Earlier this month Iraq signed a series of economic agreements with Jordan, sparking fierce debate over the wisdom of a costly new pipeline and heightened dependence on its neighbor for electricity supplies and imported goods. 

The agreement does not seem to be of great benefit to Baghdad in the near term but rather in Amman’s favor after years of mutual economic pain due to the Islamic State (ISIS) seizure of large swathes of western Iraqi territory bordering Jordan and affecting trade.

One of the most controversial agreements stipulates that Jordan will begin supplying electricity to Iraq within the next two years. The two sides agreed that technical studies and funding would be carried out to start the project within three months, according to a joint declaration.

Many parties in Iraq expressed surprise at this step, as Baghdad had already signed an agreement with the German company Siemens and the US company General Electric to build power plants in Iraq. Those deals are now increasingly in doubt.

The move to import electricity from Jordan was a declaration by the Iraqi government of its inability to produce enough energy to meet its own domestic needs, physically manifested by the extension of power lines to import power from its neighbor for years to come.

Iraq loses, Jordan wins

The most controversial provisions of the agreement in Baghdad relate to Iraq’s exemption of 371 goods manufactured in Jordan from customs duties. The exemptions include agricultural and industrial materials.

Ali al-Saadi, head of the National Industries Union of Iraq, protested against the agreement, saying it would “cripple Iraqi manufacturing and kill any attempt to revive Iraqi national production.”

Iraqi federations and associations offer a simple excuse for the futility of the agreement: Jordanian businesses will import cheap goods from China and then resell them to Iraq, which makes Jordan a winner by any measure, while Iraq loses its domestic industry.

The public sector in Iraq has about 242 government plants, many of which produce little. There are some 38 private-sector factories, most of which suffer from total disfunction.

Adel Abdul Mahdi, the new Iraqi prime minister, has emphasized the necessity of reviving Iraq’s industries in his government program. Iraqi factory owners see the new agreements with Jordan as evidence Abdul Mahdi has not followed through on his promises.

To ease the outcry, the Iraqi government and a number of ministers have promised they will remove any Jordanian goods from the exemption list, should Iraqi companies start to manufacture it.

The head of the Iraqi Chamber of Industry sees this as a catch-22: “If goods exempt from customs are already in Iraq, [what Iraqi company] has the ability to risk manufacturing the same thing and wait for it to be removed from the list of exemptions?” 

Oil for Jordan

Iraq, according to the new agreements, will also supply Jordan with 10,000 barrels per day of oil from Kirkuk to the Zarqa refinery at a preferential rate of $16 below the global market price per barrel.

The parliamentary Committee on Oil and Energy recorded its objection to this segment of the deal, calling it “a waste of money and Iraqi resources.”

Then-Iraqi Oil Minister Amer Rashid (L) and Jordanian Energy Minister Mohammed Batayneh head for a meeting in 2002 in Baghdad. Photo: AFP/Joseph Barrak

 

Iraq has for years given Jordan oil at preferential prices.

Prior to the US invasion of Iraq in 2003, Amman was the default lung to Saddam Hussein’s regime, both economically and politically, and it relied heavily on the flow to Iraq of money and goods under the Oil-for-Food program.

Following the collapse of that friendly regime, Jordan’s monarchy worked to strike lucrative deals with the new authorities in Baghdad to restore its crippled economy resulting from the deteriorating security situation.

In April 2013, Iraq and Jordan signed a framework agreement for a pipeline project, but political pressure, and then the seizing by ISIS of swathes of territory in Iraq in June 2014, prevented the agreement from becoming a reality.

In 2015, when the self-proclaimed Islamic State took control of Anbar province bordering Jordan, the extremist group halted the flow of oil to Jordanian refineries, cutting off 7% of Jordan’s fuel needs.

Now, with the latest agreement, the two countries are studying the construction of a 1,700-kilometer pipeline, extending from Basra in the south of Iraq to Haditha in the west and on to the Jordanian Red Sea port of Aqaba.

