Iraq–Turkey Dry Canal

The new alternative route can transform the economies of the two countries. But the devil is in the detail.

Turkey is trying to take advantage of its favorable geostrategic position. Situated at the crossroads from Western Asia to Europe, Turkey emphasizes its role at every opportunity, be it the transit of hydrocarbons from Russia or other oil and gas producing countries to Europe or new transport corridors with highways and railway lines. In recent years, the Middle Corridor (Trans-Caspian International Transport Route) has been developing. However, with the improvement of the security situation in Iraq, the Dry Canal project has again become relevant. The Dry Canal is a logistics line from Istanbul through Mersin in the south of the country to Iraq, where the route runs through Mosul, Baghdad, Najaf, Basra and reaches the coast of the Persian Gulf.

The project was discussed during Iraqi Prime Minister Mohammed Shia al-Sudani’s visit to Ankara to meet with President Recep Tayyip Erdogan on March 21–22.  In a joint press statement with his Iraqi guest, Erdogan declared that the two sides had agreed to work together to implement the Dry Canal project. Erdogan said that the transit project called the Development Road project was believed to become a new Silk Road in the region.

Implementation funds could be obtained from external sources, including the budget for the reconstruction of Iraq.

Back in February 2018, at a special conference in Kuwait, Turkey announced that it would provide credit lines worth $5 billion to Iraq. The Ministry of Foreign Affairs of Saudi Arabia guaranteed a $1 billion loan through the Saudi Fund for Development and another $500 million loan. Qatar announced $1 billion in loans and investments, while the United Arab Emirates pledged $500 million for reconstruction (in addition to $5.5 billion in private investment). Germany said it would provide $350 million in aid, and Great Britain pledged to provide up to $1 billion in export credits annually for 10 years.

UAE Minister of State for Foreign Affairs Anwar Gargash later said in a tweet that the UAE had also committed $5.5 billion in private investment to Iraq “in addition” to his country’s commitment, but it was unclear whether that was a new announcement, or not.

The key point in this project will be the new Al-Faw (Grand) Port, which is expected to be one of the largest ports in the Middle East and surpass Dubai’s Jebel Ali Port.

The 10-mile breakwater built for the port broke the world records and won the title of “the longest breakwater ever built”. The project led by the South Korean company Daewoo is planned to extend over 30 square kilometers and include industrial zones, housing projects and tourist attractions. According to the latest data, it is worth almost $5 billion. The port is intended to become a transport hub between Asia and Europe.

However, there are a number of factors impeding the project implementation. For example, neighboring Iran, where the North-South corridor runs, may try to dissuade Iraq, which is influenced by Tehran, from creating an alternative route. Even if the port is built, it will be quite possible to extend the land part not to Turkey but to Iran, switching a part of the transit flow.

On the contrary, the UAE is interested in launching the additional route. In February 2022, a new transportation agreement between Turkey and the UAE was signed. Turkish Foreign Minister Mevlüt Çavuşoğlu stated that those rail lines and highways would run through Iraq.

The Italian company PEG Infrastructure is conducting feasibility studies and designing the land corridor. The Iraqi government estimates that the construction of the double-track rail link from Basra to the Turkish border could cost $13 billion.

The political instability and insecurity in Iraq could also jeopardize the project. In addition to ISIS cells, a sensitive issue is the Kurdistan Region (both in Turkey and Iraq) and, in particular, the activities of the Kurdistan Workers’ Party (PKK).

Interestingly, the Prime Minister of Iraq officially announced the ban on the PKK at the end of March, which was approved by Turkey. However, no official decree was issued. So, the PKK (with headquarters in Iraqi Kurdistan near the border with Iran) continues to operate openly. Obviously the country will not be able to liquidate the PKK by force, since it is a kind of the Deep State in Iraqi Kurdistan. The PKK will most likely be critical of the Dry Canal project, as they previously regularly sabotaged the oil pipeline.

In addition to the Kurds, problems can be caused by different local Sunni and Shia groups that will not miss their chance to take advantage of it. For example, the Beit Shaya tribe in Basra (southern Iraq) staged protests in 2021 demanding jobs for their people during the port construction.

Revealingly, regional instability is also a stimulating factor for the development of the Dry Canal project. Due to the blockade of the Red Sea by Yemen’s Houthis, the traffic of the Suez Canal fell sharply and a part of the cargo to Turkey was transported through Iran from the port in Bandar by road.

Meanwhile, Turkey has additional benefits when launching this new corridor. First, it provides an additional opportunity for the transit of energy resources, since the existing pipeline from Iraq to Turkey has now become a cause of internal strife.

Oil producers in the Kurdistan Region recently said that the progress was slow to reopen the Iraq–Turkey oil pipeline on the one year anniversary since its closure directed by an arbitration court ruling, severely jeopardizing Erbil’s economy.

Oil exports from the Kurdistan Region through the Iraq–Turkey pipeline have been halted since March 23, 2023 after a Paris-based arbitration court ruled in favor of Baghdad against Ankara, saying the latter had breached the 1973 agreement by allowing Erbil to start independent oil exports in 2014.

The daily volume passing through the pipeline is 450,000 barrels of crude oil, so if idle, a monthly loss is approximately $1 billion.

Iraq’s Oil Ministry blamed the international oil companies working in the Kurdistan Region for failing to restart the pipeline, stressing that halting the process was not the decision of Baghdad and that the federal government is “the most affected” by the halt in exports.

The statement added that the Iraqi federal budget obliges the Kurdistan Region to hand over its oil production to Baghdad to be exported, noting that there are reports from OPEC and “reliable international secondary sources” that confirm there are around 200,000 to 225,000 barrels of oil produced on a daily basis in the Kurdistan Region “without the knowledge or approval” of the ministry. Article 13 of the Iraqi federal budget obliges the Kurdistan Region to hand over, on a daily basis, at least 400,000 barrels of crude oil to Iraq’s State Oil Marketing Organization (SOMO) to be exported through Turkey’s Ceyhan Port, or be used domestically in case it is not exported.

Now the pipeline is ready to restart and is being tested. However, a dispute over preferences can arise between Baghdad, Erbil and international companies.

Second, with external investments in Iraq, the government will be forced to comply with obligations and, one way or another, deal with militant groups. Turkey is fighting against the PKK and will probably even be ready to deploy its security forces along the Dry Canal in Iraqi Kurdistan (part of this territory is already occupied by Turkish troops). In this case, Ankara will have a new instrument of influence in Iraq.

Finally, by using the additional route, Turkey will have some economic and political benefits. At the same time, the Turkish domestic policy can use the new infrastructure to involve the Turkish Kurds, thus reducing the risks of anti-government riots, since local PKK cells always use any excuse to escalate the conflict. But at the moment, the country’s economy leaves much to be desired.

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