Kurds and Turks: Business as Usual – for Now

The Kurds only independent political entity is cozying up to Turkey to do business. How long can Iraqi Kurdistan stay in the quiet eye of the regional storm and avoid collateral damage?

In the high-level geopolitical hurricane currently building up in the Middle East, autonomous Iraqi Kurdistan seems to be the tranquil eye of the storm. The province of nearly 5.5 million people enjoys a GDP per capita that has now grown to well over $5000, while its political stability is maintained by the Kurdistan Regional Government (KRG). Iraqi Kurdistans provincial capital. Erbil, is a gateway to Iraq for businesses and traders from neighboring countries.

Yet, for Iraqi Kurds, blips on the radar are appearing. Turkey has warmed to the KRG for the last few years. But last week, the Turkish government expressed anxiety that a group linked to the Kurdistan Workers Party (or PKK), an organization that Turkey views as terrorist, is now entrenched in northern Syria near the Turkish border.

Turkish Foreign Minister Ahmet Davutoglu is due to visit Erbil this week to influence the KRGs position in regard to Syrias Kurds, and he is likely to re-iterate his prime ministers recent warning that Ankara reserves the right to act in northern Syria against any Kurdish militant organization perceived as hostile, to prevent it from establish[ing] itself there and threaten[ing] Turkey.

Turkish fears of Kurdish militant spillover near its borders are put aside, however, when the KRG and the Turks increasingly cozy up to do business. This trend has been established over the last five years, after Turkey redefined its geopolitical environment, by publicly growling at Israel and deepening its economic engagement with its immediate neighbors, including Iraq.

Helped by Ankaras concerted promotion of bilateral trade, Iraqi Kurdistan imported around $5.5 billion worth of goods from Turkey last year, making the province Turkeys eighth-biggest export destination. (A look around the burgeoning malls in Erbil on my most recent mission there several weeks ago confirmed that, increasingly, many of the goods on sale are Turkish-made.)

For its part, Iraqi Kurdistan sells raw materials to Turkey, including oil. About ten KRG trucks laden with crude oil enter Turkey daily, but that will soon increase to up to 200. The first phase of a pipeline that is due to carry up to one million barrels of oil a day from Iraqi Kurdistan to Turkey is scheduled to finish by the end of 2012. Kurdish gas will also later be on offer after a recent understanding between Ankara and Erbil over future Turkish imports of the fuel.

Great, one might say - but the story doesnt end there. Three weeks ago, Iraqs prime minister and oil minister accused the KRG of smuggling crude oil to Turkey - and Iran. Though such charges had been leveled before, this was the first time the KRG was directly accused by Baghdads council of ministers in a cabinet meeting, a clear heightening of tension between the federal and provincial governments.

The Kurds counter-argue that the federal parliament has been unable to legislate regulations for the oil sector through a hydrocarbon law, although a draft bill was presented six years ago. The absence of legislation means that the KRG is forced to export oil without recourse to Baghdad, which should technically control marketing of crude oil. Yet another row is breaking out between Baghdad and Erbil - over the deal just made between the KRG and the United States giant Chevron, which is not, according to the federal government, supposed to operate in Kurdistan and the rest of Iraq under separate, parallel agreements.

Iraqi Kurdistan seems set for significant economic success in the long-term because of its strategic geopolitical position and openness to trade, but those very factors are likely to lead to a very turbulent and politically-charged short-term, as relations between the KRG and its neighbors, whether in Baghdad or Ankara, as well as events in Syria, face the test of the regions rough instability.

Riad al Khouri, an Arab economist who lives and works in the region, is a principal of Development Equity Associates Inc, Washington DC.