Iran Playing a Growing Role in Iraq’s Economy

While the Bush administration works to stop Iran from having any constructive role in Iraq, Iranian air-conditioners fill Iraqi appliance stores, Iranian tomatoes ripen on the windowsills of kitchens here and legions of white Iranian-made Peugeots sit in Iraqi driveways. In a report published by The New York Times, some Iraqi cities, including Basra, the southern oil center, buy or plan to buy electricity from Iran. The Iraqi government relies on Iranian companies to bring gasoline from Turkmenistan to alleviate a severe shortage. Iraqi officials are reviewing an application by Iran to open a branch of an Iranian bank in Baghdad, and Iran has offered to lend Iraq $1 billion.

The economies of Iraq and Iran, the largest Shiite-majority countries in the world, are becoming closely integrated, with Iranian goods flooding Iraqi markets and Iraqi cities looking to Iran for basic services.

After the two countries fought a devastating war from 1980 to 1988, Saddam Hussein maintained tight control over cross-border trade, but commerce has exploded since the American-led invasion of 2003.

Much of the money is heading in one direction, though: Iraq is becoming dependent on imports because industries here have been ravaged by the economic sanctions of the 1990s and the current sectarian violence.

Reconstruction and security have lagged so far behind the expectations of ordinary Iraqis that cheap goods from Iran and neighboring countries often provide the only comforts in their lives.

“What is happening in Iraq at the moment is a lot of trade, but it’s almost all one-way trade,” Barham Salih, the Iraqi deputy prime minister for finance, said of the country’s economic ties with Iran and other neighbors. “If you take oil away, there’s a lot of imbalance in this.”

Iraqi leaders from the Shiite bloc currently in power say political and economic ties with Iran, which is governed by Shiite Persians, will inevitably strengthen.

According to one commonly cited statistic, trade between Iraq and Iran has grown by 30 percent a year since the 2003 invasion. But American officials say no accurate numbers are available because Iran refuses to release complete figures.

Statistics from the American Embassy’s economic section show that Syria accounted for 22 percent of Iraq’s imports in 2005, and Turkey 21 percent. Iran, which has the longest border with Iraq, would be likely to fall in that range, officials said. The CIA World Factbook estimates Iraq’s total imports in 2006 at $20.8 billion.

Iran has divulged a few trade numbers. Tehran told the government of Iraq’s northern Kurdish region that trade with the region amounted to more than $1 billion in 2006, said Hassan Baqi, president of the chamber of commerce in the Kurdish city of Sulaimaniya.

Hoshyar Zebari, the Iraqi foreign minister, who is a Kurd, said that provincial governments had been making their own commercial deals with Iranian interests, but that lately he had started ordering them to go through the Foreign Ministry.

“We have a number of agreements with Iran on energy, on trade, on oil, on visitors – that is, pilgrims – which is very important to them,”” he said.

Here in the Shiite religious heartland in the south, Iraqis have profited handsomely from the new economic ties with Iran. This is particularly noticeable in the holy cities of Najaf and Karbala, where shrines draw Iranian pilgrims by the thousands each month.

The headquarters here of revered Shiite clerics like Grand Ayatollah Ali al-Sistani collect enormous dues from satellite offices in Iran. That money, too, ends up in the local economy.

The Iranian government gives Najaf $20 million a year to build and improve tourist facilities for pilgrims, said Asaad Abu Galal, the governor of Najaf. Mr. Abu Galal, a member of the Supreme Council for the Islamic Revolution in Iraq, an influential Iraqi political party founded in Iran, said Karbala got roughly $3 million a year. In addition, each Iranian pilgrim spends up to $1,000 on hotels, food and souvenirs.

Provincial tourism officials estimate that more than 22,000 Iranian pilgrims visit Najaf each month and that at least 10,000 travel to Karbala. Most come on package tours.

Officials would like to see more, but they say many are being held back by visa restrictions and security concerns. “We must increase the number of pilgrims,” Mr. Abu Galal said.

The close ties with Iran in the south have drawn scrutiny from the United States, Iraqi officials say. At one point, Najaf Province came close to hiring an Iranian company to build an airport, but the deal was scuttled at the last minute by the Transportation Ministry in Baghdad, officials with the Supreme Council said. They suspect the United States of putting pressure on the ministry.

