Cevik said he met the two Kurdish leaders when he was an editor for a Turkish newspaper. Over seven years they remained in contact despite strong opposition in his home country. As US warships massed in the Persian Gulf in 2003, the Post said, Cevik sat down with Barzani and Talabani outside Irbil.

It was a rare meeting between the two Kurdish rivals, who had fought each other in a civil war during the 1980s and 1990s. The Post quoted Cevik as saying: "Mr Talabani and Mr Barzani asked me to bring some reliable Turkish companies - they wanted handpicked companies into Kurdistan. We did a partnership with some of these companies". Since that meeting, Cevik said, his company has become one of the leading businesses in Iraqi Kurdistan. The post quoted Cevik as adding: "I think the Kurds realise that with the uncertainty of the future in Iraq, they can't put all the eggs in one basket. So they are trying to forge closer ties in Turkey".