ERBIL, Kurdistan Region – US sanctions on Iran will impact trade activity between Iraq and Iran and, should it persist, will damage Iraq’s economy, a former under-secretary to Baghdad’s finance ministry has said.
Following its withdrawal from the 2015 Iran nuclear deal, the US reinstated some of its sanctions on Tehran. The first phase of sanctions came into effect on August 6, targeting Iran’s automobile sector and precious metals like gold. The second phase will come into effect on November 5, targeting Iran’s central bank and oil exports.
Although countries are yet to sever trade ties, the impact is already being felt on Iran’s economy, with the rial rapidly losing value.
“America’s sanctions on Iran will have impact on trade exchange and activity between Iraq and Iran as there is sizeable trade between the two countries in terms of oil and gas,” Fadhil Nabi, the former under-secretary, told Rudaw.
Nevertheless, Iraq will commit to US sanctions “because Iraq’s financial transactions are through American banks, especially JP Morgan, which backs Iraq so that it financially gets back on its feet. If this bank alone stops backing Iraq, Iraq will have the biggest financial collapse,” Nabi said.
“Sanctions on Iran’s oil sector won’t have much impact on the Kurdistan Region as it has no energy ties with Iran. Nevertheless, it will have a negative impact on customs revenue,” he added.
However, if Erbil plays its cards right, Nabi thinks the Kurdistan Region could stand to gain from the sanctions.
“Due to a drop in the price of toman, Kurdistan’s people can easily get Iranian goods. The government, through facilitating investment, can establish large factories for producing Iranian food products in Kurdistan. Instead of importing Iranian goods, let goods be produced,” Nabi said.
According to figures from the Trade Directorate General, the Kurdistan Region had a trade volume worth 3.974 trillion Iraqi dinars ($3.338 billion) with Iran over the last two and a half years.
In 2016 it was 1.818 trillion dinars ($1.527 billion). In 2017, it fell to 1.320 trillion Iraqi dinars ($1.109 billion). In the first six months of 2018, it stands at 736 billion dinars ($618,295,200), a 10 percent rise on the same period last year.
“Due to a drop in the toman, businessmen have resorted to importing Iranian goods. The volume of Iranian goods imported to the Kurdistan Region increases by the day,” Nawzad Adham, Trade Director General of the Ministry of Industry and Commerce, told Rudaw.
If Baghdad had not taxed the goods exported to Iraq from the Kurdistan Region, the trade volume would have been double, he said.
KRG Prime Minister Nechirvan Barzani addressed the issue of sanctions in press conference last week.
“The Kurdistan Region, to commit to American’s sanctions on Iran, will take steps within the framework of Iraq and heed Iraq’s decisions. For this matter, we have asked the US, and have spoken to Iraq concerning this, that we would like an American delegation to visit us and clarify to us what can be done and what can’t be done,” Barzani said.
If Iraq does not show readiness to commit to the sanctions, the KRG cannot place a ban on imports and exports with Iran, Adham said.
The uncertainty is a source of concern for the Kurdistan Region’s business community.
“Due to fluctuations in the toman’s value, Iran’s factories adjust their prices according to the toman’s value as opposed to the dollar. Even with that, the volume of imported goods has increased by 150 percent due to the goods getting cheaper compared to the last year,” Haji Faqe Halshoyi, owner of a company importing Iranian goods, told Rudaw.
Halshoyi imports Iranian good worth $2 million annually. “Last year in this season we would import five trailers of goods monthly, but now there are months in which 30 trailers of goods are imported. If the market remains this good, then our volume of imported goods might reach up to $4 million,” Halshoyi added.
Iranian products are the cheapest in the market, leading to higher demand, Halshoyi said. He is therefore fearful Iraq’s commitment to US sanctions will undermine his business.
Iranian imports to the Kurdistan Region may have become cheaper, but the price of goods from China and the Far East that transit through Iran’s Bandar Abbas port has risen threefold.
“Due to American economic sanctions on Iran, some countries have stopped their shipping activities to Bandar Abbas. This has resulted in a hike in transportation costs of Chinese goods to the Kurdistan Region through Iran,” Bilal Sidiq, a businessman in Erbil importing electronic and household devices from China, told Rudaw.
One container of Chinese goods arriving via Bandar Abbas used to cost $500 to $600, said Sidiq. Nowadays, it has increased to $2,250 per container. Consumers may see a hike in the price of household electricals as a result, he said.