“The Americans don’t want to bring Iranians to Najaf,” Mr. Abu Galal said. “The Americans want to control the sky.”

A senior American official in Baghdad declined to comment specifically on the Najaf airport project, but said the Americans did look carefully at major business exchanges with Iran. “We pay a lot of attention,” he said.

Tensions between the United States and Iran have increased tremendously in recent months. The White House, saying Iran wants to develop nuclear weapons, has urged the United Nations to impose harsh sanctions. It has also accused Iran of exporting deadly explosives to Shiite militias in Iraq. Tehran has rejected both allegations vehemently.

But the senior American official said the growth in trade between Iraq and Iran was generally positive. “I wouldn’t link the rise in trade with Iran with Iranian political influence,” said the official, who requested anonymity, following diplomatic protocol. “As long as this is normal economic activity that doesn’t have security implications, it’s a good step.”

Speaking of Iraq’s Shiite leaders, he added, “I think there’s a little bit of a tendency for them to want to deal with Iran. For many of these individuals Iran is more or less a frame of reference. I think that’s something we have to accept.”

Border cities have turned to Iran to help alleviate chronic electricity shortages. If construction on transmission wires is finished by the summer, Basra, the country’s second-largest city, will soon have the capacity to draw 250 megawatts of power from Iran at 5.2 cents per kilowatt-hour, said Karim Wahid, the Iraqi electricity minister.

Diyala Province, which borders Iran east and north of Baghdad, already imports 120 megawatts at 5.4 cents per kilowatt-hour, he said.

Halabja, a Kurdish city, has spent $1.8 million to develop the infrastructure to import electricity from Iran but has not begun receiving power, Kurdish officials say.

Iranian goods have proliferated throughout Iraq. White Peugeot sedans that began rolling out of Iranian factories in 2005 are sold everywhere in Iraq. In the far south, Basra imports $45 million worth of goods from Iran each year, including items as varied as carpets, construction materials, fish and spices, said Muhammad al-Waeli, the governor of Basra Province. Each day, 100 to 150 commercial trucks drive from Iran to Iraq at the nearby Shalamcha border crossing.

In downtown Baghdad, piles of Iranian air-conditioners with brand names like Sona, Jahan and Asan Khazar sit next to Chinese television sets on sidewalks outside appliance stores.

The blue-and-white air-conditioners use a water-cooling technology and can run on generator power, making them popular with electricity-starved Iraqis. They cost $60 to $140 and came on the market only after the fall of Saddan Hussein.

Mahmoud Abu Amir, the owner of a shop called Diamond of the Gulf, sat at his desk sipping chai, a spiced tea, one afternoon as men unloaded Iranian air-conditioners from a truck. Mr. Abu Amir said he had more than 2,000 in stock. “The transportation fees from Iran are much cheaper than from, say, China,” he said.

Books published in Iran now fill the shelves of bookshops across Iraq. The books are cheap because the Iranian government subsidizes printing costs by up to 60 percent, said Safaa Dawood Salman, the owner of a cramped bookshop on Baghdad’s famous Mutanabi Street, which was devastated by a suicide car bombing on March 5.

“The books are cheaper than before,” said Shayma Said, 29, as she handed over a 10,000-dinar note – about $8 – to Mr. Salman to pay for a hardcover Iranian-printed book on the teachings of the Prophet Muhammad. “I want to buy the three other books in this collection when I save up enough money.”

Facing a severe shortage of doctors, because so many have fled the country, Iraqis increasingly look to Iran for medical care. Iraqis run hotels in Tehran for incoming patients, and Iraqis able to speak Persian offer their services as translators for $5 a day.

A resident of Baghdad named Afrah said her mother had been going blind, so the family packed and flew to Tehran, where her mother had surgery to mend her badly damaged retina. Afrah received medical treatment for her own eye problems.

“We have friends who went there and had successful operations, and that encouraged us to go there,” said Afrah, 47, allowing only her first name to be printed because of security concerns. “We were very comfortable. There were so many Iraqis there.”

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