Many people believed that Iran would play a significant role in rebuilding Iraq after the terrorist group the Islamic State of Iraq and Levant (ISIS), also known by its Arabic acronym Daesh, lost most of the territories under its control in Iraq and Syria in June 2017.
ISIS established its so-called caliphate (Islamic state) after capturing the northern Iraqi city of Mosul in 2014. Its forces, subsequently destroyed the city’s hospitals, schools, government buildings, the airport, roads, water supply, and the power network.
Mosul was also a critical strategic point during the 2003 Operation Iraqi Freedom, the when U.S. Army’s 101st Airborne Division and Kurdish fighters drove Saddam Hussain’s forces out of the city. Not long afterward, the city fell victim to widespread looting and social chaos until U.S. forces took control and restored order to the city.
The presence of foreign forces in Mosul since 2003 has posed severe challenges to rebuilding the city and revitalizing its trade and industrial growth.
Mosul is among a long list of cities and towns in Iraq that have been destroyed by years of wars and foreign occupation. Efforts to rebuild Iraq requires massive financial help from the international community.
Shortly after ISIS was driven out of Iraq, the World Bank (WB) announced that the Iraqi government needed $88 billion in the short-run to rebuild the country’s infrastructure, re-establishing security and stability, and providing services for the return of the displaced. The figure was, however, much bigger than the entire government’s budget for 2018, prompting the international community to provide additional financial support to Iraq.
In February 2018, the EU chaired the Kuwait International Conference for Reconstruction of Iraq, which resulted in $30 billion additional international support to Baghdad.
An Iranian delegation led by Foreign Minister Mohammad Javad Zarif attended the conference.
The spokesman for the Iranian Foreign Ministry Bahram Ghasemi said at the time: “The Islamic Republic will continue helping Iraq to rebuild its infrastructure and economy and restore security in the country in the post-ISIS era.”
The defeat of ISIS also created many economic opportunities for countries that wanted to play a role in rebuilding Iraq. Iran was in an ideal position to take advantage of the situation given it had already been in Iraq for a long time.
However, while other countries have been able to sell their products in Iraq’s domestic market in the past two years, Iran has not explored business and trade opportunities created by the departure of ISIS.
Several unfortunate incidents have also played a role in preventing Iran from seizing economic opportunities in Iraq.
For instance, shortly after the reconstruction of Iraq began in March 2018, the Iranian foreign exchange market (Forex) experienced unprecedented fluctuations. The rial dropped to a record low of 70,000 to a U.S. dollar right before Nowruz (Iranian New Year, starting March 21.)
Meanwhile, Iraq desperately needed essential goods, and there was no shortage of foreign companies trying to sell their products in that country.
The Iranian government should have turned the crisis into an opportunity by increasing the volume of the country’s exports to Iraq. The increased revenue would have somewhat offset the sharp decrease in the rial’s value.
Fearing another episode of nationwide unrest similar to the one in December 2017, the Iranian government tried to stabilize the foreign-exchange markets by establishing a single exchange rate of 42,000 rials to a dollar in January 2018. The Judiciary even arrested several people accused of manipulating Forex.
The government’s haphazard economic policies did not, however, instill confidence in the business community and among exporters. The Chairman of Iran Chamber of Commerce, Industries, Mining, and Trade Gholamhossein Shafiei famously said that exporters did not know what awaited them each day.
Meanwhile, Iran missed a golden opportunity to develop its trade ties with Iraq in 2018.
The Islamic Republic never tried to improve the conditions for Iranian exporters, notably when Iraqi officials implemented a new set of rules and regulations on trade. For instance, the Iranian government did not help food manufacturers when Iraq increased tariffs on imports from 30 percent to 130 percent.
In January 2018, the director of the National Union of Agricultural Products of Iran Seyyed Reza Nourani complained about Iraq’s stringent import laws, which prevented Iranian vegetables and fruits from entering that country.
“The government has done nothing to address this problem,” Mr. Nourani was quoted as saying by the Islamic Republic News Agency (IRNA). “They must make a decisive decision on this issue because the current situation is hurting exporters. Traders do not have accurate information. They take their goods to border towns only to discover that they cannot sell them. They suffer massive financial losses.”
According to Nourani, the problem is not limited to Iraq. Iranian exporters face the same difficulties with other neighboring countries.
