Iraq’s New Budget Woes

Iraq’s Finance Minister Bayan Jabor recently said that Iraq needed to boost its oil exports if it wants to have a balanced budget in the future. On November 11, Iraq’s cabinet approved the country’s $67 billion 2009 budget. Originally the government planned on an $80 billion amount, but because of falling price of oil, it had to trim $13 billion. That was still $19 billion more than the 2008 budget. The problem is that the final budget was based upon a $62 a barrel price for crude. On December 2, the price stood at only $47 a barrel. According to the Finance Ministry 94% of the budget is based upon petroleum profits. To solve this problem Jabor called on increasing exports, but production has actually dropped recently, and Iraq may not have the ability to fix it any time soon.

Finance Minister Jabor said that with the declining price of oil, Iraq would run into a budget deficit by 2010. For now the government will rely upon a $15 billion surplus to make up the difference next year. In addition, Baghdad has plans to increase taxes, tariffs, and the tax base, along with selling a mobile telephone license, but Jabor noted that those would not fix the country’s huge dependence upon petroleum to finance its public spending. The Minister said the solution is to boost oil exports to 2.5 million barrels a day. Iraq is currently selling 1.7 million barrels a day to foreign markets. This is a problem already because the 2009 budget is based upon a 2 million barrels a day rate. The problem is Iraq lacks the infrastructure and know how to increase, let alone maintain a steady production of petroleum. In fact, an oil official recently said that oil exports and pumping would drop next year because old and aging equipment can’t be replaced and the country’s brain drain has deprived it of many skilled workers for maintenance.

As noted earlier, the other sectors of Iraq’s economy are facing major problems. That will mean the country will remain dependent upon oil for the foreseeable future. Minister Jabor claimed Iraq needs a $70 a barrel price to maintain its budget, but an earlier International Monetary Fund study said that Iraq needed a $111 a barrel price. That compared to other Arab states in the Persian Gulf that only needed $47 a barrel for a balanced budget. With oil prices nose-diving that will imperial more of Iraq’s spending. This is at a time when the country still needs massive reconstruction funding, and the U.S. is winding down its spending for that purpose. It will also mean the oil industry will not be improved, which is what is needed to boost production to make up for the declining prices. Iraq seems to be caught in a Catch-22 as a result.

For more on Iraq’s budget see:

United Nations Humanitarian Report On Iraq

Special Inspector General for Iraq Reconstruction’s Quarterly October Report

Iraq Cuts Its 2009 Budget, But Still Can’t Spend It

NY Times Finds Iraq Spends Even Less Of Their Budget

GAO August Report On Iraq’s Budget And Spending

SOURCES

Abbas, Mohammed and Ibrahim, Waleed, “Iraq fears budget crisis, urges oil export boost,” Reuters, 12/3/08

Alsumaria, “Iraq Cabinet approves 2009 budget,” 11/12/08

Associated Press, “Iraq plans to cut 2009 budget by $13 billion,” 10/31/08

Chon, Gina, “As Crude Falls, Iraqi Leaders Scramble to Plan Budget,” Wall Street Journal, 10/22/08

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 10/30/08

Swartz, Spencer, “Iraqi Oil Exports Could Fall Amid Maintenance Problems,” Wall Street Journal, 12/2/08

Controversy Could Be Growing Over Ban On Using Religious Symbols During Provincial Elections

When the provisional election law was passed by parliament in September 2008 it banned the use of religious figures on campaign materials, and limited the use of mosques. This was seen as a defeat for the Supreme Islamic Iraqi Council (SIIC) that had been pushing hard to defeat this restriction. The SIIC argued that using religious images was important for electioneering because of the high rate of illiteracy amongst Iraqis. During the 2005 elections, the SIIC and the United Iraqi Alliance had relied heavily on photos of Grand Ayatollah Ali al-Sistani. The ayatollah is the highest-ranking Shiite cleric in Iraq, and is highly revered. Many Shiites interviewed after the vote on ratifying the constitution for example, said they were casting ballots for it because Ayatollah Sistani had endorsed it. Moqtada al-Sadr had also used images of himself and his father in 2005.

