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FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 5039
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
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RUEHLO/AMEMBASSY LONDON 2021
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RUEHUL/AMEMBASSY SEOUL 0041
RUEHSM/AMEMBASSY STOCKHOLM 0049
RUEHKO/AMEMBASSY TOKYO 0093

S E C R E T SECTION 01 OF 04 BAGHDAD 002744 
 
SIPDIS 

 

COMMERCE PASS TO A/S FOR MAC 

 

E.O. 12958: DECL: 10/05/2014 

TAGS: ECON POL PGOV PREL IZ EINV
SUBJECT: EVOLUTION OF INFLUENCE IN IRAQ:  COMMERCIAL 

ENGAGEMENT AS A POLITICAL TOOL 

 

REF: A. BAGHDAD 1805 

     ¶B. BAGHDAD 2078 

     ¶C. BAGHDAD 2637 

     ¶D. BAGHDAD 2561 

     ¶E. BAGHDAD 2562 

 

Classified By: Classified By: Economic Minister-Counselor John Desroche 

r for reasons 1.4 b and d 

 

¶1. (C) SUMMARY: Iraq's evolving political and economic 

environment has led to increased engagement from other 

countries using commercial advocacy on behalf of their 

national political interests.  The GOI has begun to engage 

a number of countries in high level commercial dialogue, and 

despite its budgetary challenges, is providing 

contracts to international firms for materials, goods, and 

services.  We expect that the GOI will use these 

commercial relationships not only for its economic benefit, 

but also to achieve political and diplomatic objectives, 

including balancing the perception of undue U.S. influence. 

END SUMMARY. 

 

 

THE CHANGING FACE OF ECONOMIC ENGAGEMENT IN IRAQ, AN OVERVIEW: 

--------------------------------------------- ---------------- 

 

RUSSIA/CHINA 

------------ 

 

¶2. (C) Punctuated by Prime Minister Maliki's state visit to 

Moscow earlier this year, Iraqi-Russian commercial ties are 

strengthening.  Long a commercial and military trading 

partner with Iraq during the Saddam era, Russia is 

expanding its commercial engagement, with dedicated 

commercial advocacy offices in both Baghdad and Erbil. 

Most notably, Lukoil and Gazprom participated in the recent 

oil and gas bid round (ref A), and post continues to hear 

reports of visits from Russian business executives in 

addition to discussions between the GOI and GOR on foreign 

military sales. (Note: Russian Deputy FM Alexander Sultanov 

recently met with PM Maliki and expressed Russia's desire 

to assist Iraq with economic development.  Additionally, 

Sultanov announced plans for a Russian/Iraqi Investment 

Conference to occur in 2010. End Note) 

 

¶3. (C) China is posturing to be a major player in the oil and 

gas sector and has shown interest in the construction 

and telecommunications sectors as well.  Together with 

British Petroleum, CNPC was the sole international oil 

company (IOC) to agree to commercially unattractive terms in 

Iraq's recent oil and gas bid round (ref A).  CNPC is 

already working on a smaller field (Ahdab) near Baghdad. 

China appears to be adopting the same model in Iraq that it 

utilizes in other developing countries, namely the 

importation of low cost Chinese labor to reduce costs and 

the focus on using state assets to acquire natural resources 

with little concern for profitability. (Note: 

CNPC has experienced a measure of local resistance to the 

company,s use of imported Chinese labor at Ahdab. End 

Note.) 

 

 

THE EUROPEANS: "WE DON'T HAVE THE SAME BAGGAGE." 

--------------------------------------------- -- 

 

¶4. (C) France, Germany, Sweden and the U.K. have signed 

bilateral commercial agreements with the GOI.  With the 

exception of the U.K., the Europeans see themselves as having 

a commercial advantage over the United States 

because they do not have the same public perception 

Qbecause they do not have the same public perception 

challenges arising from our military presence.  France and 

Germany have a history of doing business in Iraq during the 

Saddam era and are re-kindling those ties and 

relationships.  In the past six months, we have seen nearly a 

 

BAGHDAD 00002744  002 OF 004 

 

 

dozen high-level commercial visits and/or delegations 

from European countries; among the most visible are: French 

President Nicholas Sarkozy, the U.K.'s Lord Peter 

Mandelson, and German Foreign Minister Frank-Walter 

Steinmeier.  (Note: Major European companies currently 

contracting with or negotiating with Iraq include: EADS, 

British Petroleum, Lefarge, Total, Shell, and Deutche Bahn. 

End note.)  In a recent meeting, the German trade 

representative to Iraq made special mention that "we don't 

have the same baggage as you" when discussing Germany's 

business prospects in Iraq.  The Governments of France, 

Sweden and Germany are planning to hold investment 

conferences with the GOI in the coming months. 

 

¶5. (SBU) Another examples of European activity includes the 

recent visit of French Prime Minister Francois Fillon, who 

brought with him a trio of French companies and a variety of 

MOUs to be signed with the GOI on commercial and 

security-related areas of cooperation.  Speaking at a press 

conference during the French visit, GOI spokesman Ali al 

Dabbagh noted that "our country wants to become a strategic 

partner (with France), especially in the economic field." 

Post has also noted the development of the familiar Boeing 

vs. Airbus interplay for commercial aviation contracts, in 

which Boeing claims Airbus is lobbying the GOI to cancel its 

current contract with Boeing in exchange for a 

comparable Airbus offering with 100 percent Airbus/EADS 

Financing. 

