MINISTERS TO DECIDE ON ECONOMIC SANCTIONS AGAINST

C O N F I D E N T I A L SECTION 01 OF 03 ANKARA 002680

SIPDIS

ANKARA PASS ADANA

E.O. 12958: DECL: 10/31/2017
TAGS: KFPC ECON ETRD ETTC PREL EAIR TU
SUBJECT: MINISTERS TO DECIDE ON ECONOMIC SANCTIONS AGAINST
NORTHERN IRAQ

Classified By: DCM NANCY MCELDOWNEY FOR REASONS 1.4 B AND D


1. (C) Summary: The Turkish Council of Ministers will meet
in emergency session on October 31 to consider authorizing
economic actions against Northern Iraq. Four potential
measures are on the agenda: cutting off of electricity
exports, closing road access through Habur Gate, restricting
Turkish exports to Iraq, and restricting civil aviation
overflights. The GOT will have difficulty finding measures
that hit the PKK and KRG without also harming Baghdad, the
U.S. military, humanitarian supplies and Turkey's own
economic interests. However, given the enormity of public
outrage over PKK attacks and the unresolved hostage crisis,
this may well be a price the GOT is willing to pay. End
summary.

Cutting Off Electricity
--------------


2. (C) An electricity cut would have no appreciable economic
affect on Turkey, which needs more electricity and can
re-direct this power to domestic use. But it is not clear
that a cutoff would have the desired effect. Turkey
currently exports 200 MGW of electricity to Iraq. Although
the electricity enters through northern Iraq, no one is sure
exactly where it is being consumed. Second, even assuming
that the effect is felt mostly in the north, those who would
be most affected would be the poor and public services
(schools, hospitals, etc.) that cannot afford back-up
generators. While cutting off power is not likely to be
highly targeted or effective, it would be public, dramatic
and easily turned on and off, making it an attractive, if
inefficient, weapon.

Trade restrictions
--------------

3. (SBU) Turkey's trade with Iraq is slowly declining. From
a peak of $5 billion in 2005, trade was reduced to $3 billion
in 2006, $2.6 billion of which was Turkish exports to Iraq
(according to official GOT data, which does not take into
account widespread smuggling of fuel and cigarettes, or
remittances by the 20,000 Turks working in Iraq). Payment
problems faced by Turkish companies exporting to Iraq have
played a part in the slowdown, as has competition from other
countries in a market Turks previously had all to themselves.
Major exports are food, consumer products and cosmetics, and
cement.


4. (SBU) National Turkish business groups publicly have been
supportive of taking economic measures against Iraq. The
Turkish Union of Chambers and Commodity Exchanges (TOBB),
Turkey-Iraq Business Council, Turkish Exporters' Assembly,
and the Turkish Travel Agencies' Union have all voiced
unconditional support for whatever measures the GOT adopts,
with TOBB Chairman Rifah Hisarciklioglu saying they support
an embargo "regardless of cost." However, Diyarbakir Chamber
of Commerce President Mehmet Kaya was more cautious, saying
the GOT should consider how important the Iraqi market is to
eastern Turkey in taking any economic measures. Kaya noted
that 200,000 people in the region make a living from Iraqi
trade, and they would be unemployed if the border were
closed. Turkey-Iraq Business Council Chairman Erument Aksoy
told us that it would be very difficult to limit a trade
embargo to just Northern Iraq, and cutting off food exports
would contradict the GOT's public position that the Iraqi
people should not be punished.

Restricting Habur Gate and Re-Directing Trade Across Syria
-------------- --------------


5. (C) Habur Gate is the main border crossing for vehicles
traveling between Turkey and Iraq and is a key point in the
supply line for U.S. forces in Iraq. The bulk of
Turkish-Iraqi trade passes through Habur, complicating any
decision to close or restrict access there. The focus of any
action at Habur likely would be to cut off revenues to the
KRG by opening an alternative trade route via Syria that
bypasses the KRG-controlled north. The KRG takes in about
$200 million per year in revenue from traffic through Habur
Gate (The KRG reportedly charges trucks a $100 fee for
crossing Kurdish territory. There are unconfirmed press
reports that the PKK also extracts a $50 per truck fee.)
This is a prime target because it puts pressure on the KRG
without causing the humanitarian problems that would come
with electricity and foodstuffs cut offs. But Turkish Iraqi
Business Council Chairman Aksoy said this would require
Baghdad,s approval of truck routes through Syria and
continuing to allow the US military to use Habur for supply
convoys to Iraq.

