Trade volume between Turkey and Iraq exceeded 14.3 billion dollars in 2025, making Iraq Turkey’s fifth-largest foreign trade partner. Government officials have announced a medium-term target of 30 billion dollars, and in the first five months of 2026 bilateral trade already stood at roughly 3.7 billion dollars. For a Turkish company selling goods or services into Iraq, this growth also means a growing exposure to unpaid receivables and unmonitored contracts.
Exports to Iraq from certain Turkish provinces saw marked declines over the same period, showing that the market carries as much volatility as potential. As volumes grow, the impact of a single unpaid invoice on a company’s cash flow grows with it. This article looks at what Turkish companies doing business with Iraq should watch for, from the contract drafting stage through to collecting on outstanding receivables.
Why Growth in the Iraqi Market Also Means Growing Legal Risk
Consider a Gaziantep-based construction materials manufacturer delivering to a contractor in Erbil under a six-month payment term. The first three shipments are paid without issue; on the fourth, the buyer delays payment, citing a “delay in project financing.” This scenario is one of the most common situations Turkish suppliers encounter in Iraq. The problem is rarely the quality of the goods. It is that the parties never settled, at the outset, which legal system and which mechanism would govern collection of the debt.
Iraq’s commercial environment is generally regarded as a market with limited predictability, owing to fluctuations in security conditions and financing availability. That makes it essential to draft the contract as a risk-management tool, not merely a statement of price and delivery terms.
Three Points Commonly Overlooked at the Contract Stage
In practice, a large share of disputes trace back to a handful of clauses overlooked at signing. Three elements are particularly decisive:
- Governing law and dispute resolution forum: the contract should state clearly which country’s law applies and where disputes will be resolved, whether before a local court or by arbitration.
- Payment security: especially for early-stage transactions, including a banking instrument such as an irrevocable letter of credit or an advance payment guarantee in the contract significantly reduces the risk of default.
- Staged delivery and payment: collecting the full price in tranches tied to delivery milestones, rather than as a single lump sum, limits the total exposure in the event of a delay.
For example, if a furniture exporter’s contract fails to specify a dispute resolution forum, then once payment is withheld, it becomes contested which country’s courts or tribunals have jurisdiction. That uncertainty alone can extend the collection timeline by months.
The First Steps to Take Once a Payment Delay Begins
A contractor missing a payment deadline by two weeks does not yet mean litigation is imminent. At this stage, a written notice of default and careful documentation are critical. Recording the stated reason for the delay, any proposed new payment schedule, and any claim for late-payment interest in writing creates the single most important body of evidence for a later enforcement or arbitration proceeding.
In practice, companies often try to manage delays informally and in good faith, only to find themselves months later trying to pursue a claim with no written record at all. Contract monitoring should become a systematic filing process from the moment a default occurs, not a formality that is only remembered once payment is already overdue.
What Protection Does a Foreign Arbitral Award Provide in Turkey
Iraq became a party to the New York Convention on the recognition and enforcement of foreign arbitral awards, and the Convention entered into force for Iraq on 9 February 2022. This means an arbitration clause in an Iraq-related contract is no longer a purely theoretical safeguard.
Iraq’s accession, however, came with three reservations. The Convention does not apply to awards rendered before its entry into force; recognition of awards issued in another state is made subject to reciprocity; and its scope is limited to disputes considered commercial under Iraqi law. Iraq’s accession to the Convention is itself what strengthens the practical value of arbitration, but these reservations narrow the Convention’s scope and limit the availability of enforcement, meaning arbitration should not be treated as an absolute guarantee.
On the Turkish side, recognition and enforcement of foreign court judgments and arbitral awards is governed by Law No. 5718 on International Private and Procedural Law, and the two countries also have a judicial cooperation agreement in place. Under this framework, an arbitral award obtained against an Iraqi counterparty can be enforced before Turkish courts if that counterparty holds assets in Turkey. The decisive question is in which country the counterparty actually holds assets that can be collected against.
Is Arbitration Alone Enough? Local Process and Local Partnership
A common assumption deserves scrutiny here. Many companies assume that including an arbitration clause in the contract is, by itself, sufficient protection. In reality, if the counterparty’s entire asset base is located within Iraq, enforcement of an award obtained in Turkey or in a third country still depends on Iraq’s own local enforcement machinery.
For that reason, the more sound approach is to treat the arbitration clause and the local enforcement process as complementary, not alternatives. In practice, some companies manage this through an ongoing collaborative relationship with a local law firm active in the relevant country, maintaining a continuous exchange of information. How that model works has been discussed previously under legal collaboration partnerships, and why local partnership is needed in the first place was addressed in detail in local legal support.
A counterargument can be made that, for small, recurring transactions, the cost of retaining separate local counsel for every contract is disproportionate. That objection has some merit, but settling the balance between the size of the receivable and the cost of legal protection in advance resolves the issue before the contract is signed, rather than after.
What to Do in Practice
Security for receivables in commercial relationships with Iraq comes not from any single measure but from applying several steps together. A reasonable order of priority is:
- State the governing law and the dispute resolution forum (arbitration or court) clearly in the contract
- Secure payment through a banking instrument for high-value transactions
- Keep systematic written records of correspondence and notices from the moment a delay begins
- Plan the enforcement strategy from the outset, based on where the counterparty’s assets are actually located
Each of these points can be addressed at the stage of drafting and reviewing contracts. Planning these issues in advance, during the drafting of commercial contracts, reduces the likelihood of later needing to resort to debt collection and enforcement proceedings, and makes the process more predictable if that step does become necessary. How enforcement and litigation generally work for a foreign investor has been covered in detail previously in this article.
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