Amidst a tense region and a polarized Persian/Arabian Gulf lies Iraq: once a major regional player within its own right finds itself caught between the Iranian-Saudi regional struggle for influence. This relationship is, of course, further complicated by increasing US-Iran tensions and a strengthening regional anti-Iran rhetoric. The future of Iraq as it enters its reconstruction phase must by the nature of any post-conflict state depend on the help and influence of the strongest players in the region. While Iran has been connected to Iraq since 2003 slowly increasing its influence within the country through formal and informal relationships, Saudi Arabia has been largely absent. Today, Saudi Arabia attempts to return to Iraq through an economic route partly emboldened by the policies of the Trump administration in an effort to curb Iranian influence.
Long neglected by Riyadh
Saudi Arabia cut all ties with Iraq in 1990 because of the second Gulf War when Saddam Hussein launched an attack on Kuwait. The fall of Saddam Hussein’s regime and the US invasion in 2003 did not encourage them to engage with the new political order. Iraqi-Saudi relations deteriorated further during Nouri Almaliki’s term as prime minister between 2006–2014 as they saw him mainly as an Iranian pawn. Instead of attempting to strengthen its influence through state relations, Saudi Arabia chose to engage with Sunni organizations and politicians in an attempt to counteract Iran’s increasing influence. In many of its engagements with these groups, prior to 2014, Saudi Arabia was largely reactive and its support of certain groups did not seem to lead to a specific long-term policy.
This all changed in 2014 when Daesh rose and began to present a real and imminent threat to the sovereignty of Iraq and to security in the region and the world. Saudi’s efforts to engage with Iraq accelerated after its opening of the Baghdad embassy in the end of 2016 and the elevation of Mohammed Bin Salman to the position of the Crown Prince in June 2017. MBS pursued a more deliberate foreign policy with Iraq that takes advantage of Saudi’s strengths and the commonalities between the two countries to better contain Iranian influence. Since then, the Kingdom has been extending diplomatic visits, welcoming Iraqi officials into Saudi, opening up consulates in new locations in Basra and Najaf, and perhaps more importantly, increasing its economic investments in Iraq and encouraging private Saudi companies to do the same.
Choosing the economic route to increase its influence is certainly an attractive option for Saudi Arabia, but whether it has the capability to significantly weaken Iranian-Iraqi trade relationship remains in question.
An uncomfortable position
Iran has been building its relationship with Iraq deliberately and diligently since 2003. It has built and maintained relationships with its political elite, Sunni and Shia alike, and it has increased bilateral trade between the two countries to about US$12 billion in 2018. Iraq relies on Iran to provide its energy sector with the power that it needs to sustain the country without shortages. Iranian gas imports to Iran generate as much as 15% of Iraq’s 1400 megawatts of electricity that it consumes on a daily basis. Pressure from the US to halt energy purchases from Iran has placed Iraqis in a difficult position as they cannot afford to lose the support of the US, but they also do not have the infrastructure and capabilities to forego Iranian energy, and there is no sign as of yet that Iraq will indeed halt energy purchases from Iran. In fact, the total number of Iranian exports to Iraq during the past Persian Calendar year (March 2018—March 2019) reached $9 billion worth of products representing a 36% increase from last year’s figures representing a record high in bilateral trade between Iran and Iraq.
Temporary import permit
This is despite a looming threat of war in the region and immense pressure on Iran created by US sanctions. After first declaring that it would stop all waivers on buying energy from Iran, the US extended a waiver from sanctions given to Iraq to enable them to buy energy from Iran for another 120 days in June of 2019. Iraq has been gearing up its efforts, however, with the support of international companies and governments to improve and develop its energy sector including its sustainable energy capabilities so that it can become less dependent on Iranian energy. Developing Iraq’s energy infrastructure to a point that would allow Iraqi energy independence is not an easy or short-term task. Until then, reliance on Iranian energy is inevitable.
Iran also sends nearly 21% of its total non-oil exports to Iraq reaching nearly $5.73 billion for the period of March to October 2018, during which Iraq overtook China as the main non-oil export market for Iran. These non-oil exports include many fruits and nuts, salt and other minerals, cement and plastics, ceramic products, edible vegetables, dairy products, vehicles, cereal and flour, iron and steel, aluminum, and even some clothing products. These products are transmitted through two major border crossings, the Piranshahr—Haji Omran border crossing in the north of Iraq, and the Bashmaq-Penjwen border crossing in the south of Iraq. Iranian exports to Iraq account for 16% of all Iraq’s imports, making Iran their third-largest trading partner after Turkey and China.
A shared willingness to build good relationships
Furthermore, Iran and Iraq share a border of 1400 kilometers, have fought a long and grueling eight-year war (1980–1988), and are motivated by the sheer intent of survival within a difficult regional environment to further their cooperation and avoid a new confrontation. Their relationship is an interdependent one. Iran, amidst growing US sanctions and further isolationism, needs continued access to the Iraqi market. Iraq, in its current stage of reconstruction, requires the support of its long-standing neighbor and benefits from maintaining a cordial and strategic relationship with them. Rouhani’s three-day visit to Iraq in March of 2019 further cements this interdependent relationship. Iranian and Iraqi officials signed several agreements on energy, transport, agriculture, industry and health. Amongst these were an agreement to connect the two countries with a railway from the town of Shalamache at the Iraq/Iran border to Basra in the south of Iraq, and an agreement to waive all visa fees for Iranian and Iraqi visitors. Iranian officials have even declared their intent to further increase bilateral trade to about US$20 billion in the coming years.
