The political dynamics behind economic relations between Turkey and the KRI – Ziryan Rojhelati

The political and economic circumstances of the Middle East and Iraq have provided a good opportunity for Turkey to be a significant force in Iraq’s economy, with its influence trickling down from the Kurdistan Regional Government (KRG) area to other parts of Iraq. About one-third of the registered foreign companies in the KRG area, totaling 3,362, are Turkish companies. The KRG and Turkey trade amounts to over one billion dollars per month, while energy issues and cooperation in strategic infrastructure projects remain vital. However, in recent years, the KRG’s economic ties with Iran and the Gulf countries have increased, as has Turkey’s involvement in other parts of Iraq. Although there still exists a strong political tie between both sides, it appears both are adjusting their policies economically, even though no significant change is anticipated in the long term.  

Turkey’s significance as a connector-producer country in this period of geo-economic fragmentation is undisputable for Iraq and the Kurdistan Region of Iraq (KRI). However, the possibility of the long-term continuation of the current situation raises many questions. KRG holds significant importance for Ankara in Turkey’s geo-economy regarding trade, corridor competition, energy supply, geopolitics, regional influence, and the Kurdish issue. Yet, the current bilateral relations might not align with the interests of other regional powers like Iran or the political objectives behind Baghdad’s economic ties with Ankara in recent years. 

After briefly describing the current economic relations, this piece will look into different variables that impact the financial ties between the KRG of Iraq and Turkey. Namely, the impact of Iraq’s domestic dynamics, the KRG area’s internal dynamics, the regional context, and the positions of Turkey’s competitors will be explored. The conclusion will look at possible future trajectories.  

Economic Cooperation between the KRI and Turkey 

The KRG area, with a population of 6,370,668 people, makes up 14% of Iraq’s population, with an economy heavily reliant on oil exports. This represents a large market for Turkish companies. This is also an excellent opportunity for Turkey, which seeks to strengthen its standing among G20 countries. Most of Turkey’s exports to Iraq go through the KRI.  Turkey’s overall value of exports and imports to Iraq and the KRI has remained at around $15 billion since 2022. In 2024, Turkey exported 261.93 billion dollars’ worth of goods, of which 10.70 billion USD was with Iraq and the KRG, accounting for nearly 5% of Turkish exports.  

Moreover, the KRI holds a strategic position for Turkey’s aspirations for expanded trade and energy transmission networks, particularly in trade and Development Road Project-related discussions, which will face uncertainty without the KRG’s willing contribution. 

The existence of 17 flights between İstanbul and Erbil every week has made commercial opportunities easier. Besides, a large portion of the many tourists who travel from Iraq to Turkey are from the KRI. Generally, the prominent role of Turkish companies in construction and infrastructure projects in the KRG is evident, and more than a thousand Turkish companies operate in the KRI. Turkey is also looking forward to resuming oil exports from the KRG and starting investment in the gas sector. 

The Impact of Iraqi Internal Political Dynamics 

The first Iraqi internal political dynamic is the changing relationship between Turkey and the central Iraqi government. Politically, Turkey adopted a closer policy towards Baghdad after the KRI’s independence referendum in 2017, Turkey adopted a closer policy towards Baghdad. Also, after the arrival of Mohammed Shia al-Sudani following the 2021 election, a greater opportunity to develop its economic relations in Baghdad. This was part of a broader bilateral policy that strengthened Turkey’s desire to build its relations with Iraq’s Shiites, which reached its peak in 2023. This was not only related to Sudani, but the role of people like Falih Fayyad, head of the Popular Mobilization Forces, was also evident. Even figures like Nouri al-Maliki, the former Prime Minister of Iraq, known for his previously strained relationship with Turkey, strongly advocated for Turkish companies to invest in Iraq in 2023. 

The issue of double tariffs on Turkish exported goods was resolved through an agreement. Gradually, the path for large Turkish companies in other parts of Iraq opened, and the Development Road Project has become a hot topic of discussion. Iraq, with over $100 billion in central bank reserves and more than 160 tons of gold, and as a significant oil exporter, is an attractive market for Turkish companies. 

The developments of relations between the KRG and Baghdad also had repercussions for Turkey’s policies in the country. Since 2023, especially after the suspension of KRG’s oil exports to Turkey, the issue of paying government employees’ salaries was a significant problem in the region, which, due to the ongoing uncertainty for more than one million government employees, could have destabilized the regional market for Turkish companies. 

In addition, forcing KRI companies to re-register in Baghdad and the permission time for delivering imported goods to markets outside the KRI, while potentially aimed at facilitating and expediting trade processes, also affect the level of imports and reduced Erbil’s influence as a trade corridor between Iraq and Turkey. 

