No one's safe: how Iraq's violence will drastically affect the Turkish economy

If the conflict in Iraq continues, Turkey's exports and growth figures are likely to be negatively affected, credit rating agency Moody's Investor Services said on Monday. 

According to Moody's, Turkey's exports could decline by 15 percent if the fighting between the Islamic State of Iraq and the Levant (ISIL) and Iraqi military forces continues. This would increase Turkey's relatively high current account deficit, which has been showing positive signs of steady decline so far this year as exports have risen. 

Turkey's current Moody's rating is negative, standing at Baa3, the lowest grade on the scale. 

As many as 550 Turkish companies halted imports to Iraq last month, according to a written statement from Foreign Economic Relations Board (DEİK) Turkey-Iraq Council President Şerif Ercüment Aksoy. 

Turkish Exporters Assembly (TİM) President Mehmet Büyükekşi announced on Tuesday that exports to Iraq had declined by 22 percent in June year on year due to ISIL's seizure of Iraq's second-largest city of Mosul. Hundreds of ISIL militants routed tens of thousands of Iraqi soldiers from Mosul, reflecting deep failings in the Iraqi military. 

“Similar to the first stage of the crisis in Syria, our exports [to Iraq] have seriously declined. However, overall exports are continuing to rise and break records. We will compensate for the losses sustained in Iraq,” said Büyükekşi, who was positive that Turkey's strong 2014 export performance would offset the existing losses in exports to the country's southern neighbor. 

Iraq was Turkey's second-largest export partner in 2013, though it came third during the month of June. Iraq imports a large quantity of Turkish refined oil products, much of whose raw material originates in Iraq, as the country lacks Turkey's refinery facilities. Global oil prices rose slightly following the seizure of Mosul, although Moody's said that if the ongoing conflict results in a more drastic hike in prices, Turkey's current account deficit will be more directly affected.

Turkish Energy Minister Taner Yıldız said last month that Turkey will begin exporting an additional 4,000 tons of refined oil products to Iraq daily, increasing the daily amount to 13,000 tons. The oil is expected to be shipped via the Habur border crossing to the Kurdistan Regional Government (KRG). Yıldız said the crossing's infrastructure and services would need to be developed to meet the additional traffic of oil tankers.