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Turkey: Iraqi Diesel Trade Seen As Too Valuable To Stop

Turkey is set to allow diesel smuggling from Iraq to fully resume soon, reversing an earlier decision to reduce it. As RFE/RL correspondent Charles Recknagel reports in the first of a two-part series on the diesel smuggling, Ankara considers the trade too valuable to its border region to suppress for long.

Ankara, 4 August 2000 (RFE/RL) -- Turkish newspapers are reporting that Turkey's diesel trade with Iraq, which violates UN sanctions, will fully resume soon.

The well-informed "Turkish Daily News" quotes officials as saying the resumption will come within weeks, bringing to an end a government decree which for the past three months reduced the trade by half, or down to some 75,000 tons per month.

That cutback was the latest in a series of on-again, off-again efforts by the Turkish government to satisfy opponents of the trade. The opponents include Washington and London, which want to see Turkey more closely observe its official position of supporting the embargo on Iraq. And they include both foreign and domestic energy companies in the Turkish market, which see the Iraqi diesel as unfair competition.

Turkish analysts say that several million tons of diesel a year move across Turkey's Iraqi border at the Habur crossing and a smaller checkpoint at Igdir. At times the trade has amounted to a quarter of the diesel market in Turkey. As just one sign of its size, the trade has created a fleet of some 40,000 privately-operated Turkish trucks which regularly make round trips to northern Iraq.

In Iraq, the trucks purchase diesel which a company directly owned by Iraqi President Saddam Hussein's elder son Uday offers at well below market prices. The trucks sell the diesel in the Turkish border town of Silopi to a state depot at a government-fixed rate of purchase. From there, it passes into the Turkish market, where distributors traditionally have sold it at a slight discount.

The trade -- plus smuggling of Iraqi oil by sea down the Gulf -- helps provide the Iraqi regime with the income it needs to maintain itself in power. All Iraq's legal oil sales must go through the UN supervised oil-for-food program, which assures revenues are used only to purchase humanitarian goods like food and medicine.

Ankara initially closed the Habur crossing in 1990, when UN sanctions were imposed following Iraq's invasion of Kuwait. And it cut off a 71 million ton-per-year capacity pipeline from Iraq through Turkey to the Mediterranean, later allowing it to reopen only for oil-for-food exports.

But in the 10 years since the Gulf Crisis, smuggling fuel from Iraq by truck has become so commonplace that in Turkey no one today speaks of it as anything but the "diesel trade." And its persistence despite periodic government restrictions has forced both Washington and London to largely turn a blind eye to it.

Turkish officials and analysts say that permission for the trade goes to the top levels of the Turkish government. And in recent interviews with RFE/RL in Ankara, they said that despite occasional crackdowns, the trade is certain to continue thriving.

Seyfi Tashan, director of the independent Turkish Foreign Policy Institute in Ankara, says that many Turkish officials see the diesel business as essential to the economy of the Turkish border area, which has been hard-hit by the drop in overall commerce with Iraq since the 1990 Gulf crisis.

Tashan says the government estimates that the drop in commerce with Iraq -- including Iraqi oil, Turkish consumer goods and a sizeable tourism trade -- has cost the Turkish economy some $40 billion since 1990.

"When you look into what Turkey lost, [it] is nearly by now $40 billion in accumulated losses because of the embargo on Iraq. One of the major things is the reduction of oil coming through the Kirkuk-Ceyhan pipeline, which is used only partially now because of the UN food-for-oil program."

The pipeline from Iraq's Kirkuk oil fields to Turkey's Mediterranean port of Ceyhan provided Turkey with both oil and transit fees.

Tashan says that, due to these losses, there is widespread resentment in Turkey of the embargo on Iraq, even as Ankara officially endorses it in line with UN resolutions.

He says a large part of Turkey's resentment comes from the belief that loss of trade with Iraq directly contributed to joblessness and unrest in Kurdish-majority southeast Anatolia. The Turkish-Kurd separatist Kurdistan Workers Party, or PKK, battled Ankara in the region since 1984 at the cost of some 30,000 lives before fighting subsided with the capture of PKK leader Abdullah Ocalan last year.

"This almost halt and closing of the border for trade with Iraq created a large amount of joblessness in southeast Turkey, and many youngsters staying idle were easy recruits for the PKK. Beginning with 1990, and until 1994 to 1995, this period was a very tough period, and it was only after the introduction of the [Turkish] military forces that this situation was brought under control."

Analysts say that now when there are crackdowns on the diesel trade, they are not in response to international complaints over violating UN sanctions on Iraq. Instead, they are due to pressure from Turkish and foreign energy companies angered by what they see as unfair competition from the low-cost Iraqi diesel.

Necdet Pamir, an expert in the oil trade at the Center for Eurasian Strategic Studies (ASAM) in Ankara, says the energy companies particularly object to the fact they must pay a high fuel tax when buying diesel from Turkish state refineries -- a charge those importing Iraqi fuel can avoid. Pamir:

"If you have smuggling or illegal trading, you have very limited taxes applied to that diesel oil. On the other hand, most of the companies that are responsible for the [legal] oil trade in Turkey, for example, for diesel oil, they have to pay [a] fuel tax of as high as 190 percent, and you don't have that for the illegal trading coming from Iraq. This is not a fair competition."

He says another criticism of the Iraqi diesel trade is that the unfair competition it creates frightens foreign businesses away from participating in privatization of Turkey's energy sector, particularly refineries. That costs Turkey possible infusions of new technical know-how for updating its facilities.

But such complaints appear unable to do more than occasionally reduce the flow of Iraqi oil, as during the last three months. As soon as angry energy companies obtain a crackdown, local administrations, transport firms and chambers of commerce in the southeast successfully pressure the government to ease off again.

That cyclical process has now once again run its course. And all signs are that very soon the diesel trade will boom again, continuing as the biggest money earner in Turkey and Iraq's hard-hit border region.

(The second of two articles on the diesel trade looks at its effect on the economy of Kurdish-controlled northern Iraq.)