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June 2020, No. 94


Foreign Trade

Iran-Iraq Trade up to $20 Billion


While the Iranian side hopes to raise volume of trade with Iraq to $20billion, there is concern that the current situation will turn the inherently timid capital out of the common economic path.


Neighboring countries are always of particular importance among export destinations. On the one hand, due to the proximity of the access routes, they compensate for most of the major logistical costs (which currently comprise between 20% and 30% of the finished goods price) and on the other hand, due to geographical range and cultural proximity and sometimes political relations they are regarded a good target for our manufactured goods. Alongside these advantages, trade interaction with neighboring countries is relatively more stable than other international destinations and points of origin, especially under special circumstances such as the sanctions.

Iraq, meanwhile, has a 1,458-kilometer-long border line with Iran, dating back nearly 380 years to the Treaty of Qasr-e Shirin (Zahab) between the Ottoman Empire and the Safavids in 1639, historical relations (apart from common neighborliness), and neighboring the five provinces of Khuzestan, Ilam, Kermanshah, Kurdestan and West Azarbaijan, and more importantly sharing linguistic, religious and traditional convergence, enjoys a unique status.

Iraq has a completely oil-based economy. In 2017, it exported more than $60 billion, of which 94.7 percent was crude oil and 2.43 percent was refined oil. In the same year, Iraq recorded nearly $29.7 billion in imports, 30 percent of which came from Turkey and 24 percent from China. In recent years and especially after the sanctions against Iran economic relations between the two countries entered a new chapter. According to the World Trade Organization statistics, between 2014 and 2018, Iranís exports to Iraq recorded an average growth of seven percent in value annually, while its total imports declined by one percent in the same period.

In 1397 (2018/19), the volume of Iranís trade with Iraq as the second export destination of Iranian goods, weighing about 20 million tons was nearly $9 billion, with a trade balance of $8.9 billion. According to the head of the Trade Promotion Organization of Iran, in that period Iran accounted for 29 percent of the Iraqi market share. Annual exports of electricity, engineering services and export of Iranian gas to Iraq are other areas of bilateral cooperation between the two countries. Iran has exported $200 million worth of gas to Iraq per month in 1397, according to the IRI oil minister.

Iranís exports to Iraq, increased by 20 percent, reached $2.5 billion in the first 100 days of the calendar year 1398 (March 2019 Ė March 2020), according to the secretary general of the Iran-Iraq Joint Chamber of Commerce, showing an increase of 20% compared to the same period of the year before. On the other hand, the country is one of the main customers, and perhaps the main market for FMCG, which has a good financial circulation.

On this basis, Iraq can be considered a serious business partner for Iran and bilateral relations enjoying all cultural capacities and commonalities, convergence in social subcultures, alignment of border regions, and sometimes positive political approaches, are subject to numerous economic and political components. In the course of recent years of trade policy reversal and in the same manner as the above mentioned subscriptions, the Iraqi market in recent years has been, and will continue to be, a strategic position not only for our public economy but for the private sector.

Confirming such compliance is that in the days when the region is in the throes of events, many are concerned about relations among regional states; and more worryingly, it warns of an uncertain future. These conditions affect both political and cultural relations as well as economic relations.

Iraq is no exception. On the one hand, domestic and political issues in Iraq and the usual wrangling of countries in the area of ​​internal power, such as the results of its parliamentary elections and subsequent social upheavals:  An election that shifted the balance of power in the country. However, analysts say there is no significant difference in the political beliefs of the dominant group, Saeron, led by Muqtada al-Sadr and other older Iranian allies. But it should be noted that the economy is an area of ​​

interest, and on the other hand, changes in management and economic policies, such as the imposition of import restrictions and tariff bans by Iraq in recent months, have also overshadowed trade relations between the two countries.

While the Iranian side hopes to raise volume of trade with Iraq to $20billion, there is concern that the current situation will turn the inherently timid capital out of the common economic path.

Whether or not the danger of social and political disruption threatens economic relations depends on its extent and the Iraqi policymakerís reaction to certain demands of society. Meanwhile, the influence of some local border officials, some provincial decisions, and tribal and ethnic relations can also be considered as effective risks. However, if you respond positively to the likelihood of such a risk, you will not have much of an impact. But the most damaging economic ties between the two countries are political decisions and economic policies that certainly have a lasting effect.

An example was the imposition of some import bans and the increase in tariffs on 63 items of Iranian goods last year by Iraq, which emerged as one of the trade barriers to the development of relations between the two countries and hampered earlier targeting between the two countries.

It is important to note that Iraq is a transitional country, and that is why it is sometimes confined to unstable, shaky and spontaneous transitional policies. Although on this side too, there is no better situation in the field of spontaneous law making, however, since the legislative or law enforcement situation in Iraq has been more skeptical of political diversity, the duration of such an approach and more importantly the nature of subsequent actions in policymaking and the prospects of trade ties with that country affect business relations with that country more. Of course, it should be emphasized that the laws of Iraq usually apply to all business parties and are not necessarily specific to Iran or any other country, but whether specific or public is a threat in the context of business environment analysis.

On the whole, it seems that a group of Iranian export products to Iraq recognized as the definitive needs of Iraq, for reasons such as consumer culture proximity, favorable target market quality and consumer interest and competitive pricing relative to other countriesí products, such as Turkey, is virtually without competitors. Regardless of the fleeting social fluctuations and emotional space created by social networks, they will continue to evolve. But this ruling cannot be decisively influenced by the policies of groups and parties ruling power, one of which is large-scale projects and strategic partnerships between Iran and Iraq, which currently have no significant stake in online cooperation but may in the future. Another agenda is production within Iraq, which, although low on value added goods, poses a threat to the same segment of Iranian export products in the Iraqi market.

On the other hand, it should be noted that a large part of the Iranian consumer market, especially FMCG, falls into the first group and is mainly associated with Iraqi businessmen (the private sector). Therefore, their effectiveness is cross-sectional unless they are also subject to the laws of creation. In this case as well, this would mean shrinking the whole market cake and there would be no difference in countriesí share of consumer market cake (provided that quality and economics were maintained due to economies of scale). For example, agricultural commodities that may lose their market due to seasonal bans and self-sufficiency policies are subject to such an approach. An increase in tariffs on certain products (most recently on dairy and cement) is subject to this view if not interpreted by the pressure of political and power lobbyists. 

 

By: pouya Firouzi

 

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