Iraqi President Barham Salih, right, and Iranian President Hassan Rouhani hold a press conference at Salam Palace in Baghdad, Iraq, March 11, 2019. (AP)

By Track Persia

May 30, 2019

Iraq has been Iran’s most significant ally following the 2003 US-led invasion of Iraq. During last official tour to regional countries, Iranian Foreign Minister Mohammed Javad Zarif was keen to meet with senior Iraqi leaders in his two-day visit to the country. His mission was urging them to side with his country against the US.

Tensions between the US and Iran have escalated after President Donald Trump withdrew from a 2015 multinational nuclear pact with Iran and reimposed sanctions on Tehran, notably targeting its key oil exports. President Donald Trump argues that the nuclear deal has failed to sufficiently curb Iran’s ability to develop nuclear weapons or halt its support for militias throughout the Middle East.

Under these suffocating sanctions, the Iranian leaders find Iraq the best ally that can help them circumvent the US sanctions. Iranian leaders have established close economic ties with the Shiite-led government in Baghdad and have further boosted these ties after the Trump administration re-imposed more sanctions. They intend to maintain close commercial strategy with Iraq, especially the latter relies on the Iranian gas for nearly half of its energy supply. Iraq is the second-largest recipient of Iranian non-oil exports.

With the re-imposition of the US sanctions, however, the Trump administration has placed a high priority on curbing Tehran’s economic exchange with Iraq, though it granted Iraq a few exemptions from sanctions in order the country could continue import natural gas from Iran. Iraq imports around 45 per cent of its power generation from Iran. However, this did not stop the Trump administration, the Obama administration before it, from punishing Iraq’s financial institutions that were allegedly violating US sanctions on Iran by moving Iranian money. Some Iraq-based banks, such as al-Bilad Islamic Bank, has been recently investigated by the US for such allegations.

The sanctioned Iraq-based banks are accused by the US of having ties with Iran’s proxies in Iraq such as the powerful Shiite paramilitaries integrated into the Iraqi government and Iraq’s institutions widely known as the Popular mobilisation Units (PMU). These militias have been accused by the Trump administration of targeting the US interests in Iraq and the region

Speaking today to reporters in Abu Dhabi ahead of emergency summits of Arab leaders in Saudi Arabia on Thursday, US National Security Adviser John Bolton has claimed that naval mines ‘almost certainly from Iran’ were used to attack oil tankers off the coast of the United Arab Emirates. Bolton said the ‘prudent and responsible’ approach taken by the US – which has beefed up its military presence in the region – made it clear to Iran and rebel groups that such actions risked a ‘very strong’ response. The summit was called to discuss the implications of the tanker attacks and drone strikes two days later on oil pumping stations in the kingdom. Riyadh has accused Tehran of ordering the armed drone strikes claimed by the Iran-aligned Houthi rebels which have been battling a Saudi-led coalition in Yemen in a four-year conflict that is seen as a proxy war between Saudi Arabia and Iran. Bolton said the tanker attacks were connected to the strike on oil pumping stations on the kingdom’s East-West pipeline and a rocket attack on the Green Zone in the Iraqi capital Baghdad, not far where the US embassy is based.

Iran has the advantage of geographic proximity to the Iraqi market. This has, in turn, led to the relatively low freight costs of transporting Iran’s commodities to this neighbouring country. Iranian leaders are increasing their country’s non-oil exports to Iraq to offset the economic damages caused by the US sanctions. For this reason, Iranian officials are working on developing their country’s infrastructure that can involve in increasing Iran’s trade capacity with Iraq. Consequently, Tehran has had reached an agreement with Baghdad this year to establish Iranian trade centres in Iraq to manage its trade with Iraq in preparation to reach its goal.

Tehran is keen to advance its economic interests in Iraq through the paramilitary groups in PMU which are modelled after Iran’s Islamic Revolutionary Guard Corps (IRGC). Iran intends to replicate IRGC’s reconstruction experience after its war against Iraq in the 1980s in Iraq. These Iraqi cities are mostly war-torn Sunni areas in the north and west of Iraq that witnessed fighting with the extremist groups belonged to the Islamic State (IS), along with Shiite cities that have been suffering from weak infrastructure such as the southern city of Basra.

Furthermore, Tehran counts on its allies in Iraq to get some relief from the US sanctions. Leading Shiite leaders who have strong ties with Tehran such as members of Fateh alliance have pushed back on the US sanctions. Even the Shiite leaders who project themselves as anti-Iranian interference in Iraq, have rejected the US sanctions against Iran. For example, the head of the Iraqi parliament’s powerful Sairoon Alliance, the radical Shiite cleric Muqtada al-Sadr has rejected these sanctions warning the US that “We will not sit with our hands tied while people are being harmed.”

Will the Trump administration succeed in preventing Iran from deepening its economic relationship with Iraq? So far, Trump team has not succeeded in forcing Iraq to reduce its imports from Iran , despite the growing pressure it has been practicing on the Iraqi government. The Shiite-led government of Iraqi Prime Minister Adel Abdul-Mahdi seems it is unwilling to go with the US sanctions against Iran.  Abdul-Mahdi said in October that when it came to helping the US enforce sanctions against Iran, Iraq will prioritise its own interests. Other Iraqi leaders have clearly expressed their interests in creating free trade zones at shared border with Iran and in connecting their country with Iran through constructing railways.

Currently, Iran’s annual trade target with Iraq is $20 billion. It intends to implement this strategy by supporting its political and paramilitary factions in Iraq to lobby Iraqi government and parliament for the removal of tariffs barriers with Iran. It needs to be seen how Iraq can hide financing all these projects and avoid exposure to the US financial market.

About Track Persia

Track PersiaTrack Persia is a Platform run by dedicated analysts who spend much of their time researching the Middle East, in due process we fall upon many indications of growing expansionary ambitions on the part of Iran in the MENA region and the wider Islamic world. These ambitions commonly increase tensions and undermine stability.