Restricting Civil Aviation Overflights
--------------


6. (C) Discussion of restricting Turkish airspace for flights
to Irbil first arose last summer after PKK financier Riza
Altun was allowed to board a flight in Vienna that overflew
Turkey on its way to Irbil. The easiest targets would be
charter flights from Turkey and overflights by Kurdish-owned
planes. More difficult would be denial of overflights to
European companies that now fly into Irbil directly. The
GOT's likely target is to isolate Irbil and make
international travelers fly through Baghdad to reach Northern
Iraq.


7. (C) Civil Aviation Deputy Director General Haydar Yalcin
told us that there currently are no restrictions on
overflights to Iraq or Northern Iraq. A Sri
Lankan-registered charter flight from Irbil to Adana was
turned back last week due to technical deficiencies, Yalcin
said, but this happened because the owners had not remedied
problems they had detected in September, and he noted that
the plane contained mainly returning Turkish workers.

Seizure of Iraqi oil at CeyhaN
--------------


8. (C) There have been sporadic reports that Iraqi oil
flowing through the Kirkuk-Ceyhan pipeline recently had been
seized by the Turkish state pipeline company BOTAS, acting
under a court order. GOT sources have said they did not know
of any such action, but all emphasized that BOTAS would be
well within its rights to do so. According to the GOT,
Turkey is owed approximately $900 million by Iraq for
pipeline transit fees. The fees arise under the Saddam-era
transit agreement, under which Iraq agreed to pay a transit
fee of $1 per barrel on half the capacity of the pipeline as
a minimum guarantee. With the pipeline having been out of
operation for months at a time, the Iraqis built up a huge
debt under this contract clause. We asked contacts at
British Petroleum, which operates the Baku-Tbilisi-Ceyhan
pipeline, if they knew of any seizure of oil at Ceyhan from
the Kirkuk pipeline. Director for Exploration and Production
Djan Suppi told us that his office in Ceyhan reported that
BOTAS was holding Iraqi oil, and that it had nearly filled
all the storage available at Ceyhan. They did not know under
what authority BOTAS was acting.


9. (C) The GOT may have initiated this seizure to send a
message to the Iraqis. According Genel Enerji general
manager Orhan Duan, who formerly worked at TPAO, impounding
Iraqi oil, or threatening to do so, is a tactic Turkey has
used successfully in the past to get Iraq to pay its debt to
Turkey. It is equally likely that BOTAS did this on its own
under heavy financial pressure (it has $10 billion in
uncollected receivables). In any case, this opens up another
economic option for Turkey. Recent Iraqi threats to cut off
oil to Turkey are not credible, both because Iraq stands to
lose more than Turkey from an embargo, and because Turkey has
sufficient oil supplies from other sources to meet its
domestic needs.

Targeting Barzani family investments in Turkey
-------------- -


10. (SBU) Masoud Barzani is at the epicenter of the PKK
crisis and is a target of both government and public rage.
Newspapers and television media reports have focused on his
investments in Turkey and suggested sanctions be aimed at
these companies. In the Mersin Free Trade Zone, the Barzanis
reportedly operate seven companies: Golden Universal, Feder
Foreign Trade, Dolphin Foreign Trade, Sunset Advisors,
Teknotas, Sonmezler Transport and As Marketing. In
Gaziantep, the Barzanis are reported to own the Emin Foreign
Trade, Petroleum and Agricultural Production Company. In
Istanbul, Barzani family members are reported to own the
Zagros Construction and Foreign Trade Company. In addition,
Barzani is reported to have large interests in the Kahy and
Fahir Ibrahim Muhammet cigarette companies, whose products
are sold in Turkey. It is not clear what actions the GOT
might take against these companies, but tax investigations
seem a likely step.

Visa restrictions on Iraqis
--------------


11. (SBU) Turkey-Iraq Business Council Chairman Aksoy also
mentioned imposing visa restrictions on Iraqis as a potential
action, claiming that Turkey is the only country that offers
visas to Iraqis. This would be an easy tool to employ,
particularly because it could be targeted.

Comment
--------------

12. (C) Each of these measures carries a down side. But the
costs of inaction are even higher for a newly elected
government facing enflamed public demands for immediate
action against the PKK. Turkey will move against the PKK:
the question is when, how and whether they will do so in
conjunction with the United States. End comment.

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

WILSON