Iraq Announces Free Trade Zone With Iran In Face Of U.S. Sanctions

Pres Salah and Pres Rouhani in Nov meeting (AFP)

Iraq’s response to the Trump administration’s new Iran sanctions has been a bit schizophrenic. On the one hand, it stopped sending oil to Iran, and agreed to a deal with the Kurdistan Regional Government to start using its pipeline to Turkey again to help keep oil prices lower as Iranian petroleum was cut to the international market. On the other Iraq announced that it would be creating a free trade zone with its neighbor, which seems to fly in the face of Washington’s new restrictions.

Iraq’s President Barham Salah made a trip to Tehran in the middle of November where he announced a new trade initiative. According to the president a free trade zone would be created along the Iran-Iraq border during a meeting with his counterpart President Hassan Rouhani. Rouhani said that he wanted to boost trade between the two countries from its current $12 billion a year to $20 billion. (Iran’s ambassador to Iraq told the press a few days before that Iran-Iraq trade was actually on track to reach $8.5 billion this year, not the $12 billion quoted by Rouhani.) Trade was already going up between the two. The Iran-Iraq Chamber of Commerce had Iranian exports up 30% in the first seven months of the year. The two countries are also working on a currency swap agreement so that can trade can grow. Under previous U.S. sanctions Iran used Iraq as a way to maintain its access to hard currency and to continue to sell its goods. For Iraq, this is in open defiance of Washington’s moves to isolate Iran.

In October, new Prime Minister Abdul Mahdi stated that Iraq would follow its own interests with regards to U.S. sanctions on Iran. It has taken some moves to comply with Washington, asked for and received a waiver from importing electricity, natural gas and food from Tehran, and now is hoping to expand trade with its neighbor in spite of the Trump administration. The question now is if America will respond to this new move or not. The trade waiver for example is only for 45 days. From Baghdad’s perspective weaning itself from Iran is a difficult proposition. Nearly one third of Iraq’s electricity supply is reliant upon its neighbor and it also imports large quantities of food and consumer goods. At the same time, Iraq should be self-sufficient in these fields, and at least in power perhaps U.S. sanctions will move Baghdad in that direction. Still, that is a long ways away, and in the meantime the Mahdi government needs to weigh its options on what it will do with two of its most important partners.

SOURCES

Abdul-Zahra, Qassim and Issa, Philip, “Iran, feeling sanctions bite, looks for outlet in Iraq,” Associated Press, 11/13/18

Abu Zeed, Adnan, “Iraq halts oil exports to Iran as new US sanctions begin,” Al Monitor, 11/7/18

Al Jazeera, “Iraq to establish free-trade zone along border with Iran,” 11/17/18

Koe, Tingmin, “Iran-Iraq exports rise with food accounting for 37% of goods traded,” Food Navigator-Asia, 11/21/18

Xinhua, “Iran, Iraq vow to boost ties despite U.S. sanctions,” 11/17/18

- “Iran, Iraq to sign currency swap deal to facilitate trade: official,” 11/18/18