Luke Coleman in Erbil -

As Turkey heads to the polls on November 1, the hostility between the ruling Justice and Development Party (AKP) and the country’s Kurds, represented in Ankara by the People's Democratic Party, continues to make headlines. The Turkish government regards the Kurds in Syria and Iran as mere offshoots of the militant Kurdistan Workers' Party (PKK), which has been fighting a bitter separatist campaign for over 30 years; but its relationship with the semi-autonomous Kurdish Region of Iraq is less straightforward given the growing energy and trade ties.

The Kurdistan Region of Iraq lies south of Turkey and hosts large numbers of PKK militants in bases around the Qandil mountains, close to the borders with Turkey and Iran. The PKK are referred to euphemistically as ‘guests’ by the Kurdistan Regional Government (KRG) in Erbil, which has to walk a fine line between satisfying filial allegiances throughout greater Kurdistan and maintaining good relations with its main economic partner in Ankara.

On June 20, an Islamic State suicide bomber infiltrated a rally in the Turkish border town of Suruc. The explosion killed 33 mainly Kurdish youths, who were congregating before taking part in a reconstruction project in the Syrian Kurdish city of Kobani. The PKK immediately questioned the lack of security that had allowed the incident to happen, and two Turkish policemen were executed in their beds by PKK militants, whom the organisation claim were working without authority.

Ankara soon after announced it would be targeting all “terrorists”, referring to both Islamic State and the PKK. In reality, Turkish military jets focused almost exclusively on PKK bases in the Qandil mountains area, and a fragile two-year peace process between the PKK and Turkish state was over. 

Give peace a chance

KRG President Massoud Barzani was quick to express his anger in a telephone call with Turkish Prime Minister Ahmet Davutoglu over the raids. In an official statement in late July, Barzani “expressed his displeasure with the dangerous level the situation has reached”. He also requested that the issue should not be escalated to such a level, because “peace is the only way to solve problems and years of negotiations are better than one hour of war”. This was the first statement made by a senior Iraqi Kurdish official, with a previous statement by the Iraqi Parliament's speaker Salim al-Jabouri centring on the violation of Iraqi air space.

Barzani has not always supported peace to this degree, however, and KRG policy seems to be moving towards an agreement that the PKK must leave the Kurdistan Region. The group was granted permission to stay in a peace accord following the Kurdistan Region's civil war of the mid-1990s, when the PKK allied with the Patriotic Union of Kurdistan (PUK), with whom it maintains ties. The PUK is a minority party in the KRG, enjoying strong support in the eastern province of Sulaymaniyah. In 1997, Barzani coordinated with the Turkish government in Operation Hammer, one of the largest offensives against the PKK on Kurdistan Region soil.

The KRG head of foreign relations, Falah Mustafa Bakir, told reporters that this July's bombing operation in Qandil by Turkey was disproportionate. “Of course, we do not want our country to be bombarded and we don’t believe it will help solve this situation. It will only escalate the tension. Therefore, we urge both sides to go back to the ceasefire.”

And during a recent trip to Washington, Bakir said: “Yes, we do not agree with the actions of the PKK recently, but that doesn’t mean that the response should be through bombardment. We believe that there is no military solution to such kind of problems. The best way forward would be peace and talks.”

When the village of Zargali in the Qandil mountains was bombed by Turkey on August 1, nine Iraqi Kurdish civilians were killed. Barzani laid the blame at the feet of both Ankara and the PKK. “[The PKK] should withdraw its fighters from the Kurdish region so as to ensure the civilians of Kurdistan do not become victims of that fighting and conflict,” the KRG president said. “We condemn the bombing, which led to the martyrdom of the citizens of the Kurdish region, and we call on Turkey to not to repeat the bombing of civilians.”

Iraqi Kurdish commentators are naturally furious with the treatment of Kurds in Turkey, although there is growing resentment towards the PKK in some quarters. Independent press is still largely a fiction in the Kurdistan Region, but is united at being able to separate the economic necessity of doing business with Turkey, with anger at its campaign against the Turkish and Syrian Kurds.