Several parties that opposed the ruling coalition successfully pushed through this article during debate on the law. This consisted of former Interim Prime Minister Iyad Allawi’s Iraqi National List, the Basra based Fadhila party, the Sadrists, the Sunni National Dialogue Council and National Dialogue Front, the National Reform Party of former Prime Minister Ibrahim al-Jaafari, and a few others. They represented the main opposition parties in parliament to the coalition behind Maliki’s government that consists of the Kurdish Democratic Party, the Patriotic Union of Kurdistan, the Supreme Council, the Dawa Party, and the Iraqi Islamic Party. In early July the SIIC dropped their opposition to the article, but after the first version of the law was vetoed by the Presidential Council, the SIIC brought up using religious symbols and mosques again.

Now that the law has been passed, members of the Supreme Council and Dawa parties are violating the religious ban. The SIIC and Oil Minister Hussain al-Shahristani who has joined the Dawa Party claim that Grand Ayatollah Sistani supports them. The Iraqi Election Commission has charged both with using the cleric’s pictures in their campaign material. An SIIC candidate said that was not true, but that they would continue to use Sistani’s image regardless. This has apparently raised the ire of the Ayatollah, as IraqSlogger reported that a source close to him recently announced that Sistani does not want his photo used by any political party in the run-up to the provincial elections. It will have to be seen whether the Election Commission has the ability to enforce the election law, and if they issue any punishments against the two parties for breaking it. The Commission would have to exercise a large amount of independence and daring to do so as they would be going up against the newfound popularity and standing of Prime Minister Nouri al-Maliki and his political party, and the largest Shiite party, the Supreme Council who are battling it out for power in the southern half of the country.

SOURCES

Aswat al-Iraq, “Parliamentary blocs demand solving provincial elections pending issues,” 6/22/08

Filkins, Dexter and Worth, Robert, “Monitors in Iraq Review Votes Where ‘Yes’ Ballots Hit 90%,” New York Times, 10/18/05

IraqSlogger.com, “Sistani: No Pictures of Me in Election Campaign,” 12/3/08

Lynch, Marc, “definitely, maybe,” Abu Aardvark Blog, 9/24/08

Ramzi, Kholoud, “daawa-siic conflict splits Shiite unity,” Niqash,” 11/27/08

Robertson, Campbell, “Iraqi Forces Raid Mosque With Links to Sadrists,” New York Times, 7/12/08

Visser, Reidar, “Hakim’s Insincerity on the Local Elections,” Historiae.org, 9/11/08
- “Iraq’s Provincial Elections: Another D-Day Approaching,” Historiae.com, 6/16/08
- “The Kirkuk Issue Exposes Weaknesses in Iraq’s Ruling Coalition,” Historiae.org, 8/7/08

Yacoub, Sameer, “Iraq bans pictures of non-candidates in vote,” Associated Press, 7/3/08

Parliament Criticizes Shell Natural Gas Deal

The Iraqi Parliament recently criticized the Oil Ministry’s decision to sign a natural gas deal with Royal Dutch Shell. The Oil and Gas Committee said that the Oil Ministry had mishandled its business with Shell to develop natural gas that is produced from Basra’s oil fields. The committee said that the negotiations lacked transparency, would give Shell a 25-year monopoly, and was therefore against the national interests of the country. They suggested that the government renegotiate the agreement. The Oil Ministry responded by saying that there was nothing wrong with their talks with Shell, and that everything was legal.

In early September 2008, the Oil Ministry signed a deal with Shell to exploit and export natural gas from Basra’s oil fields. Shell would enter into a joint venture with the government owned Southern Oil Company who would control 51%. The contract was to develop between 500-600 million cubic feet of gas per day. Shell could invest up to $3-$4 billion, which also involves building infrastructure. Currently Iraq does nothing with this resource, which is a natural by product of oil production in the south. Iraq claims it looses $40 million a day as a result. The U.S. Energy Information Administration says that Iraq has the 10th largest natural gas reserves in the world. The gas would be used for Iraqi factories and power stations, but many believe most of it will be sold to foreign buyers. Because Iraq’s parliament has not passed a new hydrocarbon law, this deal was negotiated using old Saddam era legislation. Iraq’s cabinet quickly ratified the agreement.

