Iraq, Jordan seek to further boost economic ties

As they work to expand trade between them, Jordan and Iraq face significant, albeit different, economic challenges.
Saturday 13/07/2019
Iraqi President Barham Salih (L) and Jordanian King Abdullah II shake hands during a welcoming ceremony in Amman, last May. (Reuters)
Investment opportunities. Iraqi President Barham Salih (L) and Jordanian King Abdullah II shake hands during a welcoming ceremony in Amman, last May. (Reuters)

LONDON - Addressing the Sulaimani Forum earlier this year, Iraqi President Barham Salih touted Iraq’s capacity to help bring about a new regional order built on cooperation. Iraq, he said, could “be a bridge to the economies of the region by linking the infrastructure between Iraq and the Gulf and Turkey between Iran and the Arab region and the Mediterranean.”

Under the leadership of Salih and Prime Minister Adel Abdul-Mahdi, the Iraqi government has been expanding efforts to deepen economic relations with neighbouring countries. To the chagrin of the United States, this has included the signing of several economic agreements with Iran, seen as the most influential outside actor in Iraq.

Another country Baghdad has been forging closer ties with is Jordan. In June, a Jordanian business delegation visited Iraq to talk about investment opportunities and the flow of Jordanian products into the Iraqi market. Jordanian and Iraqi entrepreneurs and government officials recently met in Amman regarding digital transformation in the financial sector.

The developments come after months of high-level diplomacy between the two countries. The prime ministers of Jordan and Iraq met at the border in February and agreed on a deal involving oil and other goods.

Iraq would sell 10,000 barrels of oil per day to Jordan at a special price. In exchange, Iraqi goods imported through Jordan’s Aqaba port would get preferential tariffs. The office of Jordanian Prime Minister Omar Razzaz said Jordan would export electricity to Iraq within two years.

“The opening of the border will break the isolation that existed,” Abdul-Mahdi said in February. “Iraq and Jordan are the lungs of each other and as one breathes, the other will.”

Before the border meeting, Jordanian King Abdullah II made a rare trip to Baghdad, the first in more than a decade, during which he stressed the strong ties between the two countries. Salih had travelled to Jordan shortly after his election in 2018. Both visits were billed as part of a shift in relations.

Ties between the two countries have undergone a large transformation in recent decades. Under the reign of Saddam Hussein, Iraq provided Jordan with cheap oil, while Jordan’s Aqaba port became a lifeline for imports as international sanctions hit Iraq after the invasion of Kuwait in 1990. The 2003 toppling of Saddam’s regime and the rising influence of Iran led to a deterioration in relations in the economic and political realm, especially under former Iraqi Prime Minister Nuri a-Maliki.

As they work to expand trade between them, Jordan and Iraq face significant, albeit different, economic challenges.

“Jordan is facing one of its worst economic crises in decades,” said Suha Ma’ayeh, a journalist in Amman. “The economy has been hit hard by regional instability and border closures.” Other problems, she said, include declining remittances and foreign aid, low levels of productivity and the large influx of Syrian refugees.

The World Bank measured the Jordanian unemployment rate at 18.6% in 2018, a slight increase in comparison to the year before. While noting “renewed momentum” in the economy, the World Bank said more work was needed to improve the investment climate and ease of doing business. It urged the kingdom to diversify its energy supply.

In 2018, protests against planned austerity measures backed by the International Monetary Fund spread across Jordan, leading to the resignation of Prime Minister Hani Mulki.

The Iraqi GDP is more than five times the size of Jordan’s. Iraq has the fifth-largest crude oil reserves in the world but the country’s economy, highly dependent on oil revenues, took a hit when the Islamic State destroyed large parts of Iraq.

Iraq’s economic outlook is generally positive as the security situation has improved and oil prices increased. However, the country has one of the lowest labour force participation rates in the world and the World Bank said it expects economic growth to be distributed unevenly across the country. The last years saw mass protests against corruption and a lack of economic opportunities and services.

Jordan sees Iraq as an important economic partner “because of the need for oil,” said Salam Jabbar Shahab, an assistant professor at the University of Technology in Baghdad. Jordan, he said, views Iraq as an important market for its goods, which is why it has focused on reviving trade.

In contrast, Jabbar Shahab said, “Jordan is not an important economic partner for Iraq.” He noted that Jordanian exports had declined significantly in recent years.

However, expanded trade could benefit Iraq, Jabbar Shahab said, because Iraq needs the port of Aqaba to facilitate the export of Iraqi oil to Europe and the United States.

“Trade relations between Iraq and Jordan could contribute to stability in the western regions of Iraq through the stimulation of employment and the establishment of small enterprises,” he said.