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June 13, 2008

Five years since the fall of Saddam Hussein’s regime, Iraq’s commercial market has been transformed. More than any other country, neighboring Iran has taken advantage of new openings and today its goods are flooding the marketplace. Observers worry for Iraq’s economic future, but also the political leverage that this economic strength might grant Iran.

Iranian goods first entered the Iraqi market in the mid-1990s. An improvement in relations between the two countries facilitated the entry of Iranian products into the Iraqi market, albeit in limited quantities, on the back of a long war and a 15 year commercial embargo. Iranian goods were mainly plastic materials, household appliances such as cooking utensils, as well as certain machines such as agricultural sprayers, which were advertised on Iraqi television without mentioning their country of origin. However, Iranian goods were not as common as Chinese and Turkish products.

Since, however, the fall of Saddam in 2003, Iraq has been transformed into an open market with goods now imported from many countries, with Iran at the forefront of this opening. As a result of new economic realities such as the absence of – or at least very low – customs tariffs on imported goods and the weak domestic private industrial sector due to closures of factories and lack of electricity and fuel, as well as the deteriorating security situation, Iraq has come to depend on imports.

Of these imports, Iraqi merchants say they prefer Iranian goods because of the close border reducing transportation costs, and also because of the sophistication and good quality of Iranian products compared to other alternatives. This is especially true for electrical appliances, including Iranian air conditioning appliances. The same holds true with regard to building materials such as cement, iron, bricks and more. Imports also include clothing, medicines and various medical devices, as well as dairy products and canned food.

Despite the security disturbances sweeping across Iraq over the past five years, commercial relations between Iraq and Iran have soared. Iranian and Iraqi trucks have not stopped crossing the Munthiriyah and Shalamijah southern border crossing points and the volume of commercial exchange between the two countries increased to USD 1.5 billion in 2007, compared to USD 800 million in 2006. This figure is significant when compared with the volume of bilateral trade between Iraq and Syria which does not exceed USD 660 million according to official reports.

At the same time, economic relations between Iraqi Kurdistan and Iran continues to be active, notwithstanding a short period of tension in 2007 when Kurdish markets experienced difficulties following the US arrest of a prominent Iranian personality in Iraq on charges of Iranian Revolutionary Guard membership. Iranian authorities responded by closing the five border crossings causing price hikes in the region. Today, economic relations between Kurdistan and Iran seem to be more developed than ever with the presence of more than 120 Iranian companies operating in the different cities of Kurdistan.Iran appears now to be the strongest economic partner in Iraq and it is difficult to imagine the Iraqi market without Iranian products fulfilling the basic needs of Iraqi consumers. Nevertheless, this economic relation still suffers some setbacks. On several occasions government institutions have announced the seizure of unhealthy Iranian products. Iranian vegetables and fruits trucks are also seen as a cover for weapons smuggling.

Observers fear that this economic partnership will not turn out in Iraq’s favor, especially with the unequal trade balance between the two countries. Other than oil, Iraqi’s total exports are negligible, while it imports everything including some oil products and electricity from Iran. This could have political repercussions, notably the strengthening of Iranian interference in Iraqi political decision-making. The most sensitive Iraqis to this issue are perhaps the Sunni hardliners. They see Iranian goods as a source of influence over Iraq. Muslim scholars, in many statements issued during the last year, have demanded a boycott of these goods. Armed groups have also threatened and intimidated many shops in Diyala, Salahuddin, Mosul and in Baghdad, to prevent them from selling Iranian products.

In the end however, the paradox lies in the fact that there is no alternative to Iranian goods. For an Iraqi population struggling for choice it is that or nothing.

Source: Niqash

About Track Persia

Track 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.