Currently, Iraq’s parliament has little power or oversight authority over the country’s ministries. The legislature can call officials to testify and either support or complain about Baghdad’s actions, but other than that, there is nothing the Oil Committee can do about the Shell deal. Their only recourse to stop it would be to go to court, but that is highly unlikely. As reported before, the Oil Ministry has followed a haphazard course in its effort to develop the country’s energy resources. The Shell agreement was only the second made with a major foreign company since the invasion. The fact that there was no bidding process, the negotiations were held privately, and Shell was given a 25-year contract all give weight to the Committee’s concerns that this will lead to a monopoly of Basra’s natural gas. Iraq does need the know how of foreign companies to develop its resources, but rushing into deals as the Oil Ministry has done with its two major contracts so far, puts short term goals ahead of the long term interests of the country.

For more on the Shell deal see:

Iraq Signs Natural Gas Deal, As Half Of Oil Plan Is Dropped

SOURCES

Crooks, Ed and Khalaf, Roula, “Shell in Iraqi gas deal worth up to $4bn,” Financial Times, 9/8/08

Graeber, Dan, “Iraq approves gas deal with Royal Dutch Shell,” Iraq Oil Report Blog, 9/7/08

Iraq Oil Report Blog, “Iraq opts for long term oil deals, ditches no-bids,” 9/9/08

Khadduri, Walid, “Oil in a Week (International Oil Companies Return to Iraq),” Al-Hayat, 10/20/08

Lando, Ben, “Shell-Iraq gas company is a monopoly, secret agreement shows,” UPI, 11/4/08

Lando, Ben and Majeed, Alaa, “Gas deal no monopoly, Shell and Iraq say,” UPI, 11/6/08

Rasheed, Ahmed, “Iraq Lawmakers Say Will Challenge Shell Gas Deal,” Reuters, 11/26/08

Yacoub, Sameer, “Iraq, Shell sign deal,” Associated Press, 9/22/08

Baghdad-Kurdish Oil Export Deal Collapses

No sooner had Baghdad’s offer of allowing the Kurds to export oil for the first time in return for concessions on passing the national oil law been reported here than today’s edition, December 3, of the Iraqi paper Azzaman ran a story that the deal had collapsed. Problems between the two sides were first reported on December 2 when Oil Minister Hussain al-Shahristani demanded that the Kurdish Regional Government (KRG) void its oil contracts that it signed under its own oil law in return for a deal to export oil. The KRG refused as they have always stood by their right to negotiate their own oil contracts. The Kurds also wanted to have control over a portion of the revenue garnered from the petroleum exports. Oil Minister Shahristani believes that all oil agreements and profits should be under the sole control of the central government. KRG President Massoud Barzani attacked Shahristani for his stance, and said that the Kurds are determined to export crude. Without a new national oil law however this is impossible. Kurdistan is also landlocked, and the surrounding countries of Iran, Syria, and Turkey have all said they would not allow Kurdish oil to flow through their countries without authorization from Baghdad.

This is a major setback for Iraq’s energy policy. Without a rapprochement between the Kurdish Regional Government and Baghdad the hydrocarbon law that would regulate the development and exploitation of oil and natural gas will continue to be deadlocked in parliament. The collapse of this agreement points to the opposing views of the two sides that have held up the legislation. The Kurds want their autonomy and freedom to offer oil deals on their own, while Baghdad demands central control. The Oil Minister’s proposal to allow the Kurds to export petroleum in return for movement on the oil law was a major concession, but it was apparently not enough to overcome these deep-seated divisions.

SOURCES

AFX News Limited, “Kurdish Authorities Stand by Foreign Oil Contracts,” 12/2/08

Al-Laithi, Nidhal, “Agreement to export oil from Kurdish fields collapses,” Azzaman, 12/3/08

International Crisis Group, “Oil For Soil: Toward A Grand Bargain On Iraq And The Kurds,” 10/28/08

Baghdad Tries To Cut Deal With Kurds To Facilitate Oil Law

In late November 2008, Iraq’s Oil Minister Hussain al-Shahristani traveled to Kurdistan for what could turn out to be a turning point in the country’s energy policy. He went there to cut a deal with the Kurdish Regional Government (KRG). Since 2007 the Kurds and Baghdad have been pursuing two independent, and opposing oil plans. Now the Oil Minister was offering the Kurds the right to export oil for the first time in return for concessions to pass a national oil law.

