Iraq-Iran multi-billion trade compensates drop in trade with Syria

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A suspension bridge over the Euphrates River near Iraq-Syria border. Photo - Adam Smith

Iraq, suffering from a massive drop in Syria trade, is enjoying a boost in business with Iran as trade volumes hit the $10 billion mark, an Iranian news agency reported on Sunday.

“The volume of the trade exchanges between Iran and Iraq amounts to $9.7bn which shows a growth rate of 8% compared to last year,” semi-official Fars news agency quoted Iranian Interior Minister Mostafa Mohammad Najjar as saying during the closing ceremony of a trade meeting between Iranian and Iraqi officials.

Iran has expressed its willingness to play a major role in Iraq’s reconstruction, and voiced its readiness “to take part in its Western Muslim neighbour’s development projects.”

Both the Gulf countries are enhancing economic and political cooperation and have enjoyed close ties since the overthrow of Saddam in 2003. Iraq earns an annual $1.2bn from the visits paid by Iranian pilgrims to holiest Shia shrines in the country.

The closeness in ties with its eastern neighbour comes at a time when trade with Syria, Iraq’s western neighbour, has fallen from $4 billion to $700 million per year, due to the instability and security crisis across the border. Iraqi markets have been heavily dependent on Syrian products during the last few years, and accounted for nearly 60% of the country’s consumption goods.

“Syrian products held a special place in Iraq because they meet our country’s needs at reasonable prices. This is for products such as handkerchiefs, stationery, spices, fruits, vegetables and other basic goods,” Hassan Dahlaky, an official from the Association of Iraqi Traders, told Al-Hayat.

“Syrian products are necessary for Iraqi markets and can satisfy Iraqi needs,” Dahlaky added.

According to economist Abbas al-Ghaliby, Iraqi-Syrian trade totalled $5 billion last year, but Iraqi traders have addressed the shortage of Syrian merchandise by supplying Iraqi markets with products from other countries.

“The unrest in Syria badly damaged the country’s industrial sector. Syrian manufacturers were compelled to sell their stocks to Iraq in order to avoid catastrophic losses as much as possible,” Al Ghaliby added.

Balancing Act

Iran, a long-time Syria ally, is trying to fill the void. Tehran announced in March it wants to play an active role in Iraqi power sector and started constructing new power transmission lines to increase electricity exports to the oil-rich but crisis-hit country.

“We are also ready to build new power plants in order to increase the capacity of power exports to Iraq,” Iran’s Minister of Energy Majid Namjou said while adding that his country is ready to increase electricity exports to Iraq.

The main beneficiary of Iraq’s trade with Iran is the autonomous region of Kurdistan which had a trade volume of approximately $3 billion in 2011. Both the parties expect the trade to grow by $1 billion in 2012, with Kurdistan grabbing 60% of the total trade volume.

Bottomline

As a result of the economic sanctions levelled against Syria, markets in the country now face substantial shortages when it comes to many primary commodities and foreign currencies. Trade is now limited to the use of three mechanisms: swaps, cash payments or the settlement of debt with other partners.

“Iraqi-Syrian trade exceeded $3 billion last year. However, trade between both could fall to less than $700 million and might be limited to fruits and vegetables,” said Saleh.

The Iraqi central bank’s deputy governor noted that the volume of Iraqi investments in Jordan was far more important than the volume of Iraqi investments in Syria adding that Iraqi investors would focus on the Iraqi markets and that they might turn to the Kurdish, Turkish and Gulf markets. “Returns from Iraqi investments are gradually increasing because Iraqi markets are more profitable and represent a good outlet in which to sell products.”

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