In November 2017, Iraq agreed to swap 60,000 barrels of oil a day from its field in Kirkuk, 184 miles north of capital Baghdad, with Iranian oil. However, former Iraqi President Fuad Masum said in June 2018 that shipment of Kirkuk oil to Iran was suspended because the safety of oil trucks traveling to Iran could not be guaranteed. He said the shipment could only resume after secure oil pipelines have been installed.
Meanwhile, Iran’s failure to take advantage of economic and trade opportunities in Iraq allowed Turkey, Russia, and China to tap that market. Iraqi shops are flooded with Turkish products these days. For instance, Turkey has replaced Iran as the leading supplier of dairy products and furniture to Iraq.
Islamic Republic’s lack of a coherent economic strategy has deprived Iranian exporters of selling their goods to Iraq and has provided a golden opportunity to Iraqi traders to exploit Iranian markets.
Kayhan Life recently spoke to an Iranian tile and paving slab trader who, after the fall of ISIS, began exporting his products to Iraq but was forced to shut down the business despite being the distributor for one of Iran’s major manufacturers.
“Merchants and traders could not take advantage of business opportunities in Iraq because the Iranian government had no clear export policy,” the trader said. “Early on, we realized that the chamber of commerce in several countries except Iran had formed clear strategies for helping traders to sell their products in Iraq’s domestic market.”
The trader who wished to remain anonymous, explained: “Iranian companies which planned to conduct business in Iraq had to find all relevant information themselves. Frequently, I met [Iranian] traders and business representatives at my hotel in Iraq who could not even find a translator. In contrast, merchants and manufacturers from other countries received much support from their respective chamber of commerce.”
“There are many Iranian companies which could have done well in Iraq, but they lost to the competition because they did not have the right information and also did not get any help from the government,” the businessperson pointed out. “The Islamic Revolutionary Guards Corps (IRGC) and its affiliates have also made it difficult for Iranian traders to conduct business in Iraq by trying to corner the domestic market in that country.”
“The same thing that happened in Iraqi Kurdistan has also occurred in the country’s south. Turkey has monopolized Iraq’s domestic market,” the trader said. “Iraqis do not trust independent Iranian merchants doing business in their country because of the presence and activities of the IRGC-owned companies in Iraq.
The trader has faced many challenges in Iraq, including not being able to rent a property. Iraqis reportedly do not trust Iranians, believing they are all spies. Except for a handful of people with political connections, other Iranian traders cannot conduct business in Iraq.
“Paving slabs and ceramic tiles were among the most sought-after materials when the reconstruction of Iraq started,” the trader noted. “For a while, Iraq was importing nearly 85 percent of its stone slabs and ceramic tiles from Iran. Also, Dina Food Group and Kalleh Dairy started selling their products in Iraq. However, Iranian companies could not compete with exporters from other countries. While Iranian goods did poorly in the Iraqi market, there was a great demand for Turkish products.”
It is becoming increasingly difficult for Iranian traders to sell their products in Iraq.
“For instance, exporting iron rods and bars to Iraq was one of the more lucrative businesses. Iranian manufacturers bought scrap metal from Iraq and produced Iron rods and bars which they sold back to the country,” the trader said. “However, manufacturers had to test the rods for radioactive contamination. There is only one place in Iran that can conduct such a test. Ordinary traders cannot contact this organization, let alone ask the place to test their iron rods. Only those with close ties to the government and security agencies can, therefore, take advantage of business opportunity in Iraq.”
The merchant believes the resumption of trade activities between Iran and Iraq and the freedom of movement of their citizens have only benefited Iraqis.
“Iraqi traders have massive purchasing power, because they use the dollar which has steadily risen in value against the rial in the past two years. Iranian merchants were the primary source of basic goods sold in the Iraqi domestic market until the Islamic Republic lifted the trade restrictions on foreign businesses,” the trader said. “After the government lifted restrictions on imports and provided incentives to foreign companies, many traders, particularly those from Islamic countries, including Iraq, rushed to do business in Iran.”
The trader explained: “Our company provided most of the paving stones and ceramic tiles to Iraq until recently. Nowadays, several Iraqi companies have been buying tile factories in Iran because the government has failed to protect domestic manufacturers and businesses.”
“Lifting trade restrictions on foreign companies has been a slap in the face of Iranian traders and workforce,” the businessperson said in conclusion. “Many people, including those with a university degree, are going to Iraq looking for work. Meanwhile, many Iraqis are taking advantage of a weak rial and spending their vacations in the holy city of Mashhad, in the northeastern province of Khorasan Razavi, or the northern part of the country. Others have been exploring long-term business opportunities in Iran.”
[Translated from Persian by Fardine Hamidi]