Iraq: Caught between Saudi Arabia and Iran

Iraq: Caught between Saudi Arabia and Iran
Comment: Iraq finds itself caught between the Iranian-Saudi regional struggle for influence, write Clement Therme and Shifaa Alsairafi.
10 min read
Iraqi president Salih (L) welcomes Iranian president Rouhani (R) in Baghdad, March 2019 [Anadolu]
Amid a tense region and a polarised Arabian Gulf lies Iraq: Once a major regional player in its own right now finds itself caught between the Iranian-Saudi regional struggle for influence. 

This relationship is, of course further complicated by increasing US-Iran tensions and growing 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 is attempting 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 al-Maliki's term as prime minister between 2006–2014 as they saw him mainly as an Iranian pawn.

Iran has been building its relationship with Iraq deliberately and diligently since 2003

Instead of attempting to strengthen its influence through state relations, Saudi Arabia chose to engage with Sunni organisations 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.

Crown Prince Mohammed bin Salman's ambitions

This all changed in 2014 when Islamic State (IS) 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 at the end of 2016 and the elevation of Mohammed bin Salman to the position of the crown prince in June 2017.

Mohammed bin Salman (MbS) pursued a more deliberate foreign policy with Iraq that takes advantage of Saudi Arabia's strengths and the commonalities between the two countries, in an attempt to better contain Iranian influence. 

Since then, the Kingdom has been extending diplomatic visits, welcoming Iraqi officials, opening up new consulates 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 percent of the 1400 megawatts of electricity Iraq 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 percent increase from last year's figures - 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.

Pressure from the US to halt energy purchases from Iran has placed Iraqis in a difficult position

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 percent 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.

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 percent 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 1,400 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, given growing US sanctions and further isolationism, needs continued access to the Iraqi market.

Read more: Will US-Iran tensions trigger a new global power balance?

Iraq, in its current stage of reconstruction, requires the support of its long-standing neighbour 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.

Among 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 escalatingUS 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.

Iranian exports to Iraq account for 16 percent of all Iraq's 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 neighbours 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 neighbours to ensure its economic and political stability and to prevent another form of IS or indeed a resurgence of IS 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 neighbours 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 Arabia currently has the capacity to export.

Instead, Saudi Arabia 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.

Saudi Arabia 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 Arabia 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 must be wary not to pit Iraq against Iran

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 will 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 antagonising or alienating Iran, as many Iraqi groups recognise 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.

Clement Therme is a research fellow for Iran at the International Institute for Strategic Studies (IISS).

Follow him on Twitter: @ThermeClement

Shifaa Alsairafi is a research assistant at the International Institute for Strategic Studies (IISS).

This article was originally published by our friends at Orient XXI.

Opinions expressed in this article remain those of the author and do not necessarily represent those of The New Arab, its editorial board or staff.