Despite potential trade sanctions, Kurds continue with exports

The Iraqi government and neighboring nations threatened a crackdown on trade with the Kurdish region following its independence vote. Sanctions could hurt the region's economy but Kurdish leaders are confident their goods are too valuable to the larger economy. 

First Look

More than three weeks after Iraq's Kurds voted for independence, it's business as usual at the bustling Ibrahim Khalil border crossing with Turkey.

Ankara has threatened to impose economic sanctions on Iraq's autonomous Kurdistan region to deter moves towards independence, but hundreds of trucks still cross the border each day – some with supplies for Kurdish areas, others en route to Baghdad.

Closure of the border would sever a lifeline for the region in northern Iraq and step up efforts by Turkey, Iran, and the Iraqi government to isolate it.

But the Kurdistan Regional Government (KRG) is gambling that its three main trade partners will be reluctant to impose a blockade that would put billions of dollars in trade at risk and could hurt all sides involved.

"We send about 100 packed trucks a day to Baghdad," said Hani Anas, a trader standing by rows of steel rods stacked near the border. "Iraq will suffer as well."

It is a risky gamble for a region that is heavily dependent on food imports and oil exports, via a pipeline that passes through Turkey. The undermining of its economy could deal a heavy blow to its chances of survival as an independent state if it pushes ahead with breakaway moves.

The outcome of the standoff could also have repercussions far beyond the immediate region as Iraqi Kurdistan produces about 650,000 barrels of crude oil per day – 15 percent of Iraqi output and around 0.7 percent of global oil production.

The KRG has not taken any formal steps to break away from Iraq since the Kurds overwhelmingly backed independence in a referendum on Sept. 25, but has scheduled regional presidential and parliamentary elections for Nov. 1.

"If Baghdad tries to hurt us it will hurt itself," said Soran Aziz, vice president of the chamber of commerce and industry in the Kurdish administrative capital Erbil.

"If borders are closed with neighboring countries it will have a limited impact on us," he added. "If an economic blockade impacts us by 1 percent, it will impact them by 10 percent."

Pressure builds

Baghdad opposes Kurdish independence because it wants to hold Iraq together. Iran and Turkey fear secession would encourage their own Kurdish populations to press for a homeland, and Washington worries that the tensions will damage unity in the fight against Islamic State.

Iraqi Kurdistan is certainly vulnerable over its economy. Apart from oil, it is largely dependent on agriculture, tourism, and cement and steel exports to Baghdad and other Iraqi cities.

But some Iraqi officials acknowledge that blocking the main trade route between Iraqi Kurdistan and other parts of Iraq would hit not just the Kurds' economy.

Turkish exports to Iraq this year had by the end of August reached $6.4 billion.

"This key trade route is a lifeline for all of us and we will make sure to keep it operational, no matter what levels of disagreements," said Waleed Mohammed, an advisor to the Iraqi trade ministry.

Near the border with Turkey, traders seem confident as they work their cellphones, dealing with orders. Around them, laborers load crates of powdered milk and potatoes on to trucks that haul average loads of 27 tons to Baghdad and elsewhere.

"There is no way anyone can close down the border. One truck arrives and then heads to Baghdad, another one goes the other way," said Samer Rushdi, a trader who says he is so busy he cannot take time off.

Even so, pressure on the Kurds has mounted since the referendum, especially from Baghdad, which has imposed an air ban on Iraqi Kurdistan, slapped sanctions on Kurdish banks and halted foreign currency transfers to the region.

Iraqi government forces have also captured the city of Kirkuk, wresting control of an area that is rich in oil and a vital source of revenue.

Government forces have also taken control of Kurdish-held areas of Nineveh province, which includes the city of Mosul, and the Mosul hydro-electric dam is among the positions recaptured, according to a government statement.

Iran has shut its border crossings with Iraqi Kurdistan and Turkey has said it could do the same, warning the Kurds they will go hungry if the border is closed and that their revenues will dry up if it closes the oil tap.

Reasons for caution in Iran

Iran has vast economic and military influence in Iraq, but also has reason to tread cautiously.

Iraqi officials say Tehran has gained a big edge in the Iraqi market by flooding the country with cheap goods such as air conditioners and cars, and cannot afford prolonged disruptions.

Iran exports goods worth about $20 million dollars to Iraq each day. One third of the exports – goods worth about $200 million a month – go to the KRG, Hamid Hosseini, head of the Iran-Iraq Chamber of Commerce, was quoted as saying by Iranian media.

About 2,000 trucks usually bring goods from Iran to Iraq each day – with 500 to 600 of them delivering items to the KRG.

But since the referendum, Iran has prevented at least 600 trucks, carrying about 13,000 tons of fuel, from crossing the border into Iraqi Kurdistan.

At the Haj Omran border post, a poster of Ayatollah Ruhollah Khomeini, leader of the 1979 Iranian Revolution, stares down at rows trucks lined up to cross the border.

"Iran can't afford to shut the border," Kurdish truck driver Jalal Rasoul said. "Besides, it's our right to create an independent state."

This story was reported by Reuters.