International Sanctions Divert Iran Products to Iraqi Markets

As a result of international sanctions, Iran has been flooding Iraqi markets with goods in an attempt to stop the fall of the Iranian rial against the US dollar. Nasir Hassoun writes that hard currency is being transferred from Iraq to Iran through the motor trade, and the volume of trade between Iran and Iraq doubled last year.

al-monitor An investor speaks on the phone during trading hours at the Iraq Stock Exchange in Baghdad May 10, 2012. Photo by REUTERS/Mohammed Ameen.

Topics covered

us, sanctions, oil, iraq, iran, economic

Jul 2, 2012

Observers of Iraq’s economic situation have noticed that the country’s market has been flooded with Iranian products. Different methods are used to promote them in an attempt to double the amount of money transferred to Tehran. This increase in money will be used to stop the deterioration of the Iranian rial against the US dollar as a result of international sanctions, according to Iraqi Parliamentary Economic Committee member Nora Salem al-Bijari.

Al-Bijari stressed that if the Ministry of Planning gathers accurate statistics at the end of this year, it will show that the volume of trade between Iran and Iraq doubled from $7 billion last year to $14 billion, pointing out that large amounts of cash payments in hard currency are being leaked into Iran through the motor trade. She further added that certain parties have created several outlets to quickly sell tens of thousands of poorly made cars, having spent large amounts of money on these cars relative to their quality. These outlets include the Ministry of Commerce, the Ministry of Industry and the provincial councils.

Bijari noted that the dumping policy will strongly affect the Iraqi economy, as it is impossible for the country to be able to spend $50 billion annually on importing goods, including $7 billion on cars, at a time when a Japanese company has expressed its willingness to move one of its largest factories to Iraq for half the aforementioned price. Previously, the Iraqi Central Bank had accused Syria and Iran of deliberately emptying the Iraqi market of foreign currencies and withdrawing large amounts of cash through the increasing volume of trade in a manner that contributes to the decline of the Iraqi dinar against the US dollar.

Ali Diryoul, head of the Center of Iranian Studies at the Faculty of Political Science at Baghdad University, denied that “the international sanctions on Iran could have a direct impact on the Iraqi economy; on the contrary, the sanctions have an indirect effect that is almost invisible. However, we should not underestimate them.”

He pointed out that the sanctions on Iran are affecting Iraq's economy through the withdrawal of foreign currencies from the Iraqi market through legal and illegal means. He noted that the “the Iraqi market relies on importing goods and products from neighboring countries, especially Iran, Syria, Turkey, Jordan and the Gulf states. It is also a passageway to bypass the sanctions on Tehran. He added that while Iraq is obliged to implement the international resolutions, most goods are not included on the sanctions list, such as food and consumer goods. Diryoul noted that some Iranian traders stipulated that the US dollar be used for transactions based on the previous price of the Iranian rial.

Economist Imad al-Abboud stressed that Iraqi traders should begin to impose their own conditions, adding that there are several countries that are eager to win a foothold in Iraqi markets. He went on to say that everybody is aware of the facilities provided by several Asian countries in an attempt to win Iraqi trader. Abboud warned against relying on having only one business partner. According to him, the Iraqi market can absorb around $50 billion in goods annually, but local parties are shifting from trading with Iran to simply selling Iran’s products.

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