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Russia and Iraq: The 2023/24 Trade and Investment Dynamics. By Michael Barantschik

Trade and investment connections between Russia and Iraq have a long and intricate history. During the Middle Ages, merchants and explorers from both regions interacted, traversing through the Volga trade route and the Caspian Sea, establishing early trade networks between what would much later become Russia and Iraq​. Formal diplomatic relations were established on September 9, 1944, and despite a brief severance between 1955 and 1958, the relationship between the two countries flourished, with Baghdad being viewed as a significant Soviet partner in the Arab world​.

The post-Soviet era saw a rekindling of Russia-Iraq ties, particularly in 2008, when Russia, under Vladimir Putin, forgave a large portion of Iraq’s Soviet-era debt, laying the groundwork for a US$4 billion oil deal. This gesture marked the start of a deeper economic interplay, further solidified in 2012 with significant engagements by Russian oil company Lukoil in the Iraqi energy sector​​.

In recent years, this relationship has expanded beyond energy, driven by mutual geopolitical and economic interests, setting a favorable stage for further engagements​​. As of now, Russian investments in Iraq are estimated to be over US$19 billion, and while they are predominantly concentrated in the oil industry they symbolize the deepness and potential of their economic ties​​.

Russia – Iraq Energy Sector Collaboration

The energy sector is a cornerstone of the Russia-Iraq bilateral relationship, with both nations possessing rich petroleum resources and a shared interest in fostering a favorable environment for energy investments and trade. The collaboration between Russia and Iraq in the energy sector is demonstrated by the significant involvement of Russian oil majors –  Rosneft, Lukoil, Bashneft and Gazprom Neft, the oil arm of gas giant Gazprom – in Iraq’s burgeoning oil industry.

Recent engagements between the two countries have further bolstered Russia’s involvement in Iraq’s oil sector. In February 2023 Russian Foreign Minister Sergei Lavrov visited Baghdad. One of the main issues discussed was the payment mechanism to Russian energy firms, reflecting the mutual interest in sustaining and expanding economic ties despite Western sanctions​​. This is also the theme of continued discussion between Iraqi Prime Minister Mohammed Shia Al-Sudani and President Vladimir Putin in this week’s meetings in the Kremlin, which is taking place against the backdrop of the continued conflict in Ukraine as well as the grave decline of the circumstances in the Middle East.

Moreover, Russia and Iraq have signed new agreements aimed at enhancing cooperation in the oil sector, including exploration, drilling, and infrastructure development projects. These agreements mark a significant step towards deepening their energy ties and ensuring a steady flow of investments critical for the growth and sustainability of Iraq’s oil industry.

Besides the oil sector, the gas sector also showcases potential areas of collaboration. With Iraq aiming to reduce its gas flaring and Russia having a wealth of experience in gas production and processing, there’s a natural synergy for cooperation. Technical assistance, joint ventures in gas processing facilities, and knowledge transfer could be explored further to benefit both nations mutually.

Transportation and Infrastructure Agreements

Transportation and infrastructure are critical elements in the Russia-Iraq bilateral relationship, forming the backbone for enhanced trade, economic cooperation, and regional connectivity.

A recent delegation from the Iraqi Ministry of Transport came to Russia to discuss cooperation in the transport sector. Subsequent discussions led by the Director of Iraq’s General Company for Land Transport, Mortada Karim Al-Shahmani, focused on land transportation of people and goods between Iraq and Russia, culminating in a cooperation agreement. This accord is anticipated to expedite the movement of goods and individuals, thereby stimulating investment.

Iraq has initiated a US$17billion project to bolster its transportation infrastructure, aiming to link a significant commodities port on its southern coast by rail and roads.

The “Iraq Development Road” project aims to transform Iraq into a regional transportation hub by developing its road and rail infrastructure, thereby linking Europe with the Middle East. The project, stretching 1,200 kilometers from Turkey to the Gulf, is seen as a cornerstone for a sustainable non-oil economy and a means to foster economic integration within the region.

