More U.S. Exports to Iraq?

By John Haldane

U.S. government international trade specialists believe 1985 will be a good year for U.S.-Iraq commercial relations and that 1986 should be even better. They predict that next year's exports to Iraq will exceed the 1984 total and that even more American firms will establish offices in Baghdad in order to pursue new major project contracts.

Then, in 1986, when Iraqi oil pumped via new pipelines is expected to reach pre-war export levels, the Iraqi government will be in a much better position than it is today to increase agricultural and industrial imports and to initiate new economic development projects.

These optimistic predictions were made only days before the U.S. and Iraq were expected to announce the restoration of formal diplomatic relations. However, trade officials say this diplomatic step, if it occurs, will have little effect on commercial relations.

The expected increase in U.S. exports to Iraq may come in part as a result of the growing number of companies registering offices there. Twenty-five American firms now have located in Iraq, including such well-known companies as Brown & Root, Carrier International, IBM, NCR, Raymond International, and Sperry Univac.

American Firms Back from Baghdad

An important sign of continued American interest in the Iraqi market was the participation of 16 American firms in the U.S. pavilion at the 1984 Baghdad International Fair, held earlier this month. Major U.S. firms, such as Carrier International, General Electric, Ingersoll-Rand, NCR, and Westinghouse Electric took part. Participation in the annual Baghdad Fair is especially important since the Iraqi public sector handles over 90 percent of foreign trade and senior Iraqi public sector officials generally visit the various pavilions. The Rice Council of Houston, Texas, a national and international promotional voice for the U.S. rice industry, has had booths at boththe 1983 and 1984 fairs. Next month the U.S. Department of Commerce will further promote the Iraqi market by sponsoring a 12-firm trade mission on petroleum equipment to Baghdad.

Iraq continued to increase its imports from the U.S. in 1984, although at lower levels than before its four-year-old war with Iran. Figures for January-September indicate that imports from the U.S. reached $488.7 million, a fair gain over the January-September, 1983, total of $438.1 million. The nine-month figure of $488.7 million also compares favorably with the $511.7 million worth of U.S. goods exported to Iraq during all of 1983.

As in the past, agricultural commodities comprise the main share of U.S. exports to Iraq, followed by heating and cooling equipment, aircraft and aircraft parts, and engines and generators. Before the war, Iraq had no problem in financing its agricultural needs. However, during the past few years the U.S. Department of Agriculture has stepped in with over a billion dollars worth of blended credits and credit guarantees to help Iraq. For example, an Iraqi delegation's visit to Washington in October resulted in the establishment of a $663.3 million credit line for wheat, rice, corn, tobacco, wheat flour and other items.

One continuing obstacle to U.S. exports to Iraq is that nation's adherence to the Arab boycott. While complying with Export Administration Act regulations, U.S. firms have been able to boost exports to Iraq only because that government's agencies have been willing to request exemptions from boycott procedures to obtain the best technology and products available.

Petroleum always has been the overwhelmingly dominant sector of the Iraqi economy. Thus, with its oil outlets on the Gulf closed since the beginning of the war in 1980, Iraq has been forced to seek other country or company financing for most projects and transactions. As long as the war with Iran continues, there seems to some observers to be no easy way to resolve Iraq's financial problems. However, it now appears that Iraq has found a partial solution to its financial woes, even if the war drags on.

Plans have been announced in Baghdad for the construction of two and possibly three new oil pipelines. This new construction would increase Iraq's oil exporting capacity by more than 1.5 million b/d by the end of 1986. Combined with the anticipated expansion of Iraq's existing pipeline through Turkey (the only line presently in operation) Iraq's oil exports in 1986 could exceed its 1983 level by 1.8 million b/d. An added benefit for the U.S. is that work on at least two of the three pipelines would involve U.S. firms.

U.S. Supports New Pipeline

The U.S. has backed the construction of one of the new pipelines, to be laid through Jordan. The U.S. Export-Import Bank has agreed to guarantee up to 85 percent of $500 million worth of commercial loans—which amounts to half of the project's total cost—and the Bechtel Corporation has been negotiating a contract to build it. However, the future of this project has become clouded since Iraq announced that it wants a "force majeure" clause in the contract to free it from any financial obligation in the event that the pipeline is damaged while under construction.

Brown & Root, Inc., has been awarded the project management contract for the second proposed pipeline, through Saudi Arabia to the Red Sea. This project is designed for development in two stages: 1) A 378-mile link-up of Iraq's southern oil fields with the existing east-west Saudi Petroline, and 2) a separate pipeline to the Red Sea. The first phase, costing an estimated $500 million, could be constructed in little more than a year, giving Iraq an additional oil export capacity of 400,000-500,000 b/d.

The third proposed pipeline, to cost an estimated $150 million, would be constructed parallel to the existing pipeline that runs from Iraq through Turkey to the Mediterranean.

John Haldane is a specialist in Middle East affairs who has served as a foreign service officer in Baghdad, Beirut and Cairo, and as an international economist in the Departments of Commerce and Treasury.