Oil Minister Shahristani’s meeting with Kurdish officials marked a major change in Baghdad’s stance. Before, the central government had condemned the Kurds for passing their own oil law in August 2007, which led them to sign over twenty independent oil deals with a variety of small companies. Baghdad claimed that these contracts were illegal, and blacklisted the firms that signed them. When Shahristani arrived in Kurdistan he offered them the right to export oil from two fields, Taq Taq and Tawke, for the first time through a Turkish pipeline. The government said it was willing to make exceptions for these two deals because they were signed in early 2004 before the Kurds’ oil law went into affect. If confirmed, the Tawke field could be connected to Turkey by the end of 2008, and Taq Taq by March or April 2009.

As soon as the press got a hold of the deal however, the two sides began making conflicting statements. The Kurdish Regional Government’s National Resource Minister announced that they wanted to export 100,000 barrels a day at first, with a maximum production of 250,000 barrels by the end of 2009. The Resource Minister said this would all be coordinated with the Oil Ministry. Baghdad seemed taken aback however, saying that no licenses had been issued yet as the details were still being worked out. The central government also demanded that the KRG void its previous contracts in return for the export deal.

The point of Baghdad’s offer was to try to break the deadlock on the national oil law. Shortly after Shahristani's visit, the Kurds agreed to form five committees with the central government to work on parts of the hydrocarbon bill. The act has been deadlocked in parliament since February 2007. The Kurds claim that the constitution gives the regional government the right to sign oil deals without consulting with the Oil Ministry. They say that it shouldn’t matter who signs the contracts because the revenue would be shared with the nation. Additionally, the KRG has offered long-term Production Sharing Agreements (PSAs) that pay oil companies back for their investment as well as a percentage of the profits from increased production. The Oil Minister on the other hand, believes that the central government should control all deals with foreign corporations, and has given Technical Support Agreements (TSAs), which pay a flat fee for services rendered. Shahristani and others contend that PSAs give oil businesses too much control over the country’s natural resources. Since 2007 there have been four drafts of the law, but none has been passed. Just this October, a version was sent to parliament, but it went nowhere. The lack of an oil law is what stops the KRG from exporting.

It is not clear when this export deal will be finalized between the central government and the Kurds. What is known is that the Oil Ministry has made a major reversal in its stance in an effort to move forward on the oil legislation. The two sides still have diametrically opposed views of how to develop petroleum, but Baghdad has taken the first step to try to shift the debate. If the bill was ever passed it could open up Iraq’s massive oil reserves, and boost production for an industry that provides over 90% of the budget and 60% of the Gross Domestic Product. Just as important, it could ease tensions between Baghdad and the KRG that have come to the boiling point recently, and be a real act of reconciliation.

Kurdish Regional Government Oil Contracts

The Kurds signed six oil deals from 2003 to 2006 before Iraq’s parliament suggested a national oil law. Frustrated with the lack of movement on the bill after it was introduced in February 2007, the KRG passed its own petroleum act in August 2007. This led to over twenty contracts, some with existing companies. The majority of these produce no oil. They simply explore and drill wells. They have thus been largely symbolic to show the autonomy of the KRG, and to protest Baghdad’s nationalist and centralized vision of oil development. Below is a list of companies that have signed with the Kurds.

Deals Signed Before The August 2007 Kurdish Oil Law
January 2003 – Pet Oil (Turkey), later joined by Prime Natural Resources (U.S.) and Oil Search (Australia)
January 2004 – Genel Enerji (Turkey), later joined by Addax Petroleum (Switzerland)
July 2004 – DNO (Norway)
May 2006 – Western Zagros (Canada)
2006 – Crescent Petroleum/Dana Gas (United Arab Emirates)
2006 – A&T Petroleum (Turkey), part of Pet Oil, and Prime Natural Resources, later joined by Oil Search

