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Iraq looks to expand trade with Iran

While officials in both Baghdad and Tehran stress that they are eager to further expand trade relations between the two countries, some Iraqis fear that the government’s pro-Iran policies could be hurting local merchants.
An Iraqi money dealer counts Iranian rial banknotes bearing a portrait of the late founder of the Islamic Republic of Iran, Ayatollah Ruhollah Khomeini, at an exchange office in Baghdad on February 3, 2012. Tens of thousands of Iranian visitors have been finding difficulty in using the Iranian currency in Iraq due to a depreciation of the rial against the dollar. AFP PHOTO/ ALI AL-SAADI (Photo credit should read ALI AL-SAADI/AFP/Getty Images)

The year 2013 registered high levels of commercial exchange between Iraq and Iran, which reached — according to both Iraqi and Iranian officials — more than $12 billion. This comes at a time when the Iraqi government aspires to increase trade between the two, with a goal of $15 billion. In a telephone conversation with Al-Monitor, adviser to the Prime Minister for Economic Affairs Abdul Hussein al-Anbaki explains that the most common goods imported from Iran to Iraq are canned food — including canned cheese and dairy products — as well as soft drinks, meats, vegetable oil, household items and electrical appliances. 

The Iraqi government hopes that this trade increase will strengthen Iraq’s role in ensuring stability in the region in light of the economic and political influence of Iran. Iraqi Prime Minister Nouri al-Maliki’s media advisor, Ali Musawi, told Al-Monitor that Iraq was striving to strengthen ties with all neighboring countries, without exception. He noted that Iran has had an important weight in economic transactions with Iraq, notably since 2003, and pointed to the ease of commercial exchange between the two countries in terms of transportation and quality of goods, among other factors. Thus, according to Musawi, it is only normal for the two countries' commercial exchanges to increase.

For his part, the head of the Commerce Department in the Iranian Embassy in Baghdad, Mahmoud Bahzar, told Al-Monitor that Iran hopes to have $20 billion worth of commercial exchanges with Iraq by the end of 2017, saying, “According to our market observations, commercial exchange reached $10-13 billion by the end of November 2013.” He noted that the increase would come in the form of investments in the gas and electricity sector. Iran is currently exporting 24 billion cubic meters of gas to Iraq annually. Iraq also imports 400 megawatts of power from Iran through the Kermanshah-Diyala line, the Zihab-Khanaqin line and the Abadan-Basra line. These provinces are provided with electricity through high-voltage power lines.

The Iraqi Ministry of Trade noted that it has restrictions and mechanisms in place to monitor and restrict commercial exchange between Iraq and Iran through mobile teams in the Iraqi market and on the borders. In an interview with Al-Monitor, Undersecretary of Trade Yehya Ahmad Faraj attributed the increase in commercial exchange with Iran to “the desire of Iraqi traders to import Iranian goods, given their competitive prices and the ease of transporting goods and bringing them into Iraq.” He added that according to the ministry, the increase in commercial exchange with Iran does not affect the Iraqi market, since it is a large and open one  

Amer Ghanam, who specializes in economic affairs of the Middle East countries, told Al-Monitor that the trade balance is tipping in favor of Iran in an exaggerated way and it is important to bring it back to its normal level. He explained that during the imposition of sanctions on Iran, Iraq has become the biggest trade market for the latter. At the end of 2010, commercial exchanges reached around $10 billion.

Ghanam noted that Iran has taken advantage of the weakness and loyalty of the Iraqi government to send its inferior goods into the Iraqi market. What’s more, Iran competes with the Iraqi market, notably on the level of the agricultural sector. Iran cut off water from a large number of Iraqi agricultural lands through building dams and put its legumes and fruits on the Iraqi market, leaving Iraqi farmers helpless. This is a prime example of the phenomena that could increase even further if Iraq’s pro-Iran economic policies remain as are. Since the second half of 2003, the Iraqi government has allowed the import of Iranian fruits and vegetables, making them a strong competitor for local produce. This led to huge losses for Iraqi famers. Moreover, Iran cut off the water [from rivers that run from Iran to Iraq] to increase Iranian fruit and vegetable exports to Iraq.

Nahida al-Daini, a member of the parliamentary Economy and Investment Committee, told Al-Monitor that the local economy will continue to be negatively affected by the commercial exchange with Iran whether sanctions are lifted or not, because the Iraqi government is totally subordinate to Iran. She noted that Iran is inflicting great losses on the Iraqi economy, yet the commercial exchange is increasing every year. This denotes fluctuations in the economic policy of Iraq, and this is why the government should take the initiative and seek a variety of trade exchange with neighboring countries and not just Iran.

The Iranian Trade Development Organization announced in June 2013 that Iraq is the biggest importer of Iranian goods, affirming that 72% of Iran’s exports go to Iraq. It also noted the Iraqi imports of Iranian goods have increased by 15.7% in comparison to last year.

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