US embassy cable - 03ANKARA7992

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