TURKISH EXPORTS TO IRAQ FLOURISHING

UNCLAS SECTION 01 OF 02 ANKARA 007992

SIPDIS


SENSITIVE


STATE FOR E, EB/TPP, EUR/SE AND NEA/NGA
TREASURY FOR OASIA - MILLS AND LEICHTER
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO
NSC FOR BRYZA AND MCKIBBEN


E.O. 12958: N/A
TAGS: ETRD ENRG PREL TU IZ
SUBJECT: TURKISH EXPORTS TO IRAQ FLOURISHING


1. (SBU) Summary: Discussions with Turkish business
executives and economists support the Foreign Trade
Undersecretariat's reports that Turkish exports to Iraq are
booming. In fact, some in the private sector argue that
actual exports exceed official figures, with one prominent
economist speculating that the enhanced flows are buttressing
the Turkish lira. Turkish truckers are adding to their
earnings by taking advantage of the huge disparity between
Turkish and Iraqi fuel prices to engage in "creative" fuel
trade. The state petroleum company (TPAO) told us last week
that they had begun shipping fuel to Iraq by rail via Syria,
and hope to ship as much as 10,000 tons per week in the
coming months through this route. End Summary.



2. (SBU) Turkish foreign trade officials have stated
publicly on several occasions that Turkish exports to Iraq
are booming, and should hit $1 billion this year, equal to
the pre-Gulf War peak, despite minimal sales in the first 4-5
months. They predict exports of $1.5-2 billion in 2004.
Recent discussions with Turkish economists and business
executives support this optimistic view. For example, Murat
Sarayli, President of the Turkish Young Businessmen's
Association and a veteran of the Iraq trade, said nearly all
of his association's members are engaged in some form of
trade with Iraq. Some -- like Sarayli -- are participating
in the extensive fuel trade. Others are shipping consumer
goods and food, taking advantage of what they say is a
mini-consumption boom among Iraq's middle class.



4. (SBU) Bender Securities economist Emin Ozturk pointed to
data and anecdotal evidence suggesting that Turkish exports
exceed official figures, perhaps by a significant amount. He
noted that the major conglomerate Koc Holdings has predicted
2003 exports to Iraq would hit $265 million. However, those
figures do not reflect dramatic increases in sales to Koc's
local distributors in the Southeast. While some of this
increase probably is due to higher incomes in the area
(courtesy of the Iraq trade),Ozturk speculated that much of
it involved goods that the distributors are shipping onward
into Iraq,



5. (SBU) Ozturk said Turkey's recent GNP figures also
suggest large amounts of unreported exports to Iraq. He
noted that those figures indicate a huge increase in
inventories of manufactured goods that simply could not be
explained by domestic economic developments. The most
plausible explanation, he believes, is that some of these
"excess" goods are being shipped to Iraq, probably by small,
family-run trucking businesses that cannot be bothered with
the paperwork and hassle of reporting exports. The fact that
Turkish banks in the Southeast continue to report receipts of
substantial quantities of small-denomination U.S. currency
lends support to this theory, in Ozturk's view. The
economist added that these unrecorded exports (and the
resulting flow of dollars into Turkey) could help explain the
Turkish lira's continuing strength.



6. (SBU) Murat Sarayli and Dow Jones' Selim Atalay confirmed
reports that Turkish fuel truck drivers are adding to their
earnings through "creative" trading practices. According to
Sarayli, a typical driver might load 10,000 tons of benzene
at the Turkish port of Iskenderun for delivery in Iraq.
However, before reaching Habur Gate, the driver would sell
1,000 tons at a local gas station (at relatively high Turkish
prices). He would then take on a 1,000 tons of non-fuel
weight -- typically in the form of lead-weighted spare tires
or heavy steel bumpers -- so that the truck's weight would
appear correct at the border crossing. Once in Iraq, the
driver would buy an additional 1,000 tons of fuel locally (at
very low Iraqi prices) and then complete his delivery. Most
drivers also fill the truck's overcapacity gas tanks with
cheap Iraqi gas for the drive back, and sell the excess
product once back in Turkey. Sarayli said the disparity
between Turkish and Iraqi fuel prices made these transactions
incredibly attractive to the relatively poor truck drivers,
and suggested there was no way -- realistically -- to stop or
control them.



7. (SBU) Meanwhile, State Petroleum Company (TPAO) Director
General Osman Saim Dinc told us last week that his company
began shipping fuel to Iraq by rail via Syria on December 16,
based on an agreement with the Iraqi Oil Ministry and
"reasonable" fees charged by the Syrians. Dinc said the
company would ship 4,000 tons of fuel per week initially, but
hoped to raise that to 10,000 tons per week over the next few
months. Turkish officials have been talking for some time
about using this line, but this is the first time we have
received confirmation that it is being used.


EDELMAN