The project is estimated to cost about US$18 billion. When completed, it would have the capacity to transport one million barrels of oil per day at about $5 per barrel, according to Hamid al-Mousawi, a member of Iraq’s parliamentary Committee on Economy.

Mousawi says the idea of building an oil pipeline to Jordan is perplexing as Iraq does not lack outlets for its oil. The port of Basra, the governorate that produces more than 80% of Iraq’s oil, has five ports set up for export by sea.

Ali al-Sunaid, a parliamentarian who is keen on the agreement between Iraq and Jordan, counters that “Iraq must have contingency plans in the event of any damage in the Iraqi ports, the movement in the Gulf waters has stopped or Iraq’s production of oil increases.” 

Mousawi, who belongs to the pro-Iran Fatah alliance, believes it is political pressure by the United States that stands behind the plan for a new oil pipeline. “The US president is trying to support its allies in the region, such as Jordan, with non-US funds, and is trying to pressure Iraq and others to do so,” he said. 

An Iraqi partnership with Jordan seems to be a practical application of the plan of the former US ambassador to Iraq, Ryan Crocker, who argued in his paper ‘The Future of Iraq’ that supporting the Jordanian economy was key to stability for western Iraq.

Iraq already has an oil pipeline that flows into Saudi Arabia, however, as well as giant oil reservoirs, which have been shut down since the 1991 Gulf War. “We have an oil pipeline with Saudi Arabia. Why is not it being brought back online?” Mousawi asked. 

Not all bad

The agreement between Iraq and Jordan does include a number of positives for Iraq, related to transportation, agriculture and the internet. In the transportation sector, the Jordanian government will exempt Iraqi goods coming through the port of Aqaba from 75% of the fees charged by the Aqaba Special Economic Zone Authority.

A code-sharing agreement between Royal Jordanian Airlines and Iraqi Airways will enable passengers on the Iraqi national carrier to reach various international destinations. The two companies also agreed to cooperate on training and knowledge-sharing in aviation, meteorology and ports.

In the agricultural sector, the two states agreed to engage in exchanges in optimizing irrigation, harvesting, seed propagation, biological controls and the use of environmentally-friendly pesticides. Jordan will also conduct training for the Iraqi environmental police.

In the field of IT, Jordan has agreed to support Iraq in the establishment of new infrastructure, capacity building and to share Jordanian knowledge in financial technology.

While these provisions are all on paper, an industrial zone between the two countries has already been opened by Iraqi Prime Minister Adel Abdul Mahdi and Jordanian Prime Minister Omar al-Razzaz. This common area will be built on an area of 24 square kilometers.

While the Iraqi ministry of industry expects this zone to provide about 40,000 jobs for Iraqis, the prime minister stressed its value is in the stability it can bring to Anbar.

“The Anbar youth needs such projects to avoid being exploited by extremist organizations,” the parliamentarian Sunaid said, adding: “The industrial zone will provide great security protection because it will be under the protection of two states seeking to maintain their security from armed organizations.”

Prime Minister Abdul Mahdi has urged lawmakers to view the agreements with Jordan as part of a bigger picture. “Some may talk about sacrifices and losses in some aspects of the agreement, but they do not see great things like how many job opportunities and how much security will be achieved,” he said.

But the voices of rejection have already begun to rise and it will not be easy for the prime minister to achieve all the items on the ground. “I have already submitted a number of questions about the agreement to the prime minister and we are waiting for the parliament to answer them,” said Moussawi, who despite being a member of the Economics Committee in parliament, says he did not get a copy of the agreement signed between Iraq and Jordan.

“If this agreement will cause any damage to Iraq or its finances, we will not allow it to proceed,” he added.

Mousawi’s tone is tame compared with other deputies who have rushed to reject the agreement and have called for a vote in parliament to invalidate it. Similar political pressures have delayed the implementation of a number of agreements with Jordan in previous years and the question remains whether all the provisions of this agreement will be implemented.