Baghdad Grapples With ‘Curse’ of US Sanctions on Iran

EghtesadOnline: Iraqi Prime Minister Haider al-Abadi has raised the level of uncertainty over how Iraq will handle US sanctions on Iran.

News ID: ۷۴۵۹۱۰

20 August 2018

In the span of less than a week, Abadi went from pledging to abide by the sanctions the day after they were imposed, to backtracking on his statement.

“I said yes, we will abide … but abide when it comes to dollar transactions,” Abadi told reporters on Monday.

The confusion for Iraqi citizens and political parties is even greater for the Central Bank of Iraq, reads an article published by Asia Times. According to Financial Tribune, excerpts follow:

“Dealing in dollars with Iran has been banned for a very long time,” the bank’s director general of financial operations, Mahmoud Dagher, told the media.

“Neither the bank nor the banking system deals with Iran in dollars when it comes to foreign trade.”

Iran is not only a neighbor to Iraq, with a land border of more than 1,000 kilometers, but it also dominates the Iraqi market.

As in the past, Abadi is walking a tightrope between Tehran and Washington.

Iranian Dairy Products, Cars

Hamid Hosseini, the secretary-general of Iran-Iraq Chamber of Commerce, said in December that “Iraq, for Iran, equals the markets of three continents: Europe, America and Africa.”

Iranian goods account for about 17% of the Iraqi market, making it the second largest destination for exports after Turkey in this respect. Iranian exports to Iraq have risen exponentially over the past decade.

Before US sanctions were reimposed, Iran said it was seeking to control a quarter of the Iraqi market and increase the volume of trade from $13 billion in 2017 to $20 billion in the coming years.

In the markets of central and southern Iraq, one can clearly observe how Iranian goods dominate shop shelves and how dairy products occupy a large place in the refrigerators.

On the streets, the Iranian-made SAIPA and Samand cars are too many to count. The vehicles have not only entered Iraq by highway, but they are also assembled at factories in the heart of the country.

Iraq’s power plants are heavily reliant on diesel and gas to operate, and in this regard, Tehran has an agreement to export diesel and about 25 million cubic meters of gas per day to Iraqi power plants.

Even so, Iraq continues to suffer from major power shortages, which this summer prompted major waves of protests as temperature hovered around 50 degrees Celsius. Since 2005, the Iraqi government has been compelled to conclude successive deals with Iran to ease the shortfall, importing 1,500 to 2,500 megawatts of electricity per year.

For Iraq, Iranian religious tourism is a major source of income.

Each year, about three million Iranian pilgrims flock to the shrines of the descendants of Prophet Muhammad (PBUH) in the provinces of central and southern Iraq.

Baghdad charges a $40 visa fee per tourist, but Abadi’s government quickly announced it would reduce that amount for pilgrims as sanctions on Tehran came into effect.

Iranian goods are hugely popular in the central and southern provinces of the country, as a much more affordable option than goods made in Turkey. Not to mention the foodstuffs Iraqis depend on for their daily diet.

For much of the population, those low prices make a major difference in the household budget, especially with the rise of unemployment and poverty following the price of oil—the key export on which Baghdad relies to conduct about 97% of its economic activities.

Iran’s trade surplus with the Iraqi private sector is more than $7 billion.

Against this backdrop, the Iraqi government appears at a loss, with scant plans in place to deal with the first package of US sanctions against Iran, which is light compared to the second round coming in November.

Mohammed Saleh, an economic adviser to the prime minister, says Iraq faces a dilemma in the coming period.

“Given the closed border with Syria and the dangerous situation [on the border] with Jordan, for Iraq only Turkey remains” to compensate for the shortage in Iranian goods when the second tranche of US sanctions comes into force.

“But also [Turkey] is in a vague position as a result of the US sanctions,” he added, with a note of desperation.

“Iraq will have to comply with the US sanctions on Iran and it will have to compensate for the loss of Iranian goods by producing some of them,” Saleh told Asia Times, adding that this also applies to the gas sector.

“We will also have to revive the manufacturing of oil products by reactivating refineries suspended from work. The same goes for agriculture, if Iraq can persuade the Turkish side to up Iraq’s water quotas.”

Asked whether Iraq had immediate plans to implement what he had referred to, he said: “Unfortunately, so far, there are no actual plans on the ground,” stressing that Iraq was still reeling from the war against terrorists and the failure to form a government after the latest elections.

Until now, Iraq has not faced major issues with Tehran or Washington over the latest US sanctions.

“Trade between the two countries (Iraq and Iran) is proceeding normally,” said Nasir Behrouz, Iran’s trade adviser in Baghdad.

“The import and export process with Iraq continues at all ports. Iran is determined to expand its presence in the Iraqi market to suit the interests of the two countries,” the economic adviser was quoted as saying by IRNA.

Behrouz described the sanctions against Iran as “the curse” and said that the second round was an impending disaster that Iran must redress.

He did not say whether Iraq would be able to tackle this curse and find a substitute for Iranian imports.