 

 

JAPAN/SOUTH KOREA 

----------------- 

 

¶6. (C) The Japanese also see themselves as having an 

advantage in Iraq, given their lack of strategic 

intervention in the region and historically strong commercial 

ties.  Primarily concerned with the energy 

sector, the Japanese continue to enlist USG assistance to 

support their risk adverse diplomatic mission in Iraq. 

After a spring trade delegation in Iraq led by senior MOFA 

officials, the GOJ hosted senior GOI officials in Tokyo in 

June.  Likewise, South Korean economic interests are notable, 

particularly in the Kurdistan region.  With 

commercial representation at their Embassy in Baghdad and a 

Consulate in Erbil, South Korean firms are engaging in the 

oil and gas, energy, engineering, manufacturing (steel) and 

auto sectors. 

 

 

REGIONAL INTERESTS 

------------------ 

 

¶7. (C) The geographic proximity of Turkey, Jordan, Lebanon, 

Syria, and Egypt encourages natural trading partnerships. 

These countries continue to do business in and with Iraq. 

The relationship between Turkey and Iraq, predicated on 

security and cross border cooperation, has improved 

dramatically in recent months.  Turkish PM Recep Tayyip 

Edrogan made his first state visit to Iraq earlier this year 

and is planning another for late 2009.  Turkey's 

commercial interests continue to grow, particularly in the 

Kurdistan region, but they are also focused on Mosul, 

Baghdad, and Basra where it recently opened a consulate. 

Turkish companies are operating in the oil, construction, 

QTurkish companies are operating in the oil, construction, 

transportation, and defense sectors, and Turkish interest in 

Iraqi natural gas is keen (ref C). (Note: PM Maliki 

recently committed Iraq to supply roughly half of the gas for 

the proposed Nabucco pipeline, a pledge that reveals 

the desire to be a regional energy supplier in the coming 

years (ref B) End Note.)  The Egyptian Minister of 

Investment visited Baghdad in August with a delegation of 

eighty businessmen and government officials, signing 

several MOUs. The UAE, Saudi Arabia, Qatar, and Kuwait could 

become influential in Iraq's economic development by 

 

BAGHDAD 00002744  003 OF 004 

 

 

leveraging their substantial capital resources. 

 

 

IRAN: UNIQUE CHALLENGES 

----------------------- 

 

¶8. (S) Sharing a border of nearly 1000 miles, Iran has long 

been a key trading partner with Iraq and the commercial 

ties continue today.  Reliable statistics are hard to come 

by; however, the bilateral trade relationship appears to 

favor Iran given its stronger manufacturing and export sector 

and ability to penetrate the Iraqi market.  The 

relationship presents several unique issues in the context of 

broader policy concerns for governance, 

Sunni-Shia-Kurdish relations, and domestic and regional 

influence.  From a purely economic standpoint however, the 

challenge remains in separating legitimate 

commercially-focused Iranian trade and investment in Iraq 

from that which serves malign political or ideological 

agendas.  Iranian commercial interests focus chiefly on 

exports to Iraq, construction (including religious sites), 

religious tourism, banking, and project finance.  These 

efforts form an important part of Iran's 'soft power' 

approach to expanding its sphere of influence in Iraq and 

the region.  In discussions with Iraqi businessmen, post 

frequently hears that Iraqis do business with Iran largely 

out of necessity and proximity. 

 

 

WHY SHOULD WE CARE? - WHERE THE IRAQIS ARE GOING 

--------------------------------------------- --- 

 

¶9. (C) The GOI is beginning to utilize commercial 

relationships with a wide variety of countries not only for 

economic benefit, but also for its political and diplomatic 

objectives.  One objective that is becoming increasingly 

clear is Iraq's desire to distance itself from the perception 

of undue USG influence.  As the world learned at 

Iraq's last oil and gas bid round, the GOI is not afraid to 

drive a hard bargain, even when faced with significant 

budgetary pressures (ref A).  The political influences on 

economic structures are many, and Iraqi nationalism is not 

a concept to be taken lightly by the international community. 

 Iraq's actions in widely engaging the world's 

major powers may belie a strategy that places commercial 

engagement as a major tool in their political and diplomatic 

toolbox. 

 

 

WHY SHOULD WE CARE? - THE STRATEGIC FRAMEWORK AGREEMENT 

(SFA) 

--------------------------------------------- ---------- 

 

 

¶10. (SBU) The USG has committed to assisting the GOI with 

economic development and integration into the global 

marketplace within the context of the SFA.  Initiatives such 

as Iraq's accession to the WTO, ratification of the 

OPIC Investor Incentive Agreement, the Trade and Investment 

Framework Agreement, and the Bilateral Assistance Agreement 

are all priority issues currently being addressed, although 

progress remains slow.  In addition to USAID programs 

targeting economic development, other examples of USG 

assistance include the DOC Commercial Law Development 

Program (CLDP), funding for land registration technology 

modernization, an extensive judicial training program that 

will in part, focus on commercial and customs law, and the 

Qwill in part, focus on commercial and customs law, and the 

October 20-21 USG/U.S. Chamber of Commerce-hosted U.S.-Iraq 

Business and Investment Conference. 

 

 

COMMMENT 

-------- 

 

 

BAGHDAD 00002744  004 OF 004 

 

 

¶11. (C) Despite the many high-level visits, MOUs, and 

agreements, few international companies, including from the 

United States,  have had tangible commercial successes in 

Iraq.  That said, demand for U.S. products and investment 

presents opportunities in almost every sector of the Iraqi 

economy.  The upcoming October 20-21 U.S.-Iraq Business and 

Investment Conference in Washington has the potential to 

measurably build on this demand and improve overall 

commercial ties. 

HILL