Iranian president Hassan Rouhani has returned home victorious from a three-day visit to Iraq, having secured a memorandum of understanding with Baghdad that will serve as an economic lifeline for a country besieged by United States economic sanctions.

Rouhani’s visit had coincided with a serious economic crisis in Iran resulting from sanctions, in addition to the fall of the local currency and growing  unemployment rates. The memorandum of understanding, which creates a way around US sanctions imposed following Washington’s withdrawal from the nuclear deal, met with widespread praise in the Iranian media.

While the agreements signed could save the Iranian economy, they will not work nearly so well for Iraq. Some observers dismissed the deals as not only unfair but potentially harmful to the Iraqi economy.

Bad deals

One of the deals relates to the controversial Algiers Agreement of 1975 concerning territorial disputes between Iraq and Iran. Baghdad had initially signed the agreement as a result of political pressure from Tehran, which was sponsoring a Kurdish insurgency in Northern Iraq. The agreement, which sees Iraq’s sole river outlet to the Persian Gulf divided down the middle with neighboring Iran, was considered unfair at the time, and Saddam Hussein’s regime deactivated it in 1980.

Despite Iraq’s post-2003 recognition of the Algiers Agreement, successive Iraqi governments have stalled its execution. Rouhani was able to get Iraq to issue a decision to re-activate the agreement.

As a result of geographical changes four decades after the agreement was signed, and as Shatt al-Arab has turned into a burial ground for ships and lost its marine life diversity to pollution, Iraq will not only lose sovereignty over the waters, it will risk losing control of lands and islands to Iran.

Flooding Iraq’s market

According to a joint Iraqi-Iranian statement, Iran will work towards increasing its exports to Iraq. Iran aims to export $20 billion worth of merchandise to Iraq, up from the current $12 billion.

Iranian exports to Iraq consist mostly of consumer goods. This new agreement means that Iraq will not be able to develop its local industries as products continue to flood into the country from Iran. Iraq will also be unable to diversify its imports from other countries. This comes at a time when the commercial balance between the two countries is 85% in Iran’s favor, according to experts.

The memorandum of understanding includes the establishment of direct transportation of goods between the two countries, with no unloading on the international borders between them, in addition to arrangements for workforce movements.

The agreement also includes canceling visa fees between the two countries. At least five million Iranians travel to Iraq to visit holy sites each year, while only two million Iraqis travel to Iran. As a result, Iraq stands to lose at least $200 million a year, as Iranians previously paid $40 for an Iraqi visa.

In addition, the two countries agreed to establish road connections. A politician in Basra, who asked for anonymity, expressed concern that connecting roads could be a preliminary step towards “using Iranian instead of Iraqi ports to transport Iraqi goods through Iranian ports and [cargo] trains.” So far, the announced plan involves only passenger transport and not cargo.

Iraq’s silence

All deals reached in the recent meeting serve goals that Iran has been pursuing throughout the last decade. Baghdad had repeatedly refused free visas between the two countries and had long stalled the execution of the Algiers Agreement. However, the current economic pressure that Iran faces makes it less tolerant of Iraqi stalling tactics, which is perhaps why the Iranian president made a personal visit to Baghdad.

On the other hand, Iraq held back on several important matters. The joint statement did not address the river tributaries that Iran closed off to Iraq. The Iranian dams that cut off the water flow led to a drought in Diyala province as well as an increase in salt levels in the water system in Basra, which has affected agriculture and the Iraqi ecosystem.

Iran has always relied on joint committees to resolve disagreements with Iraq. There were several committees formed to resolve the issue of the shared oil wells, but Iran continues to invest in and benefit from these wells while Iraq does not.

The Basra politician told Asia Times: “When Iran forms joint committees, this means that it will stall.”

The issue of drugs flowing from Iran to Iraq was also not discussed. Social media users launched a campaign to pressure the government to bring up the issue with Iran, however the government ignored it, despite it causing a growing crisis in Iraq.

Another issue that went unaddressed is Iran’s support for armed groups in Iraq.

Iraq pays price

As a result of the growing Iranian influence in Iraq, and the spreading of Iran-sponsored armed groups in Iraqi cities, many Iraqis were angered by the memorandum of understanding. Five officials have declined to comment on the memorandum.

Iraqi MP Raad al-Dahlaky told Asia Times: “Maybe the response to this memorandum will occur inside the parliament. There is strong rejection to the memorandum in the house, [and] I don’t think it will pass.”

Dahlaky expressed his anger about the agreements, saying: “The issues that were discussed and the memorandum of understanding that was signed show that Iraq is becoming a scapegoat for Iran’s sanctions.”

The lawmakers says he is opposed to protectionist policies, “but agreements have to serve the benefits of all sides. [They] shouldn’t be to the benefit of one side while the other loses everything.”

The Iraqi government seems to be struggling to handle its relations with Iran, in light of American pressure.

Asia Times has obtained documents that indicate the Iraqi Central Bank has seized control of two Iranian banks. But while the central bank has exercised caution in financial dealings with Iran to avert US sanctions, the Iraqi government does not seem to abide by the same limitations.

“It is true that we have good relations with the United States, but this doesn’t shield us from sanctions if the Iraqi government is not careful in its agreements with Iran,” said Dahlaky.

Iraqi officials say that the government has not violated the sanctions, as it deals with Iran in Euros or respective local currencies. The US granted Iraq a limited grace period to find alternatives for exporting gas from Iran to operate its electricity stations, but the government does not seem preoccupied with finding these alternatives.

It seems that the Iraqi government, under the leadership of Adel Abdel Mahdy, is still floundering, and its decisions are not garnering the support of influential voter blocks in parliament. The question now is whether his government can hold out in the face of local, Iranian and American pressure.