Deals Signed After The August 2007 Kurdish Oil Law
Addax Petroleum (Canada/Switzerland)
Aspect Energy (U.S.)
Crescent Petroleum (United Arab Emirates)
Dana Gas (United Arab Emirates)
DNO (Norway)
Groundstar Resources (Canada)
Gulf Keystone Petroleum (UK)
Heritage Oil and Gas (Canada)
Hillwood International Energy (US)
Hunt Oil (US)
Kalegran/MOL (Hungary)
Korea National Oil Corporation (South Korea)
Niko Resources (Canada)
Norbest (Russia)
Oil Search (Australia)
OMV Petroleum Exploration (Austria)
Perenco (France)
Pet Oil (Turkey)
Prime Natural Resources (US)
Reliance Energy (India)
SK Energy (South Korea)
Sterling Energy International (US)
Talisman Energy (Canada)
Texas Keystone (US)
Vast Exploration (Canada)

For more on Iraq’s oil industry see:

Analyst On Iraq’s Oil Plans: Don’t Expect Much Until A New Oil Law Is Passed

GAO August 2008 Report On Iraq’s Budget And Spending

Iraq Moves Ahead With 2nd Part Of Its Oil Plan

Iraq Signs Natural Gas Deal, As Half Of Oil Plan Is Dropped

Iraq’s Deteriorating Oil Infrastructure

Iraq’s Oil Ministry’s Plans Seem To Be Falling Apart

Iraq’s Troubled Economy

Special Inspector General for Iraq Reconstruction July Reports Major Findings

Special Inspector General for Iraq Reconstruction’s Quarterly October Report

SOURCES

Abbas, Mohammed, “Iraq Central Gov’t, Kurdistan Agree Oil Exports (UPDATE 2),” Reuters, 11/28/08

AFX News Limited, “Kurdish Authorities Stand by Foreign Oil Contracts,” 12/2/08

Agence France Presse, “New panel to iron out differences on Iraq oil law: Kurd leader,” 6/28/08

Ali, Mohanad, “Five committees set up to solve differences over oil with Kurds,” Azzaman, 11/30/08

Arabian Business, “Iraq in breakthrough to link Kurd oilfields to export,” 11/25/08

International Crisis Group, “Oil For Soil: Toward A Grand Bargain On Iraq And The Kurds,” 10/28/08

Lando, Ben and Majeed, Alaa, “Iraqi Parliament returns oil law to Maliki,” UPI, 10/27/08

Al-Nur, “American forces stopped the Norwegian DNO in Kurdistan,” 9/30/08

Salaheddin, Sinan, “Iraqi Kurds to Begin Solo Exports of Crude Oil,” Associated Press, 11/28/08

Webb, Tim, “Oil giants find scramble for Iraq is a game with complex rules,” Observer, 10/19/08

Iraq’s Troubled Economy

In the second half of 2008, there began to be reports about Iraq’ improving economy. After having been flat in 2007, the International Monetary Fund (IMF) predicted that Iraq’s economy would grow 7% in 2008. Some saw an improving future. Most of this was due to the skyrocketing price of oil that was occurring at the time, before it dropped. The Special Inspector General for Iraq Reconstruction said that even the non-petroleum sectors of the economy grew in the first half of 2008 however, except for farming that was hit by a drought. These macroeconomic numbers however hide the deep-seated problems the country is facing.

Oil Industry

The biggest issue with Iraq’s economy is that it is based upon a single primary product, oil, which is not labor intensive. Petroleum dominates Iraq. 94% of the country’s 2009 budget will come from oil according to the Ministry of Finance. The industry accounts for 65% of Gross Domestic Product (GDP) in 2008. The amount of money it generates for the country has also steadily increased. In 2005, oil earned over $22 billion. By 2008 it is estimated to garner $65 billion. While bringing in large amounts of cash, the industry does not require many workers. Only 2% of the workforce is involved in petroleum. This creates a predicament for the nation, as its major industry cannot provide any relief for unemployment and undermployment, which stands at around 60%.

