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Trump's 'Maximum Pressure' on Iran Exposes How Little the U.S. has Done for Iraq's Economy

The U.S. commitment to Iraq’s economic development has been underwhelming which has made Iranian trade and investment ties in Iraq appear disproportionately significant.

Reporting | Middle East

Speaking at the World Economic Forum in January, Iraqi President Bahram Saleh addressed the intensifying competition between the United States and Iran that was bringing his country to the edge of an abyss. He stated that it is not in Iraq’s interest to “choose to ally with one side at the expense of others, as long as both respect our sovereignty and independence.”

For over a year, the Trump administration has been seeking to pushback on Iranian influence in Iraq, most dramatically by ordering the airstrike that killed Iranian military commander Qassem Soleimani while he was in Baghdad. But the administration has also embarked on a campaign against Iran’s economic influence, threatening the use of sanctions on Iraqi companies and banks that transact with Iranian firms while insisting that Iran’s economic influence funds human rights abuses and undermines Iraqi economic sovereignty.

But a comparison of data on American and Iranian trade and investment in Iraq makes clear that far from Iran having an overbearing influence on the Iraqi economy, it is the underwhelming U.S. commitment to Iraq’s economic development that has both prolonged the hardship faced by the Iraqi people and made Iranian trade and investment ties appear disproportionately significant.

In reality, Iran’s economic footprint in Iraq has expanded at a steady pace, but is still no greater than than that of Turkey. In contrast, since the 2003 invasion, American trade, investment, and aid has languished, demonstrating a failure on the part of American policymakers to prioritize Iraq’s economic development as it slid deeper into the U.S.’s “nation building” quagmire.

According to data compiled by the United Nations Conference on Trade and Development, in the 15 years following the U.S. invasion in 2003, the United States exported just over $25 billion worth of goods to Iraq. In the same period, Iran exported over $45 billion worth of goods, with $27 billion of that total tallied between 2013 and 2018, a period in which Iranian exporters began to look west as the Iraqi economy stabilized and as multilateral sanctions made it difficult to sell wares to markets further afield. This data doesn’t capture the extensive informal trade conducted across the Iran-Iraq border, meaning that the full export value is likely significantly larger.

Looking to imports from Iraq, the U.S. total dwarfs that of Iran. But American imports from Iraq comprise almost entirely of crude oil. Iraq’s resulting trade surplus with the United States may help underpin its government budget, but the simple fact that the United States spends so much money on Iraqi crude makes it even more curious that American firms failed to establish an export market in Iraq.

It may be unreasonable to expect that exporters in the United States, located halfway around the world, would prioritize the Iraqi market. Dependence on imports is also a potential barrier to Iraq’s economic development, as reliance on imports can prevent the development of local manufacturing and the creation of sorely needed jobs. Iraqi protesters frustrated with the lack of economic opportunity have recently called for a boycott of Iranian products. To develop local industry, what matters is the willingness of foreign partners to invest in Iraq.

According to data from fDi Markets, the United States made direct investments totaling just over $11.6 billion between 2003 and 2019, making it the second largest investor in Iraq in that period after the UAE. Iran’s direct investments total $728 million dollars in the same period, ranking just below Turkey. But Iranian investment has only picked up recently, as growing market share made it commercially attractive to establish local manufacturing in Iraq. In the same period, U.S. investment has subsided. Over the last five years, Iranian firms have pursued six projects with a combined capital expenditure of $212 million. American firms have pursued seven projects, worth an estimated $393 million.

A recent World Bank report on the Iraqi economy describes a roiling “jobs crisis” that has driven the discontent behind nationwide protests. Against this backdrop, the failure of American firms to invest in Iraq and create jobs is dismaying. Between 2003 and 2015, American direct investment generated 7,465 jobs. By comparison, Iran’s direct investments created 3,422 jobs on the back of a far smaller outlay. The pitiful level of American direct investment and its negligible impact on job creation is all the more remarkable when considering that American taxpayers have paid $760 billion between 2003 and 2018 on matters related to the Iraq war.

Beyond the defense appropriations, American taxpayers also footed the bill for billions of dollars in aid disbursed in Iraq. Between 2003 and 2018, aid expenditures totaled $71 billion, paid out to a vast web of contractors who in turn employ thousands of Iraqis. But these jobs are inherently dependent on the ongoing U.S. presence in Iraq and are mostly related to governance and humanitarian projects. The total amount of aid allocated to “economic growth” has been a dismal $4 billion over fifteen years. Just $761,475 was spent in this category in 2018.

While Iraqi officials insist that they should not be forced to choose between the United States and Iran, the recent growth in Iranian trade and investment ties points to a cooperative vision for economic development that American policymakers appear to lack. Rather than advance American interests through greater support for the Iraqi economy, the Trump administration has fixated solely on the denial of Iranian interests. As a consequence, even if the administration succeeds in advancing its “maximum pressure” strategy by expelling Iranian firms from Iraq, it remains totally ill-equipped to compensate for the serious harm that will be inflicted on Iraq at a time when the country is gripped by economic protests. Absent a considered strategy to support regional economic development, the United States is bound to remain mired in a forever war with both Iraq and Iran.

Reporting | Middle East
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