Friday, March 22, 2019

Iraq Trying To Play Both Sides Of US-Iran Rivalry But Washington Is At A Decided Disadvantage

Iranian Pres Rouhani meeting with Iraqi PM Mahdi in Baghdad March 2019 (USIP)

Since 2005 the Iraqi government has often found itself caught in the middle in the rivalry between the United States and Iran. 2019 is no different. The Trump administration has implemented new sanctions and is pressuring Prime Minister Adel Abdul Mahdi to cut its energy imports from Tehran, while Iran is pushing for greater economic ties to get around Washington’s policy. As it has in the past Iraq has said that it will not be drawn into this conflict, and is trying to keep both sides happy.

Iran has increased its effort to expand economic cooperation between the two countries. President Hassan Rouhani visited Iraq in March and signed a number of memorandums of understanding. The two countries want to increase trade from the current $12 billion a year to $20 billion. To facilitate that there will be 40 trade fairs this year. They also discussed building a railroad to Basra and making it easier for Iranian businessmen to obtain Iraqi visas. Earlier in February Iran’s Foreign Minister visited Iraq with around 100 entrepreneurs for a conference, a deal was made to continue electricity imports, and in December the energy ministers from both countries signed a long term energy cooperation agreement. Iran has been one of Iraq’s largest trade partners since 2003, currently ranking third and providing one third of Iraq’s power supply. Iranian officials have also been public that they want trade to go up to help get around U.S. sanctions. Commerce between the two is completely one sided, dominated by Iranian goods going to Iraq. This was largely the result of U.S. economic reforms that eliminated tariffs to try to boost free trade, but ended up destroying many of Iraq’s industries.

It’s ironic because the United States is trying to end this economic relationship it helped create. The Trump administration has demanded that Iraq cut its energy imports from Iran. It has been going back and forth between issuing ultimatums, but then issuing waivers on sanctions. It has pushed Iraq to sign deals with American electricity companies to reduce dependence upon Iran, and also encouraged Baghdad going to Saudi Arabia, Jordan or Kuwait for power. The New York Times for example, reported that Washington told Iraq it had until March to end electricity imports, but Iraq said that was impossible, and the U.S. ended up giving Baghdad another waiver anyway. The White House also wants Iraq to no longer use dollars in transactions with Iran. Washington comes into this situation at a distinct disadvantage. Trying to wean Iraq off of Iranian electricity for example, is a long term plan that will take years before foreign contracts will come to fruition that could replace Tehran’s imports. Iraq is also pushing for an immediate boost in electricity production to try to stave off the annual summer protests, which means they have no interest in reducing Iran’s contribution right now. There’s also the issue of how the Trump Administration has addressed the Iraqi government, which has angered many politicians and citizens.

To the Mahdi government this is the only course to follow. For now, Iraq can’t wean itself from Iranian energy, and wants to increase its supply out of fear of more riots during the summer. Baghdad has also repeatedly said that it is not bound by Washington’s sanctions, while also asking for waivers. The U.S. is important to maintain the security forces, and Iraq would like to boost its own energy production since there have been chronic shortages for years, so it is open to signing deals with western companies in this field. Doing just enough to appease the Trump administration, while declaring its independence, and maintaining its ties with Iran therefore is the best path to ensure Iraq’s interests.

SOURCES

Lando, Ben and Van Heuvelen, Ben, “U.S. grants Iraq another Iran sanctions waiver,” Iraq Oil Report, 3/19/19

Meyer, Henry, “Iraq Says It Will Continue Sanctions-Busting Imports From Iran,” Bloomberg, 2/20/19

Al Monitor, “Iranian FM ‘maneuvers’ in Iraq as rivalry with US heats up,” 1/15/19

Rasheed, Ahmed, “Iran’s Rouhani signs trade pacts in Iraq to help offset US sanctions,” Reuters, 3/10/19

Reuters, “Iran extends power export deal with Iraq,” 2/8/19

Rubin, Alissa, “Iran Tries to Expand Business in Iraq to Blunt U.S. Sanctions,” New York Times, 3/11/19

Rudaw, “Iraq, Iran ink energy sector agreement,” 12/28/18
- “Iraq won’t be part of sanctions against Iran: PM,” 2/6/19

Turak, Natasha, “Iran just struck a hoard of deals with Iraq, and Washington isn’t happy,” CNBC, 3/20/19

Van Heuvelen, Ben and Kullab, Samya, “No ‘either-or’: Iraq wants both Siemens and GE for fast-track power boost,” Iraq Oil Report, 1/9/19

Wong, Edward, “Trump Pushes Iraq to Stop Buying Energy From Iran,” New York Times, 2/11/19

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