Farming

Farming is one of the largest employers in the country, but has run into major problems since the invasion. 6% of GDP comes from farming in 2008, but it accounts for 27% of the workforce. Agriculture predominates in Wasit, 40% of the workforce, Salahddin, 35% of the workforce, Babil, 34% of the workforce, and Diyala, 30% of the workforce. Since 2003 this sector has fallen on hard times. One major cause was the move towards a free market initiated by the Coalition Provisional Authority (CPA). Under CPA Law No. 80, farming subsidies were ended, which led to many farms going under, unemployment, and migration to the cities. Rising fuel prices and shortages also limits the use of water pumps to irrigate fields. That has led to cheap foreign food imports flooding the Iraqi market from the United Arab Emirates, Saudi Arabia, Syria, China, India, and Iran. The government also runs a massive food ration system, which distorts prices. In 2008, the country was also hit by one of the worst droughts in years. As a result, wheat production dropped 27%, and barley 60%. The country will have to import millions of tons of farm products to make up for this shortfall.

Industry

Iraqi industry also suffered under the Coalition Provisional Authority. The CPA shut down much of the country’s large manufacturing plants, which were owned by the government, leading to more out of work Iraqis. By 2008 it accounted for only 2% of GDP. The Pentagon eventually began a plan to re-open these factories by encouraging foreign investment, and promising markets in the United States for their products. This policy ran into problems, as many foreign firms were unwilling to be involved in Iraq because of the violence and instability. The U.S. company that the Defense Department hired to run the program also came under investigation for mismanagement and abuses. By August 2007, only 9 factories had re-opened, less than 5% of the total. By the summer of 2008, the Ministry of Industry and Minerals initiated its own privatization program. Like the American one, Baghdad fared no better in attracting foreign investors. Another large barrier to industrial growth is the fact that Iraq has no tariffs on imported manufactured goods. Like farming, this has led to cheap foreign imports, especially from Iran, taking over much of Iraq’s market. This is causing more Iraqi businesses to close, and increasing unemployment.

Retail, Service and Construction Business

After oil, retail, wholesale, and service businesses are the second largest part of Iraq’s economy. Together they account for 20% of GDP. Like other Iraqi businesses, however, this sector has major issues. Violence of course, has been an inhibitor. A lot of companies have security guards to protect them. Even with attacks declining, there are still plenty of checkpoints and security operations that have strangled trade and delivery of goods. Power shortages are also a problem. Many businesses have invested in their own generators to make up for the shortages, but fuel is in short supply and therefore expensive. All of these together have increased costs, and made Iraqi products less competitive, leading to more imports. Because supply is so shoddy within the country however, some Iraqi companies have been able to hang on to their market share. There has also been a large increase in spending by Iraqis, especially for consumer goods since 2003, which accounts for the increase in this sector. It’s just that many of the products sold are not Iraqi.

On the positive side, many new Iraqi firms were able to develop thanks to the massive influx of American and international dollars for reconstruction. The U.S. has increasingly turned to giving contracts directly to Iraqi businesses for this line of work. In June 2008 it was reported that 3,500 Iraqi companies had been awarded $1.6 billion in construction business by the U.S. The Americans are ending their rebuilding effort however, so Iraqi companies will now have to turn to Baghdad for new funding.

Conclusion

Iraq has seen massive dislocations since 2003. Before the U.S. invasion, the economy was dominated by the state sector. Afterwards, the Americans started a privatization policy, which was badly planned and implemented. The result was thousands of Iraqis, especially professionals, were left out of work as many businesses closed. It should be no wonder than that a recent poll found 65.9% of Iraqis living below the international poverty level. Today private businesses and farms suffer from high costs, and cheap imports with little to no protective trade barriers. As a result, oil is an even larger part of the overall GDP, even though it provides few jobs. Even that has run into problems as the international price for crude has nosedived because of the world recession. Ironically, the government is still the largest employer in the country, despite the U.S. effort. 37% of households work in the public field, while salaries and pensions took up 20.4% of the 2007 budget. It is unlikely that Iraq will be able to fix any of these problems, and balance its economy any time soon. Baghdad has proven just as incompetent if not worse than the CPA in managing and planning. Grand announcements are usually made with little follow up. That will mean continued unemployment and poverty for a majority of Iraqis, with oil being the main industry keeping the economy going.

