U.S. Sanctions on Iran Will Harm Iraq

Baghdad is heavily dependent on trade with Tehran. Without an exemption from Washington, Iraqis—and the stability of the country—will suffer.

Iraqi boys walk past a shop in a local market in the northern city of Mosul on Nov. 21. ( Zaid al-Obeidi/AFP/Getty Images)
Iraqi boys walk past a shop in a local market in the northern city of Mosul on Nov. 21. ( Zaid al-Obeidi/AFP/Getty Images)

After suffering from years of violence, war, and sanctions, Iraq today is a country gradually and cautiously entering a post-conflict phase. But there is no guarantee of lasting peace, stability, and economic development. Any added pressures on Iraq could become a threat to its tenuous stability and plunge the fragile state back into violent conflict at a time when it needs assistance from the international community. The recent U.S. withdrawal from the Iran nuclear deal and Washington’s reinstatement of sanctions against Iran could present such a threat to Iraq’s stability.

U.S. sanctions on Iran do not only affect U.S. trade with Iran, but they also extend to U.S. allies that trade with Iran. Iraq is one of those countries caught between the two, having been given a 45-day exemption period by the United States before it is expected to halt trade with Iran. The exemption sets an unrealistic target for Iraq to extricate itself from long-standing trade ties and disengage from its neighbor. Iraq, despite being an oil-rich country, relies heavily on Iranian natural gas to power its electrical generators. Even with Iranian natural gas, Iraq still suffers from frequent power cuts, making heat waves unbearable.

Given the extent of the Iraqi government’s corruption and reputation for bureaucracy, replacing Iranian natural gas as Iraq’s source of electricity generation is unlikely to be achieved in time for Iraq’s forthcoming desert winter, when most of the country gets very cold at night. Despite the United States pushing for Saudi Arabia to replace Iran as the key supplier to meet Iraq’s energy needs, any such deal would require months before anything can be achieved. Considering that Iraq is failing to provide electricity for its population, forcing Baghdad to stop trade with Tehran without providing a valid alternative to importing natural gas from Iran threatens to punish the Iraqi population as they brace themselves for a cold winter. Any further failures of Iraq’s public services could put further pressure on the country’s fragile stability, as demonstrated by the recent protests in Basra due to inadequate public services.

Not only does Iraq share its longest border with Iran, but Iran’s economic, political, and religious influence on Iraq has also been evident since the 2003 U.S.-led invasion of Iraq. Besides some of Iraq’s major political parties being backed by Iran, markets are filled with Iranian products ranging from yogurt to clothes, and streets are jammed with Iranian-manufactured Saipa cars. Having these close ties with Iraq, low trade tariffs, and cheap produce have made Iran a vital trading partner for Iraq, a country otherwise riddled with economic struggles.

Iranian trade with Iraq is worth approximately $12 billion per year, and Iraqi officials are steadfast in wanting to maintain such ties with Iran. Barham Salih, the newly appointed president of Iraq, stated how important it is for Iraq to have “good and stable relations with Iran.” Considering Iran’s influence over major political parties and its backing of heavily armed Popular Mobilization Forces, should an economic relationship deteriorate with Iran, there is a risk that Iran may begin to play a destabilizing role in the future of Iraq.

Regardless of the ongoing pressure from the United States to stop trade with Iran, both Iran and Iraq seem determined to continue open relations. To make up for lost trade following U.S. sanctions, Iranian President Hassan Rouhani has shown a strong interest in nearly doubling trade with Iraq from $12 billion to $20 billion per year. This dedication to investing in such trade was highlighted by Iran’s large trade delegation at Baghdad’s International Fair last month. Iran has flooded the Iraqi market with cheap and affordable products. The majority of Iraqi taxis are now Iranian-manufactured Saipas; in such an environment, it is unlikely Iraqis will be willing to cease such trade with Iran, nor realistically can they afford to.

Considering the strong partnership between Iraq and Iran and the porous border between the two countries, no official stance taken by either government could stop the expansion of the Iran-Iraq black market, especially when it comes to trading the U.S. dollar, as was the case before the initial Iran nuclear deal.

Moreover, because U.S. sanctions affect only U.S. dollar transactions, Iraq and Iran have sought ways to circumvent such a ban by supporting the trade of natural gas in exchange for food and humanitarian supplies, which Iran has lacked since the reinstatement of sanctions. With Iraq’s high poverty levels, such food and humanitarian supplies could benefit Iraq’s civilians.

Through the perceived success of Iranian-backed Popular Mobilization Forces by Iraqis, as well as the multiple Iranian-sponsored media outlets on Iraqi television, support for Iran in Iraq remains strong. It was the commander of Iran’s Quds Force, Qassem Suleimani, who was found to be on the front lines of many of the battles with the Islamic State, as well as being credited for masterminding the return of Kirkuk to Baghdad’s control. Forced to choose between Washington and Tehran, many already Iran-leaning Iraqi politicians would side with Iran over the United States.

Such a dichotomy in Iraq’s already volatile political climate is not one that is needed and threatens the stability of the neighboring region. Since Iraq’s military victory over the Islamic State, many countries have sought ways to invest in Iraq. Saudi Arabia and Iran are both endeavoring to woo Iraq economically with increased trade, promises of investment, and partnerships. As most regional countries have sided with either Iran or Saudi Arabia, paving the way for geopolitical tensions and armed conflict, Iraq is ideally placed to act as a stabilizing force in the region by maintaining political ties with both. Salih, after a recent visit to meet with his Iranian counterpart, Rouhani, to discuss a free-trade border, was able to immediately meet with Saudi Arabia’s King Salman in Riyadh, a feat that few political leaders could manage. Such open relations with both countries can help bridge the gap between the two regional rivals.

Iraq has been scarred in the not-so-distant past by years of U.S. sanctions following the 1991 Gulf War, and further threats of sanctions will only seek to destroy an already failing economy in a country that needs as much postwar reconstruction assistance as it can get. Limiting its ability to develop could threaten Iraq’s fragile peace. Washington should consider keeping Iraq on the sanctions exemption list or risk losing the past 15 years of its investment in Iraq to Iran.


Ahmed Twaij is an independent Middle East analyst and an advisor to the Iraqi nongovernmental organization Sanad for Peacebuilding. He is also a photojournalist and has worked with a number of international humanitarian and human rights organizations. Twitter: @twaiji