Iran’s Booming Presence in Iraq
Economy, Domestic Economy

Iran’s Booming Presence in Iraq

The rise of IS militants in Iraq has created unexpected opportunities in Khuzestan, the Iranian province hardest hit by the 1980-88 Iraq-imposed war. It borders the oil-rich Iraqi province of Basra.
“Southern Iraq has become part of Iran’s market now and will remain so,” says Majid Mohtadi, deputy head of the Iran-Iraq Chamber of Commerce.
Iraq is now Iran’s second-biggest trade partner, after China, for non-oil exports. And trade is rising, the Financial Times reported.
“The Iraqi market will need decades to stand on its feet again. This is a golden opportunity for Iranian traders at a time many Iraqis feel they owe Iran because it rushed to help them fight against IS unlike the Saudis and the Turks [Iran’s trade rivals in Iraq].”
Since the fall of Saddam Hussein, Iran has forged close links with the central government in Baghdad and maintained close relations with the Kurdistan Regional Government in the north.
In the first five months of this year, Iran exported goods worth $2.4 billion to Iraq, almost a fifth more than in the same period of last year. These goods range from cement, tiles and ceramics to dairy products and electricity.
“If the value of transit goods and tourism is included,” said Ali Tayyebnia, Iran’s economy minister, “this figure reaches $12 billion and should go up to $20 billion in the near future.”
This relationship is key for Iran, eager to position itself in the wake of the nuclear deal as a gateway to the region. With this in mind, it is accelerating investment in a 37,400-hectare free trade zone—covering Abadan, Khorramshahr, Minoo Island and Shalamchech border point—on the Iraqi border.
Work began last year and it now hopes to complete it within two years. With the help of German advisers, the Iranian aim is to create an FTZ reminiscent of Jebel Ali, the hugely successful UAE hub that serves the Persian Gulf.
“We hope European companies will come and visit here, and see the vicinity to the Iraqi market which has nothing but oil money. Iraqis don’t even have [drinking] water,” said Esmaeil Zamani, managing director of the state-run Arvand Free Zone Organization. “Insecurity [in Iraq] is not good for Iran but critical conditions there have prepared the southern Iraq market for us.”
Akbar Torkan, a senior adviser to the Iranian president and head of Iran’s Free Trade Zones Organization, sees potential even beyond Iraq. “Now that Iran no longer faces international sanctions, we are trying to build a bridge between Caspian Sea [in the north] and the Persian Gulf via railroad, which means Arvand can feed not only Iraq but also Russia,” says Torkan.
Industrialists and traders in Arvand FTZ—when fully operational—will be exempt from tax, duties, banking regulations, labor law and visa obligations. The government hopes to prioritize oil-related industries, steel factories, power plants and renewable energies.
Already two big steel projects, including a $2 billion factory run by state-backed Jahanara in conjunction with Spain’s Sarralle Equipos Siderurgicos, have begun.
But much work needs to be done. The site is full of shuttered industrial units, rendered unprofitable by sanctions. The infrastructure remains badly damaged by years of war and work on dredging the Arvand River—still clogged with the wreckage of 40 or more ships that sank during the war—only began a year ago.
Still, both for Arvand and Iran more generally, the potential is too big to be ignored.
“We can no longer live on petrodollars and have no choice but to attract foreign investments to expand industries and feed the market in Iran and Iraq,” says Zamani. “Look at the map. We are only half an hour away from Basra.”

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