TURKEY SCENESETTER FOR AMERICAN-TURKISH COUNCIL

UNCLAS SECTION 01 OF 03 ANKARA 001922

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV PINS PTER ECON ENRG OREP IZ TU
SUBJECT: TURKEY SCENESETTER FOR AMERICAN-TURKISH COUNCIL
STAFFDEL, AUGUST 3-9, 2007


1. (SBU) Summary: Turkey's ruling Justice and Development
Party (AKP) scored a significant victory in the July 22
election and appears set to form another single-party
government with a mandate to pursue its economic and
political reform policies. On Iraq, Turkey continues to be
an essential partner, supporting coalition forces by allowing
use of its territory as logistical hub. The single biggest
obstacle to bilateral relations is PKK terrorism. Turkey has
repeatedly expressed impatience at the lack of U.S. action
against PKK terrorists in northern Iraq and has threatened to
strike at PKK targets across the border if the U.S. or Iraq
does not act. A U.S. Congressional Armenian genocide
resolution would likely work against those in Turkey calling
for a collaborate look at 1915 events, jeopardize U.S.
national security interests in Turkey and Iraq, and
complicate the security environment for U.S. citizens and USG
personnel. Turkey's economy has achieved five years of GDP
growth averaging over 7% -- the highest rate of any OECD
country. Because of its strategic location, Turkey aspires
to increase its role as an energy transit country by piping
natural gas to meet Europe's growing needs, and will soon
begin transporting gas from Azerbaijan to Greece. End
summary.

MISSION TURKEY


2. (SBU) Mission Turkey consists of four posts: Embassy
Ankara, Consulate General Istanbul, Consulate Adana, and a
two-person Consular Agency in Izmir. Country-wide, there are
currently about 300 American positions and almost 700 locally
employed staff (LES) working for over 20 agencies throughout
the Mission. The Mission's FY 2007 operating budget was $30
million. Mission Turkey is scheduled for a New Embassy
Compound (NEC),with construction set to begin in 2010.

ELECTION RESULTS


3. (U) Unofficial results indicate that Turkey's ruling AKP
scored a significant victory in July 22 parliamentary
elections, returning to power with 46% of the vote, up from
34% in the 2002 election. Two other parties crossed the ten
percent election threshold required to enter parliament,
along with 27 independent candidates, creating a fractious if
more representative legislature. AKP appears set to form
another single-party government, with around 340 of
parliament's 550 seats, but returns with a reduced majority
and short of the 367 seats needed to elect the next president
or amend Turkey's military-drafted constitution. The
opposition CHP, with 20% of the vote, lost seats in several
of its strongholds. Commentators view the results as the
opposition's failure as much as AKP's success. Official
results are expected by July 26, barring major challenges.
The new parliament will convene five days after final results
are announced; election of a Speaker, formation of a new
government and election of Turkey's next president will top
the agenda.


4. (U) AKP now has a mandate to pursue its economic
development and modernization policies, EU membership and
political reform for another term. Erdogan was magnanimous
in an acceptance speech that stressed unity, democracy,
stability. His first real test will be choosing a
presidential candidate who can bridge the divide between a
shattered left and jubilant AKP supporters.

IRAQ/PKK


5. (SBU) For over 22 years, the PKK has conducted a terrorist
campaign that has resulted in the deaths of about 37,000
Turks. Since the end of its self-imposed five-year
cease-fire in 2004, the PKK has conducted attacks against
Turkey from strongholds in northern Iraq, killing over 600
Turkish civilians and military and foreigners in 2006 alone,
and nearly 100 in 2007. The increased violence prompted the
government and military to warn of possible cross-border
operations into Iraq. The USG has strongly discouraged this,
citing Iraqi sovereignty and the risk of increased
instability. The United States has been Turkey's closest
ally in the fight against the PKK, securing EU agreement to
place the PKK on its list of terrorist organizations;

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spear-heading Europe-wide effort to close PKK financial,
logistical, and media support outlets there; and leading a
trilateral (US/TU/IZ) process to stop the threat emanating
from northern Iraq.


6. (SBU) Iraq remains a major concern for Turkey. Turkey
worries about increasing instability in Iraq, growing Iranian
influence in the region, and the potential for Iraq to
splinter along sectarian or ethnic lines. The GOT is also
concerned about Iraqi Kurdish ambitions to expand their
territory to include oil-rich Kirkuk. The prospect of a
referendum later this year on the future status of Kirkuk
exacerbates Turkish fears that a Kurdish annexation of the
province will lead to massive inter-communal violence, and,
ultimately, the dissolution of the country. Turkish
political leaders have sought to reinforce Iraq's unity and
territorial integrity, and have been among the most active of
Iraq's neighbors in the Iraq Neighbors Process.


7. (SBU) Turkey's agreement to the use of its territory as a
logistical hub has been a combat multiplier for our Iraq
operations. Approximately 3 million gallons per day of
gasoline and diesel fuel for the Iraqi people and 25% of
sustainment fuel for coalition forces crosses into Iraq
through the Ground Line of Communication at Habur Border
Gate. Since May 2005 when Turkey approved the use of
Incirlik Air Base as a cargo hub to support coalition
operations in Iraq, over 152 million pounds of equipment have
been shipped to U.S. troops. Over 50% of all air cargo into
Iraq has transited the Incirlik cargo hub.