There are, of course, different narratives and positions on Iran’s influence over Iraq, and Iran undoubtedly faces difficulties in cementing its ties with Iraq. Protestors in Basra in September of 2018 stormed and torched the Iranian consulate and shouted “Iran out” slogans. Iranian businessmen who export goods to Iraq have been experiencing difficulties due to rising tariffs and instability at the border crossings.
Iraq also remains heavily indebted to Iran, with US$2 billion of outstanding payments for gas and electricity purchases from Iran that are more difficult to pay back now due to escalating US sanctions. Iranian non-oil exports to Iraq have also recently decreased to around $389 million during March 21—April 20 compared to $733 million in the previous 30-day period due to a general ban on some products as well as some targeted bans on Iranian imports. Iran’s influence over Iraq is often either overinflated or underestimated depending on the perceptions of different regional players, but the truth lies somewhere in between. Iran and Iraq remain neighbors and as such must maintain cordial relationships that can sometimes be fraught with disagreements and some level of mistrust.
Iraq, in its current stage of reconstruction, requires the support of all its neighbors to ensure its economic and political stability and to prevent another form of Daesh or indeed a resurgence of Daesh themselves from forming in the future. It does not wish to become another battleground between regional and/or international players nor take part in any alliance against Iran. It cannot afford to do so, as it still relies on Iranian energy and Iranian products to populate its markets. Iraq does wish to integrate itself with the markets of its Arab neighbors in order to lessen its economic interdependency on Iran and Turkey, but it does not wish to fuel further sectarianism and regional imbalance in the process. Regional influences in the country have in the past created further divisions within Iraq and weakened the central government. Thus, the new direction of Iraq’s new cabinet is to ensure that Iraq’s foreign relations are centrist and moderated in their approach.
New economic opportunities for Riyadh
Saudi Arabia then is presented with an ideal window of opportunity to engage with Iraq. It has taken several steps already down that path, but it must be wary in those engagements not to pit Iraq against Iran or pressure Iraq to take sides in its regional competition for power. They cannot replace Iraq’s non-oil trade with Iran as the products traded between the two countries are not products that Saudi currently has the capacity to export. Instead, Saudi can present Iraq with new economic opportunities that would expand and diversify the Iraqi market through institutional channels rather than individual connections or non-state actors. They can also tap into the gas and energy market in order to lessen Iraq’s dependence on Iran to supply its energy grids. It has begun this effort by introducing plans to increase its cross-border trade, developing Iraqi infrastructure particularly in recently liberated areas, and encouraging private investment into the Iraqi market.
They have opened the Arar border-crossing, announced the establishment of a Saudi-Iraqi trade coordination council, pledged $1 billion through its Saudi Fund for Development and $500 million in export credit during the International Conference for Reconstruction of Iraq held in Kuwait, has taken advantage of Iran’s shortcomings to provide Iraq with some urgent energy demands, and has given Iraq a $1 billion grant to build an entire sports city.
Few concrete measures
Saudi’s economic engagement with Iraq, however, is complicated by Iraq’s difficult financial and political situation. While it has ambitious plans for future cooperation, few concrete steps have emerged. Private and public companies are not too keen on investing in Iraq due to its rampant corruption and its insecure conditions. There is concern that Iraq would default on its payments, or that a company’s assets may be seized or reallocated and its operations halted due to insecure circumstances. While Saudi and other countries in the GCC took steps to encourage investments and mitigate these issues—such as credit and export guarantees or relying on Gulf countries’ sovereign development funds to pay contractors or to carry out projects directly—, they remain at a disadvantage when compared to Iran, due to the weakness of their infrastructure links, Iran’s sprawling network of formal and informal channels with Iraqi decision makers, and to Iran’s willingness to deploy resources unconditionally. Although they have made significant pledges in the past, tangible economic results of this Saudi-Iraqi rapprochement are yet to be seen.
A long-term policy
This moment in Iraq’s history is a pivotal one much like how 2003 and 2006 were pivotal years in Iraq’s recent past. Iran has the advantages it has today over Iraq because it took advantage of the inflection points in Iraq’s new state formation following the US invasion. Saudi Arabia and other Gulf countries have a new window of opportunity to engage with Iraq’s new government and build trust between its institutions and those of Iraq. They may not be able to completely replace Iran’s existence in and influence over Iraq, but they can certainly limit Iran’s economic reach in Iraq. They can do so through instituting a deliberate and calculated foreign policy approach that establishes formal ties with Iraq through legal state channels and bilateral agreements, without directly antagonizing or alienating Iran, as many Iraqi groups recognize the importance of continued Iranian support. Building this constructive relationship between Iraq and Saudi Arabia and other Gulf states will require a long-term policy that would give Iraq its autonomy and allow it to maintain its stability and security and that of the region.