Finally, opening the way for more investment by Turkish companies in Baghdad and Basra, stopping oil exports, instability in the issue of paying government employees’ salaries, and the continued tensions between Ankara and the Patriotic Union of Kurdistan Party (PUK), which holds de facto power in Sulaymaniyah, could further change the nature of political relations between Baghdad and Ankara in the future, in a way that increasingly favors Baghdad. 

The Issue of the Development Road Project 

The development road project, especially where it connects to Turkey, is still an essential concern in Erbil. Although Erbil supports the project, it’s on the condition that it passes through the KRI, and so far, there is no agreement on this matter. Although Fish Khabur, where the road is supposed to connect to Turkey, is currently under the control of the KRI, Erbil remains concerned that Baghdad might seek to assert control over it unilaterally in the future. This concern is rooted in past events, most notably in how the Turkish and Iraqi armies conducted joint military exercises on either side of the border, signaling a coordinated response, following the KRS’s 2017 independence referendum, when the Turkish and Iraqi armies conducted joint military exercises on either side of the border, signaling a coordinated response.  

The K, due to its geographical connectivity, is a crucial land corridor for Turkey to access other Iraqi markets. Along the 370 km land border are three border crossings (Habur/Ibrahim Khalil, Üzümlü/Sarzeri, and Derecik/Mergasor). The Üzümlü/Sarzeri border crossing, due to war and difficult geographical conditions, is more useful for human traffic, and the Derecik/Mergasor crossing has limited individual trade. Besides these, along the Şırnak province border, there are places such as Gül Yazı/Zakho, Aktepe/Bajuka border crossings, which are not active, and discussions about opening the new Ovaköy crossing resurface from time to time. 

Opening a new gateway for trade without the KRG’s participation signifies Erbil’s economic-political weakness in Iraq and the weakening of the Kurdistan Democratic Party’s position in the internal politics of the KRG rurdistan Region. For Kurds, the Hamilton Road, which was built at the end of the 1920s, is a historical example of how roads can be double-edged. On one hand, it has been used to suppress uprisings in the region, and on the other hand, it has opened the door for regional development. Although the Iraqi Prime Minister al-Sudani has said that the primary goal of the Development Road Project is economic and developmental, suspicion remains in the region whether this would lead to circumventing Kurdish control through roads and border crossings is common, just as in the 1980s with the dry canal project, and later in the 2000s with the issue of opening a new border crossing with Turkey in Ovaköy, and then the repetition of the same idea in 2017 by Prime Minister Haider al-Abadi. 

The Issue of Economic Rivals 

Although Iraq’s main trading partners are China and India, they are also distant economic partners, and trade with them is mainly related to oil. Yet, for a country like Turkey, whose foreign trade constitutes a large part of its economy, countries like Iran and the UAE are the main competitors. 

The UAE is Turkey’s main competitor in Iraq. Except for 2020, when there was political tension due to the Yemen War and tensions between the US and Iran’s “axis of resistance” in the region, the UAE’s trade with Iraq has progressively increased. The UAE is also active in the KRI’s energy sector, which Turkey has its eye on, particularly in the gas sector. Since 2022, Iran, too, has made greater efforts to regain its position in the Iraqi market. Mohsen Rezaei, former commander of the Revolutionary Guards and economic deputy to Iran’s previous president, had said, “We cannot fight the war on terror in regional countries but let economic gains go to other countries.” Iran’s poor economic situation, the US sanctions, the relative failure (at least so far) of the political-security project of the “axis of resistance”, and the fall of Assad’s government in Syria in 2024 have all made Iraq more critical to Tehran than ever before, both politically and as an economic market. The fall of Assad and the emergence of investment opportunities for Turkey in Syria mean that Turkey could become a significant economic power in a region between the Gulf and the Mediterranean, which was Iran’s years-long dream of creating a regional hegemony by politically and economically connecting with Iraq and Syria. 

Iran has 460 companies in the KRI, and its trade is around $6 billion. Following Masoud Pezeshkian’s visit to the KRI  in September 2024, meetings between the chambers of commerce of Iran and the KRI have increased, and establishing two free trade zones is planned. Iran has three official borders and four unofficial borders with the KRI, which has provided more opportunities for goods transportation, although in the public view, the quality of Turkish goods appears to be higher. 

In 2023, the number of international trade sanctions imposed on Iran by countries reached 257, while financial sanctions totaled 441, creating opportunities for countries like Turkey in places such as Iraq. Turkey’s main competitors in the Iraqi market are China, the UAE, and Iran, two of which have major geopolitical issues with the United States, which has created a significant opportunity for Turkey. U.S. sanctions on Iran, a key trade competitor of Turkey in Iraq, have created a significant opportunity for Turkey. For instance, the ban on Iraq’s importing gas, electricity, or petrochemical products from Iran has opened the door for increased Turkish exports. However, a potential agreement between Iran and the US on the nuclear issue could reverse these gains and pose new challenges for Turkey in these sectors.  