SOURCES

Alsumaria, “Iraq plan to reduce government jobs by 75%,” 11/10/08

Aswat al-Iraq, “Imported products subvert Iraqi economy,” 2/24/08

Davis, Eric, “Rebuilding a Non-Sectarianism in Iraq,” Strategic Insights, December 2007

Department of Defense, “Measuring Stability and Security in Iraq,” September 2008

Fairweather, Jack, “Business wanes as Baghdad takes over,” Financial Times, 6/4/08
- “Iraqi state enterprises warily reopen,” Financial Times, 6/16/08

Fifield, Anna, “Iraqis exist on margins of positive picture,” Financial Times, 10/21/08

Gunter, Frank, “Economic Development During Conflict: The Petraeus-Crocker Congressional Testimonies,” Strategic Insights, December 2007

Janabi, Ahmed, “Iraqis forced to abandon farming,” Al Jazeera, 5/11/08

Al-Jumaili, Hazem, “Iranian goods most popular in Iraq,” Azzaman, 9/7/08

Middle East Online, “Iraqi professionals forced to take small jobs,” 2/21/08

Rasheed, Ahmed and Ryan, Missy, “Iraq’s farm sector crumbling as drought bites,” Reuters, 10/24/08

Sachet, Khalid Hantoush, “Results of the Field Survey For Needs and Opinions of The Poor in Iraq,” Iraqi Al Amal Association and University of Baghdad, September 2008

Special Inspector General for Iraq Reconstruction, “Quarterly Report to the United States Congress,” 10/30/08

World Food Programme, “Comprehensive Food Security & Vulnerability Analysis: Iraq,” November 2008

Yacoub, Sameer, “United Arab Emirates to name ambassador to Baghdad,” Associated Press, 6/5/08

Xinhua, “Iraqi Factories Fight to Survive Turbulence,” 11/23/08

Combating Terrorism Center Report On Iranian Training of Shiite Militants

Claims that Iran is training Shiite militants in Iraq are common. The last occurred in August and September 2008. In that first month, a U.S. intelligence official told the Associated Press that the Iranian Revolutionary Guards Qods Force and Lebanon’s Hezbollah were training Iraqis to carry out attacks. London's Asharq Alawsat also interviewed a former Iranian official who said that Iran and Hezbollah were assisting Iraqis in Basra, Amarah in Maysan province, Najaf, and Baghdad before the government’s crackdown on the Sadrists in March 2008. Towards the end of August, Abu Dhabi's The National interviewed two Mahdi Army fighters who said they went to Lebanon for training by Hezbollah. Finally, in September, the head of the provincial police in Dhi Qar warned that Iranian backed Special Groups were infiltrating from Iran in small groups to renew violence in Iraq. These were all similar to previous stories of their kind. In October the Combating Terrorism Center at West Point released a paper analyzing Iran’s role in Iraq from the time of the Iranian Revolution to the present. Part of the report documented the training regime that Tehran created for Iraqis. It was based upon dozens of interrogations of captured militiamen who had gone through the process. One major finding was that the Iraqis accepted the Iranians’ help as a marriage of convenience rather than for ideological reasons as they generally disliked the Persians and their religious doctrine. Second, the goal of the Iranians was to influence Iraqi politics and expel the Americans.

Tehran supports various Shiite groups within Iraq. Before the U.S. invasion, they helped form the Supreme Islamic Iraqi Council (SIIC) in Iran in the 1980s. Its Badr Brigade was created by the Iranian Revolutionary Guards and was an official wing of its Qods Force. Many members of the Dawa Party were also in exile in Iran and received aid. Both groups received training from Hezbollah as well. They all shared a common hatred of Saddam Hussein, and Iran maintains strong contacts with all of them now that they are the ruling parties in Iraq. Shortly after the U.S. invasion in 2003, Iran also began reaching out to Moqtada al-Sadr and his Mahdi Army. He proved too temperamental, so Iran began moving towards local militia leaders and Sadrist splinter groups that became known as Special Groups.