This project symbolizes a strategic move to enhance trade flows, reduce transportation costs, and improve accessibility to markets. By investing in railroad construction, Russia and Iraq are laying the groundwork for a robust logistics network that will not only benefit bilateral trade but also create a ripple effect on regional trade dynamics.

The maritime sector also presents opportunities for Russia-Iraq cooperation. With Iraq’s strategic location along key maritime routes and Russia’s expertise in port development and maritime logistics, there’s a natural alignment of interests. Collaborative efforts in developing Iraq’s port infrastructure and fostering maritime cooperation can significantly contribute to enhancing the efficiency and capacity of Iraq’s maritime trade routes, thereby attracting more trade and investment.

Additionally, various infrastructure development projects have been discussed to improve the overall trade environment. These projects encompass a wide range of areas including road construction, airport modernization, and urban development initiatives.

Russia – Iraq Investment Opportunities and Future Prospects

While energy remains a significant component in Russia-Iraq trade, in recent years other sectors like agriculture, manufacturing, and technology have experienced an upward trajectory. The growing diversification of trade commodities showcases the potential for broader economic engagement beyond the traditionally dominant energy sector.

Energy Sector

With Iraq’s substantial oil and gas reserves and Russia’s expertise in energy production and infrastructure development, the energy sector remains a promising avenue for investments. Joint ventures in the exploration, extraction, and distribution of energy resources are driving economic growth and enhance both nations’ energy security.

Infrastructure Development

Infrastructure development projects, including those in transportation, logistics, and urban development, present significant investment opportunities. These projects are crucial for improving trade flows, accessibility to markets, and overall economic integration.

Agricultural Sector

The agricultural sector also holds potential for investments, especially in modernizing agricultural practices, improving food security, and fostering sustainable agricultural development. Collaboration in this sector could lead to enhanced agricultural productivity and contribute to rural development in Iraq.

Technology and Innovation

Investments in technology and innovation are essential for modernizing the economy, improving governance, and fostering a conducive environment for business. Joint initiatives in digital infrastructure, smart city projects, and technological innovation could significantly contribute to achieving these objectives.

Challenges and Future Prospects

The pathway to bolstering trade and investment ties between Russia and Iraq is laden with challenges, both internal and external.

Geopolitical tensions in the Middle East, coupled with international sanctions, pose significant challenges to Russia-Iraq economic relations. Navigating through these geopolitical intricacies requires engaging in continuous dialogue at the bilateral and regional levels to address geopolitical concerns and foster a stable environment for economic cooperation.

Financial barriers, including restrictions imposed by international sanctions and the lack of a robust financial infrastructure, hinder the smooth flow of trade and investments. Exploring alternative financial mechanisms and strengthening the financial infrastructure can facilitate trade and investment flows, mitigating the impact of these financial barriers.

The regulatory environment in Iraq can pose hurdles for Russian investors. Streamlining regulatory processes and ensuring transparency are crucial for attracting investments and fostering economic cooperation. Enhancing regulatory transparency and streamlining processes can create a favourable environment for investments, thereby overcoming these regulatory hurdles.

Technological gaps, especially in Iraq’s energy and infrastructure sectors, hinder optimal productivity and economic growth. Leveraging Russia’s technological expertise through fostering collaborations in technology transfer and capacity building can significantly contribute to bridging these gaps and improving productivity.

The concentration of economic engagements in the energy sector highlights the need for diversification to ensure a balanced and sustainable economic relationship. Exploring new avenues for economic cooperation across various sectors including agriculture, technology, manufacturing, human capital and skill development can foster a diversified economic engagement, thereby enriching the economic relationship between Russia and Iraq.

The growing economic ties can be attributed to several factors including high-level diplomatic engagements. These engagements are pivotal in driving trade volumes and enhancing economic ties, paving the way for a potentially thriving economic relationship in the foreseeable future.

Source: Russia Briefing, October 15. 2023


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