Trade trumps kinship

Both Ankara and Erbil understand the need for strong relations. The Kurdistan Region's vast reserves of oil have made the region considerably better off than Kurds in neighbouring countries, even while the KRG tries to structure the debt. An attempt to raise funds through a bond issue earlier this year faltered due to the opaque nature of the economy. Goldman Sachs and Deutsche Bank were hired to arrange the sale, but could only secure a lending rate of 11-12% over five years, making the debt more expensive than that of junk-rated Ecuador. The plans were shelved as investors also shied away from possible legal complications with Iraq's central government in Baghdad. The Turkish state appears keen to help out the KRG when it can; unable to pay large sections of its bloated public service, the KRG accepted a $500mn interest free loan from Ankara in February. The loan is likely to be paid with crude by the energy-hungry Turks.

Turkish PM Davutoglu recognises that trading ties are the most significant diplomatic tool in a troubled region. “What makes your borders safe is not the number of your tanks, but the volume of mutual trade and investment with your neighbours,” the PM has noted in the past.

At the moment, most of Turkey's energy is imported via the eastern pipelines of Azerbaijan, Iran and Russia. The Kurdistan Region's nascent production and financial and security crises prevent it from a place at the top table, but its pipeline that runs from Kirkuk to the Mediterranean port of Ceyhan in Turkey is set to play a bigger role.

The pipeline has a projected capacity of 1.6mn barrels per day (b/d) – and Kurdistan Region reserves were in March put at 50bn proven reserves of oil and up to 10 trillion cubic metres (cm) of natural gas, placing the region eighth in global terms, with 3% of of the world's combined reserves. The report's author, Dr Ghalib Mohammed Ali, head of the Oil and Gas Committee of the Sulaimaniya Provincial Council, claims the “Kurdistan Region will be last place on earth to run out of oil reserves”.

The pipeline stretches 970km, initially westwards from Kirkuk before doglegging north, to the west of Mosul. It crosses into Turkey near the border with Syria before eventually flowing west to the east Mediterranean port of Ceyhan. This route, now more than ever, is subject to flow outages, either from 'hot-tapping' theft or sabotage by the PKK. The KRG put losses due to these interruptions at half a billion dollars in the six weeks from the start of July alone. A PKK attack on July 30 accounted for $250mn of the total. 

Sardar Sharif, a lecturer at the University of Duhok in the Kurdistan Region, outlines the necessity for Turkey's government and the KRG continuing to develop ties. “Economic growth and increased domestic demands for energy make Turkey vulnerable in terms of securing its supply. Despite strong objections from the USA and Baghdad, Turkish companies, individually or in partnership with international companies, have comprehensively invested politically and economically in Iraqi Kurdistan’s oil sector.” 

“Meanwhile, the Kurdistan Region appears eager to play a parallel role by developing oil and gas policies in order to become a credible partner assisted by Turkey,” Sharif goes on. “The Kurdistan Region appears less important than other neighbouring states at this moment, but it may become a valuable strategic partner for Turkey both to ensure deep and solid political relations and also future mutual security issues.”

The emergence of Islamic State around the borders of the Kurdistan Region has had an effect on investment in the region's cities, with the skyline of Erbil in particular studded with stationary cranes and unfinished skeletons of high-rise apartments. But KRG Ministry of Trade and Industry figures reveal that there are now 1,329 Turkish companies registered in the Kurdistan Region, up from 1,023 at the start of 2012.

However, the Kurdistan Region's problems stem not just from the war on its borders and the low price of oil, but also its long-running dispute with the federal government in Baghdad.

The government of previous Iraqi PM Nouri al-Maliki stopped delivering the Kurdistan Region's share of the federal budget in early 2014, accusing Erbil of selling a portion of its oil independently in contravention of the constitution. The KRG was left with no other recourse but to sell all it could produce in an attempt to balance the budget. An agreement between Baghdad and Erbil was struck in December last year, whereby the KRG would supply 550,000 b/d to Iraq's State Organisation for Marketing of Oil mechanism, in return for the 17% share of the budget. But shortfalls in production in January saw the monthly budget payments reduced, a state of affairs which continues today. Both Erbil and Baghdad have expressed an interest in getting the deal back on track, with Kurdistan Region exports now exceeding the daily requirement.

All this leaves Erbil one choice – to sell oil independently. Landlocked and with neighbours Syria and Iran out of the market, Turkey is the only possible customer. With a future clouded by war and a resolution with Baghdad in no way certain, Iraqi Kurds are proving to be the model of economic pragmatism when it comes to Turkey.