Tim W Hayes  11/01/2007 01:27:35 PM  From  DB/Inbox:  Tim W Hayes

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C O N F I D E N T I A L        ANKARA 02680

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    ACTION: AMB
    INFO:   POL PA PMA LEGAT GSO FCS ECON DAO CONS DCM

DISSEMINATION: AMB /1
CHARGE: PROG

APPROVED: DCM:NMCELDOWNEY
DRAFTED: ECON:DEPPLER
CLEARED: POL:JWEINER, PMA:CSIEBENTRITT

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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