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The past five months have seen a steady decline in Iranian exports to Iraq, according to Iranian sources. These insiders have warned Tehran leadership officials of the grave potential consequences of this downturn, particularly its negative impact on the country’s current dominance of the Iraqi market and the possibility of its products losing their competitive edge over others.
Here, we will examine the reasons behind this decline and the likelihood of Saudi and other foreign investors entering the Iraqi market to reduce Iran’s troubling domination.
Iran’s foreign trade figures show that, in the five months from April to August this year, trade with Iraq declined by 29 percent in quantity and by more than 6 percent in value. This contrasts unfavorably with the same period last year, when $2.7 billion of trade was registered between the two nations, accounting for nearly 7 percent of Tehran’s total non-oil trade. There has been a significant decline since then, particularly in terms of quantity.
While Iran certainly has a significant economic presence in Iraq, Tehran is working to address a growing number of challenges in selling its products, including their popularity, technical reliability and competitiveness. Superior Chinese and Turkish products often compete with Iranian goods, as well as those from Arab and European countries. In the Iraqi market, Iran is also facing growing resentment, especially among young Iraqis who reject its meddling in the country’s internal affairs, and people are turning away from its products.
Other Iranian challenges were mentioned by Jahanbakhsh Sanjabi Shirazi, secretary-general of the Iran-Iraq Joint Chamber of Commerce, including a reliance on unorganized cross-border trade, a lack of compliance with global product standards and issues with transportation, storage, logistics, money transfers, product pricing and quality.
All the aforementioned challenges represent opportunities for Arab countries, particularly Saudi Arabia, to assist Baghdad, allowing it to escape Iranian control. In the past two years, Saudi Arabia has displayed a genuine desire to help Iraq, through official visits, the signing of multibillion-dollar agreements and by reopening two land crossings that had been shut for more than three decades. In addition to this growing closeness, the two countries also concluded an important agreement on electricity interconnectivity that will help to mitigate the suffering of the Iraqi people caused by continuous power outages, while also depriving Iran of an important tool to blackmail Iraq.
While Saudi Arabia’s worldwide foreign direct investments for the first quarter of 2022 surpassed SR580 billion ($154 billion), Saudi investments in Iraq barely reached SR2 billion. The current investment level in Iraq is quite low compared to other countries. For instance, Saudi investments in Egypt stand at about $30 billion.
The Kingdom’s investments in Iraq so far admittedly appear quite meager, despite its attempts to increase investments in Iraq and the fact it possesses the necessary tools, expertise and products to add quality and value to the Iraqi market. It must be remembered, however, that Saudi Arabia is facing major challenges and stiff resistance from known and hostile actors who are working against the interests of Iraq both domestically and abroad. Despite these challenges, there are growing Iraqi calls for Saudi Arabia to invest in the fields of energy, water desalination and food, as well as in other fields.
I recall attending a conference in Baghdad several years ago, at which Hossein Amir-Abdollahian, the current Iranian foreign minister, was one of the speakers. At the time, Amir-Abdollahian was special assistant to the Iranian parliament speaker and director-general of international affairs. At the event, he spoke about trade and investment issues, expressing a belief that Iraq’s governments should compel companies wishing to enter the market to establish factories in the country.
Saudi Arabia can assist Iraq economically in a number of ways and offer many valuable investments.
Dr. Mohammed Al-Sulami
Following his speech, I raised my hand to make a comment. I said that, while industry relocation is a positive step, it is a complex process that should not be initiated in this manner. I suggested that it would be better to open up the Iraqi market to all companies, domestic and foreign, which would benefit Iraqi citizens by providing the best products at competitive prices, especially since Iraqis have good purchasing power and they value quality. Unlike the Iraqis, who welcomed my ideas, the Iranians were unhappy with my contribution due to their wish to maintain dominance over the Iraqi market. My comment was not a passing accusation leveled at Iran but was based on plentiful evidence.
I could also mention another significant event that occurred in 2020, when Saudi investors expressed an interest in financing a new agricultural venture in Iraq through the establishment of cattle farms on large areas of land in the governorates of Muthanna, Anbar and Najaf. This proposal was quickly rejected, with political parties and groups affiliated with the Iranian-backed Popular Mobilization Units depicting the move as a Saudi attempt to seize control of the Iraqi economy. In tandem with this rejection, the Asa’ib Ahl Al-Haq militia and the State of Law Coalition, both of which are also allied with Iran, issued statements asserting their own absolute rejection of the proposed Saudi investment.
On Nov. 18, 2020, Iraqi Prime Minister Mustafa Al-Kadhimi held a press conference in Baghdad, in which he criticized those who spread slanderous lies about “Saudi colonization” carried out under the guise of investment, calling such lies shameful. He reiterated that Saudi investors had provided hundreds of thousands of jobs for Iraqis, adding that Saudi Arabia also has massive investments in countries like Argentina and Canada and asking why these countries do not similarly malign Saudi investments. Al-Kadhimi also warned against those who defended the corrupt oligarchs who had stolen and siphoned off billions of dollars from Iraq.
The Saudi agricultural investment proposal was finally withdrawn when the Iraqi Ministry of Water Resources reiterated that it would be unable to provide Saudi companies with the sustainable water resources necessary for the venture.
Pro-Iranian proxy actors that hinder any foreign investment in Iraq apart from Iran’s have no hesitation in resorting to killings, as seen with the assassination of the director of South Korea’s Daewoo Engineering & Construction firm, which was engaged in developing Iraq’s Al-Faw port, in October 2020.
Saudi Arabia can assist Iraq economically in a number of ways and offer many valuable investments. For example, the Kingdom can help Iraq’s major energy sectors, with Riyadh having extensive experience and an abundance of knowledge in the fields of oil and gas, with these sectors needing major state investment.
Saudi Arabia’s private sector also has a wealth of experience to call upon, with Saudi businessmen having a strong presence outside the Kingdom in a variety of different economic fields. In order to conduct business efficiently and effectively for both sides, the Saudi private sector will need guarantees and a suitable business environment. Saudi companies are thriving regionally and globally due to the presence of such environments in countries across the Middle East, as well as in Eastern Europe, Asia and the Americas.
Egypt, for example, is one of the largest Arab countries in terms of Saudi investment, with more than 6,800 companies from the Kingdom operating there, with overall investments exceeding $30 billion in industries as diverse as perfume, dairy, poultry, fodder, sugar, seeds, minerals, engineering and food production. These are in addition to Saudi service providers in areas such as banking, insurance, finance, leasing, transportation and tourism.
It is clear, therefore, that the Saudi workforce, across both the public and private sectors, is equipped with a vast array of expertise, with the products they manufacture complying with international quality and trading standards. Saudi firms are more than capable of helping to build and advance the Iraqi economy, have a positive presence in the Iraqi market, operate and compete freely, and provide quality products to Iraqis.
All of this, however, remains contingent on providing a safe and appropriate business environment. Achieving this positive environment and laying the groundwork for Iraq’s advancement will require real Iraqi national unity, the removal of excessive red tape and the elimination of networks of corruption that serve only malign foreign agendas, as Al-Kadhimi has noted.
- Dr. Mohammed Al-Sulami is president of the International Institute for Iranian Studies (Rasanah). Twitter: @mohalsulami