For militants that were interested, they could travel to Iran for military training. There, Tehran set up various levels of instruction. It was general knowledge amongst militiamen that these opportunities existed for them. Most trainees came from the cities of Najaf, Nasiriyah, Kut, Amarah, Basra, areas of Diyala province, and Sadr City in Baghdad. Iran demanded that all who came had to read and write. One major route to Iran was through Amarah in Maysan province. Iraqis could cross the border either legally or illegally. Once across, they met Iranians who took them to Ahvez or Kermansah where they would stay in safe houses. They would then travel to Tehran by plane with tickets provided by the Qods Force. Once in the capital, they stayed in apartments where their initial training would begin. They would then move to training camps outside of Tehran run by Iranian soldiers. There were four places where this would occur, Ahvaz, Elam, Qom, and Tehran. Afterwards they would travel back to Iraq through the same route.

In terms of the actual training there were three levels from basic to advanced. The basic training took up to 20 days on average, and consisted of work with small arms, mortars, and IEDs. The second level was Special Forces training, which lasted over 30 days. This could happen in both Iran and Lebanon, and consisted of more advanced weapons training. The highest-level was for Iraqis with leadership potential. This did not start until 2007. Iraqis were taught how to plan and carry out attacks, organize units, keep track of weapons, etc. This option was only offered to Iraqis who had already been to Iran once before. The Iranians were also very selective in who they picked. Another option increasingly used was to create Iraqis capable of training others inside of Iraq rather than have them travel to Iran. This allowed for a level of deniability.

Hezbollah also offered assistance. The Lebanese group had been connected to some Iraqis for years. In the 1980s for example, they assisted the Dawa Party in carrying out a terrorist attack on the U.S. Embassy in Kuwait. Hezbollah’s training occurred in both Iran and Lebanon. Many Iraqis went to Iran first, and then headed to Syria, and then Lebanon, but there were also examples of going directly there. Hezbollah offered three to four week courses. Besides weapons classes there was also intelligence training. According to interrogations, the Iraqis preferred the Lebanese far more because they were Arabs and treated them much better than the Iranians. There were also Hezbollah operatives working inside Iraq who were under the leadership of Ali Musa Daqduq until his capture in 2007. He received up to $3 million a month from the Qods Force to organize Iraqis.

Overall, the most significant finding of the Combating Terrorism Center report was the fact that this was a marriage of convenience between the two sides. Iran provided religious training to the Iraqis, which was generally rejected. The Sadrists especially felt that the Iranians were trying to sway them to their leadership. More importantly, many Iraqis also felt like the Iranians treated them with little respect. The Iranians too were aware of this divide. The Iraqis only went to get training, not because they believed in Iranian ideology, which they considered foreign.

The Iranians were also using the Iraqis. They wanted the Mahdi Army and Special Groups to undermine the U.S., and force them to leave because the American presence was seen as a direct threat to Tehran. The Iranians would also raise and lower the amount of supplies given to the Iraqis at important times to shape events there. In the run up to the 2005 provincial and national elections for example, Iran tried to temper attacks by Shiites, and pressured Moqtada al-Sadr to end his uprising so that the voting could take place. This allowed Iraq’s political allies the SIIC and Dawa to come to power. The violence Tehran helped create also made Iraq’s government turn to Tehran to mediate and stop it. This happened during the fighting in Basra and Sadr City earlier this year. This military policy, also misdirected the U.S. who focused upon cracking down on Shiite militiamen, and the Iranian networks that supported them rather than Iran’s political allies who ran much of the government. Overall, the Combating Terrorism Center paper believes that Iran’s main goal is not to control Iraq, but to have influence there so that whatever happens, they can benefit. Backing Iraqi militants is only one part of this stance, aimed at supporting its larger political policy of making sure friendly Iraqis are in the government. Tehran has largely been successful in achieving these goals.

SOURCES

Agence France Presse, “Iran-trained Shiite Iraqis returning to launch bombings: police,” 9/20/08

Felter, Joseph and Fishman, Brian, “Iranian Strategy in Iraq, Politics and ‘Other Means,’” Combating Terrorism Center at West Point, 10/13/08

Hess, Pamela, “Hit squads training in Iraq,” Associated Press, 8/15/08

The National, “Hizbollah training us: Mahdi Army,” 8/23/08

Nourizadeh, Ali, “Iran’s Revolutionary Guard to Train Iraqi Shiite Youths,” Asharq Alawsat, 8/19/08