EU ACCESSION


8. (U) A double-election year contributed to the GOT's
failure to enact reform on several high-profile political
issues, such as Turkish Penal Code Article 301 (insulting
"Turkishness"),even while technical-level EU harmonization
continued. The EU's June 26 decision to open negotiations on
two chapters (Statistics and Financial Control) but not an
expected third (Economic and Monetary Union) left Turkish
officials frustrated and concerned that the EU's December
annual progress report could recommend suspension of
additional chapters. The Turkish public, meanwhile, has
grown increasingly skeptical of the EU venture, in large part
as a reaction to Euro-skepticism of Turkey, reflected most
notably by French President Nikolas Sarkozy's preference of a
"privileged partnership" vice full membership. AKP, as
historically the party most committed to Turkey's EU
membership, now has the chance to use its electoral mandate
to breathe new life into the process.

HOUSE RESOLUTION ON ARMENIAN GENOCIDE


9. (SBU) The USG has worked hard to encourage a candid
discussion in Turkey of the tragedy suffered by ethnic
Armenians during World War I. The Turkish and Armenian
governments have discussed establishing commissions of
academics and historians from Turkey and Armenia to establish
the facts, in parallel with efforts to reestablish official
bilateral relations. The January 2007 murder of Turkish
Armenian journalist Hrant Dink has contributed to growing
calls for changes to Penal Code Article 301, which
criminalizes insulting "Turkishness," and stifles Turks,
ability to discuss fully the events of 1915. A U.S.
Congressional resolution labeling this tragedy a "genocide"
would trigger an intensely negative and nationalist response,
and would work against those voices in Turkey that are
calling for a comprehensive exploration of these events and
for normalizing bilateral relations with Armenia.


10. (SBU) A resolution would also have negative consequences
for U.S. national security interests in Iraq and elsewhere.
Supply routes into Iraq that are crucial to supporting U.S.
troops, military overflights and use of Turkish bases that
support U.S. military operations in Iraq and Afghanistan
could be jeopardized. Additionally, major defense
procurement contracts with U.S. manufacturers (with expected
and potential sales exceeding $10 billion) could be scrapped.
Agricultural purchases might also be canceled and consumer
boycotts could ensue. Anti-Americanism in Turkey would

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likely intensify, increasing the threat level for U.S.
citizens and USG personnel living and working in Turkey.

MACRO-ECONOMIC PICTURE


11. (SBU) The Turkish economy has recovered strongly from the
2001 financial crisis, having achieved five years of GDP
growth averaging over 7% -- the highest rate of any OECD
country. In dollar terms, per capita GDP doubled to $5,482 in

2006. Since 2004, for the first time since the early 1970's,
inflation has been in single digits. At the same time,
Turkey has stabilized its economy and reduced its
vulnerability to financial problems, with net public sector
debt to GDP falling from 90% in 201 to 45% in 2001. Turkey
achieved this through its IMF-sponsored economic program,
including a 6.5% primary surplus target for the public sector
and orthodox, pro-investor, pro-market policies. Despite
this improved situation Turkey remains somewhat vulnerable if
global market sentiment turns negative because of Turkey's
large current account deficit (8% of GDP in 2006),the public
sector's continued reliance on foreign portfolio investors
rolling over mostly short-term debt, and risks of political
or regional instability.

ENERGY ISSUES


12. (U) Turkey imports nearly all of its oil and natural gas.
However, Turkey's strategic location, in-between Europe and
the Middle East and Caspian regions, makes Turkey an
important energy transit country. More than 3 million bbl of
Caspian oil pass every day through the Bosphorus Straits, and
nearly 1 million bbl/d of oil pass through the
Baku-Tbilisi-Ceyhan (BTC) pipeline, the first transitional
pipeline for Caspian oil that does not cross Russian soil.
Turkey aspires to increase its role as an energy transit
country by piping natural gas to meet Europe's growing needs,
and will soon begin transporting gas from Azerbaijan to
Greece, the first time, Europe will receive Caspian gas by a
non-Russian route. Turkey also aspires to construct the
larger Nabucco pipeline to deliver natural gas across Turkey
to Austria. The USG supports Nabucco, but only if filled with
non-Iranian gas from Azerbaijan, Turkmenistan, Kazakhstan and
possibly Iraq. Russia's recent announcements reinforcing its
hold on Turkmen gas and bypassing Turkey to sell gas to
Italy, spurred Turkey to announce a preliminary MOU with Iran
on a future gas deal, which we have protested.

TRADE


13. (SBU) With two-way bilateral trade around $10 billion,
roughly in balance between exports and imports, the U.S. is
an important trading partner for Turkey. About half of
Turkey's trade is with the EU, however, and Turkish trade
with the Middle East, African and Former Soviet Union
countries is growing. As Turkey's total trade volume -- both
exports and imports -- grows, the U.S. share in Turkey's
trade is declining.


14. (SBU) Deepening bilateral economic and business ties is a
key priority of the Shared Vision and Structured Dialogue
announced by Secretary Rice and Foreign Minister Gul in July

2006. To help catalyze closer economic ties, the U.S. and
Turkey held a meeting of the bilateral Economic Partnership
Commission (EPC) in February, 2007, co-chaired by he Under
Secretary of the Turkish Foreign Ministry and State

SIPDIS
Department Assistant Secretary for Economic, Energy and
Business Affairs Daniel Sullivan. The EPC laid out an action
plan that both sides are working to implement.

Visit Ankara's Classified Web Site at
http://www.state.sgov.gov/p/eur/ankara/

WILSON