Impact of the Domestic Politics of Turkey and the KRI 

Since 2017, a new cycle of internal conflict has emerged between the two main ruling parties in the KRI, driven by rise of a new generation of leaders, diverging external political alliances, particularly within Iraq, and ongoing power struggles. This conflict persists and has prevented the formation of a new government following last year’s elections in October 2024. Without a political agreement between the two sides, the upcoming 2025 Iraqi parliamentary elections will likely further prolong the deadlock. 

To complicate further, the Patriotic Union of Kurdistan (PUK) has had a discordant relations with Ankara in recent years and has adopted a political discourse close to the PKK. This stance is not only shaped by PUK’s strained relationship with Turkey but also by its competition with the Kurdistan Democratic Party (KDP) and the broader dynamics of internal Kurdish political balance. Although the situation has somewhat changed recently, past tensions paved the way for the closure of Sulaymaniyah Airport. Between 2019 and 2025, Turkey conducted at least 36 military and security operations against the PKK in the Sulaymaniyah region, mainly targeting mid-level militants. This volatile political and security environment has significantly constrained opportunities for Turkish companies to expand their operations in the area. 

Between 2015 and 2025, Turkey’s Justice and Development Party (AKP) gradually lost its position as the sole party forming the government and was forced into an alliance with the Nationalist Action Party (MHP), which, after 2017, paved the way for tense political relations but continued economic ties with the KRI. Although in 2021, Turkey gradually changed this policy, and the visit of the Turkish President Erdoğan to Erbil and the raising of the Turkish flag during his reception was a clear sign of improving political relations. The results of the Turkish government’s recent talks with Abdullah Öcalan and Turkey’s indirect and direct talks with the Syrian Democratic Forces (SDF) are critical political changes that can also impact economic and trade relations between Turkey and the KRI. 

Conclusion 

The current global landscape allows Turkey to continue leveraging its strategic position between China, Russia, and the US while pursuing a regional approach and maintaining a balance between Erbil and Baghdad in Iraq. In doing so, Turkey aims to capitalize on economic opportunities within Iraq’s market of 45 million people. Additionally, due to disparities in capacity and political constraints, Turkey’s economic competitors may have difficulty in curtailing Turkey’s influence. This outlook leans toward optimism, as the global economy is increasingly shaped by geo-economic fragmentation, where political and geopolitical developments heavily influence trade relationships. In Iraq and the KRI specifically, factors such as economic competitors, regional political dynamics, and internal Iraqi politics, including internal politics in the KRI, will play a critical role in shaping the future of Turkey’s economic and trade engagement. 

Another point is that the political situation has always affected Turkey’s economic relations with Iraq. From 2003 to 2007, when Turkey’s relationship with Iraq and the KRI gradually improved, the trade volume decreased, but after that, until 2015, it continuously increased. During this period, the poor relations with the Nouri al-Maliki government in Iraq, especially after the withdrawal of US forces and the escape of Tariq al-Hashimi, Iraq’s Vice President, to Turkey, did not reduce Turkey’s trade volume, as the trade with the KRG made up for the decline. urdistan Region dealt with Turkey differently than Baghdad did. The events of the coup attempt in Turkey, changes in Turkey’s internal political alliances, the ISIS war, and the KRI’s independence referendum coincided with the fact that Turkey’s trade until 2019 did not reach the level it had achieved in 2015, but from 2020, when Turkey adopted a bilateral political-economic approach with Baghdad and Erbil, it increased again. 

In the current situation, Iraq’s upcoming election could directly impact Turkey’s economic activities in Iraq. Suppose Qais Khazali or Nouri al-Maliki becomes the kingmaker in determining actor in selecting the next prime minister. In that case, they will likely adopt a different approach with Turkey than al-Sudani, mainly due to the situation in Syria. If al-Sudani had the chance to continue as Prime Minister, the relationship would have continued for some time. However, in general terms, the overall geopolitical situation in the region and Iran-Israel and Iran-US tensions will have a significant impact on this. Therefore, it is expected that in the long term, the favorable context that has been created for Turkish investment in Iraq will not continue, which will cause Turkey to hold onto its position in the KRI of Iraq. 

This paper is part of a research project: “Turkey-Iraq Relations: Opportunities and Tensions in Security and Connectivity” is a project of CATS Network. The Centre for Applied Turkey Studies (CATS) at the Stiftung Wissenschaft und Politik (SWP) in Berlin is funded by Stiftung Mercator and the Federal Foreign Office. CATS is the curator of the CATS Network, an international network of think tanks and research institutions working on Turkey. “Turkey-Iraq Relations: Opportunities and Tensions in Security and Connectivity” is a project of CATS Network.