Iraqis feel rising Iran clout in their wallets
Published Date: June 16, 2010 

KARBALA, Iraq: Iranian rials change hands as easily as Iraqi dinars in this 
holy city's old bazaar, its alleyways teeming with Iranian pilgrims bused in on 
package tours run by Tehran. The Ayatollah Khomeini banknotes and Farsi chatter 
aren't alone in lending a Persian flavor. Shelves in merchant stalls like 
Yassin Saleh's sit heavy with containers of honey, cosmetics and toothpaste, 
all made across the still-disputed border. Bestsellers include travel-size 
bottles of Iranian Sehat brand shampoo. "They're cheap but effective," Saleh 
says, as boxy Iranian-built Barfab air coolers trundle away nearby. "Some 
people don't care about the cost ... but those who want lower prices like the 
Iranian products.

Trade with longtime rival Iran is bringing Iraq investments it sorely needs. 
Billion-dollar pacts are being signed. Branches of Iranian banks blacklisted by 
the United States are opening. But the growing ties also frame a political 
imbalance the US is loath to see in a country struggling to rebuild after years 
of war. As America's influence wanes in Iraq, and its troops withdraw, Iran is 
capitalizing on centuries-old religious and cultural ties to secure greater 
leverage in the country - even as Washingto
n works to dissuade others from dealing with Tehran over its nuclear program. 
It's a political and economic tug-of-war the US risks losing, if only because 
Iraq's reconstruction needs open the door for a marriage of convenience.

Iran, squeezed elsewhere by sanctions, finds in Iraq a rare and ready market at 
a time when lingering security fears continue to discourage Western investments 
in the country. "Iran would like to have a stronger presence in Iraq ... 
primarily because so many other places have been closed off to it. It's partly 
necessity," said Anoush Ehteshami, a professor at Britain's Durham University. 
"Iran doesn't want to lose its footing again in Iraq.

Under Saddam Hussein, Iraq fought a ruinous eight-year war with Iran beginning 
in 1980 that killed hundreds of thousands of people and devastated both 
countries' economies. Many of Iraq's majority Shiites, persecuted by Saddam, 
sought sanctuary in Iran, only to return after the Iraqi dictator's fall in 
2003. Some now hold key government posts. Many others have bought homes and set 
up businesses in places like Karbala, relying on Farsi learned in exile to 
cater to Iranians.

That allows the trade links to keep growing - quadrupling to $4 billion last 
year compared to three years earlier, according to Iranian government figures. 
Senior Iraqi and Iranian officials meet frequently. The visits have netted a 
series of economic cooperation agreements, including power supply deals for 
Iraq and pledges to create cross-border free trade zones. Iran has offered its 
neighbor a $1 billion loan to buy Iranian goods.

In Basra, Iraq's second largest city and a nucleus for powerful Shiite groups, 
more than 60 Iranian companies gathered this year for a five-day trade fair. 
The fair was the biggest such Iranian-run event since the US-led invasion. 
Freezer trucks and motorcycles were on display, along with dairy products, 
canned goods, clothes and cement. The port city, which is also the springboard 
for the majority of Iraq's oil exports, last month signed off on a nearly $1 
billion plan for an Iranian construction company
to build thousands of homes, hotels and a mall, said Haider Ali Fadhil, who 
heads the Basra Investment Commission.

In March, Iran state-run Bank Melli opened its second Iraqi branch, even though 
the bank is under U.S. and European sanctions over its alleged ties to Iran's 
nuclear program. Two other Iranian banks on a US watch list, Parsian and 
Karafarin, plan to open in Iraq soon. Iranian embassy officials in Baghdad say 
actual trade levels are as high as $7 billion, making Iraq one of its biggest 
trading partners. Iran's Commerce Ministry is aiming for trade of $10 billion 
per year within three years.

For Iran, investing in places like Basra and the shrine cities of Najaf and 
Karbala is a "supplementary means of exerting influence in Iraq," said Kenneth 
Katzman, a Mideast specialist at the US government's Congressional Research 
Service. "I don't see the US as wanting to promote that. The U.S. interest is 
to ... isolate Iran," not encourage greater economic integration, he said. The 
increasing closeness also worries many of Iraq's minority Sunni Muslims, and 
Iraq's mostly Sunni neighbors, such as fellow OPEC member Saudi Arabia.

Tehran has for years pushed for a pipeline to carry Iraqi crude oil to Iran's 
Abadan refinery. Refined fuel would then be shipped in the opposite direction. 
Iran already exports fuel to Iraq, even though both lack the refining capacity 
to meet local demand. It's a strategy that analysts say makes little economic 
sense. "It's a politically motivated decision," said IHS Global Insight energy 
analyst Samuel Ciszuk. While many Iraqis say they benefit from the closer ties, 
they also grumble that Iran floods
the market with cheap, low-quality goods that make it hard for domestic 
companies to compete.

There are other complaints too. In the lobby of Karbala's Noor Al-Zahra Hotel, 
across from the gold-domed Imam Hussein shrine, two clocks hang on the wall: 
One set to local Iraqi time, the other to the time in Tehran. But owner Samoel 
Muhsin Abid-Ali says he tries to avoid renting rooms to Iranians, who he 
complains are "full of problems." The issue, he says, is that a state-run 
Iranian firm known as the Hajj and Pilgrimage Organization has a virtual lock 
on the religious tourist trade that delivers 5,000 Iranian Shiites to Iraq each 

Representatives for the government body impose stringent terms, demand steep 
discounts and deal only with a handful of well-connected travel agencies, 
according to Abid-Ali and other businessmen. Its Karbala office did not respond 
to interview requests. Karbala traders also fear that Iranian intelligence 
agents could infiltrate pilgrimage groups. And they say they resent being 
addressed in Farsi rather than Arabic, making them feel like foreigners in 
their own country. Even so, no one here said they missed the days before the 
war, when store shelves offered less variety and far fewer pilgrims came. 
"Tourists - and mainly the Iranians - contribute so much to our economy," said 
Saleh, the grocery stall owner. "Under Saddam, it was very hard for the 
pilgrims. Now Iraq is open to all." - AP

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