US sanctions cause big losses for Iraqi investors in Iran

As the United States reactivates sanctions against Tehran, Iraqi investors in Iran are taking major economic hits and some businesses are being forced to close.

al-monitor A customer changes Iraqi dinars and Iranian rials at a money changer in Baghdad, Iraq, Oct. 4, 2012.  Photo by REUTERS/Thaier al-Sudani.

Aug 23, 2018

The Iranian economy has spiraled out of control since a new set of US-enforced sanctions against trade with Iran went into force Aug. 7, as its currency value has been plummeting ever since while inflation rates are on the rise. Iraqi investors in Iran have been far from immune from the fallout.

While those investors have endured significant losses in light of the currency’s plunge, the Iraqi government has opted for discretion, refusing to reveal the number and size of their investments. Both the Iraqi Ministry of Trade and the Iraqi Consul on Trade at the Iraqi Embassy in Tehran refrained from responding to Al-Monitor’s questions in this regard.

On the other hand, Al-Monitor had the chance to interview a number of Iraqi businessmen based in Iran to make sense of the damages they have suffered. One investor, Saad al-Ziadi, said, “I put an irretrievable, the equivalent of $100,000, as a fixed deposit in an Iranian bank at a 15% interest rate.” It seems things didn’t pan out very well. “The Iranian currency has been free-falling at an alarming rate,” Ziadi stressed.

“The $100,000 I’ve entrusted has an approximate value of $50,000 right now,” he added. “Thousands of Iraqis have done as I did, and now they’ve lost over half their capital.”

Jalal Hashem was forced to close the door of his tourism company in Iran. He founded the business 10 years ago to attract Iranians to Iraq to visit the shrines of Shiite imams in Najaf, Karbala, Baghdad and Samarra. The number of Iranian tourists has lowered dramatically, he said, because the currency's collapse makes the cost of such a visit much higher.

“I closed the tourism company three months ago. An Iranian tourist would pay $500, about 2 million Iranian tomans, two years ago [to visit Iraq]. Now, they would have to pay 5 million Iranian tomans,” Hashem told Al-Monitor by phone. “The 5 million is too high a cost in light of the inflation that is getting worse every day.”

He added, “The tourism sector in Iraq has come to an almost complete halt, given that religious tourism makes up 95% of it. Five million Iranians used to visit Iraq every year. Now that poverty is running rampant, these numbers have sharply decreased." Hotels are suffering too, he said. "Owners of Iraqi hotels have also taken a hit as there haven’t been many Iranian visitors. You hear many of them talking about closing their hotels and discharging their employees because they can’t pay them.”

After Turkey, Iraq’s main source of imported goods is Iran. Non-oil trade between Iraq and Iran reached $6 billion last year, while oil trade was at $10 billion.

On a related note, the markets in Shiite-majority Basra province in southern Iraq have fallen into a rut, as Iranian authorities seeking to replenish business there have opened the doors for Iraqis to enter Abadan and Khorramshahr cities on the borders without the need for a visa to shop there.

Ali Karim, a food supplies vendor in Basra province, told Al-Monitor, “Basra’s markets are currently in a rut. The residents are shopping in Abadan and Khorramshahr cities in Iran, taking advantage of the cheap prices there. The Iraqi authorities are just standing idly by as the economic situation in Basra is rapidly worsening. They aren’t even enforcing a tariff on its goods.”

He added, “Iraqi goods are overpriced and of poor quality, and all of this is because of corrupt traders. … As a result, the Iraqi consumer is forced to go to Iran to get their everyday needs.”

Karim noted that “1 kilogram [2.2 pounds] of meat in Iraq costs $12, while you could buy it from Iran for $5. This led to Iraqi shoppers flocking from Iraq to Iran.”

Jaafar al-Hamdani, president of the Federation of Iraqi Chambers of Commerce in Iraq, said the federation "has yet to receive any instruction from the government on the economic sanctions imposed on Iran." Some news agencies have reported that Hamdani has rejected the sanctions and said trade with Iran will continue.

Reuters reported Aug. 21 that Iraq is asking the United States for an exemption from some of the sanctions. But unless that happens, Iraq must adhere to the economic sanctions on Iran to avoid any retaliatory actions by the United States, said Mudher Mohammad Saleh, economic adviser to the Iraqi prime minister.

“Former US President George [W.] Bush and his successor, President [Barack] Obama, continued to give the Iraqi Central Bank accounts legal immunity until 2013,” Saleh noted. “This was in accordance with a presidential executive order issued every year per the US emergency laws.” He added, “Iraq failing to comply with the sanctions on Iran [now], with no immunities as before, will potentially result in freezing the Central Bank account by the US Federal Reserve System. This happened before in the '90s, and it significantly harmed the Iraqi people.”

Many Iraqi economists are speculating that the rate of US dollars smuggled from Iraq into Iran through Lebanese and Syrian banks will see a notable rise when Iran's reserve run out in the future, even though the Iraqi Central Bank announced during Obama's term that it would stop using the dollar in its transactions with Iran.

Correction: Aug. 25, 2018. An earlier version of this article referred to a fixed deposit in US dollars in an Iranian bank, it was rather in Iranian rial.

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