IRAQ BECOMING FINANCIALLY SUBORDINATE TO IRAN

Even before his foot touched Iraqi soil, Iranian President Mahmud Ahmadinejad had much to celebrate.

His country has entrenched itself in the Iraqi economy, so much so that observers say Iraq is becoming economically, if not politically, subordinate to Iran.

This point has not been lost on the Sunni Arab press in Iraq, nor by pan-Arab dailies, which surmised that Tehran has shrewdly filled a vacuum long ignored by Arab leaders.

Ahmadinejad's visit to Iraq has been widely described as "historic," primarily because he is the first Iranian leader to visit Iraq in 29 years. But he is also the first senior regional leader to visit Iraq since the fall of the Hussein regime.

Sunni observers claimed that the fact that he dared stay overnight in the Iraqi capital was proof enough that Iran's military has control over Baghdad.

But it is growing economic integration that has Sunni Arabs -- both in Iraq and across the region -- most worried.Iraq is Iran's largest export market. Iraq imported an estimated $1.3 billion in goods from Iran in 2006, according to U.S. figures.

Estimates for non-oil trade since 2006 have ranged as high as $2 billion, some 97 percent of which is one way from Iran to Iraq. Iran expects trade to soar to $10 billion over the next five years.

In June, Iran opened a branch of Bank Melli in Baghdad -- the same bank that the U.S. Treasury identified last year as a financial conduit to facilitating the purchases of sensitive materials for Iran's nuclear and ballistic-missile programs. The bank also provides banking services to the Islamic Revolutionary Guards Corps (IRGC) and its Qods Force, which the United States says is providing financial and material support to militias in Iraq.

"From 2002 to 2006, Bank Melli was used to send at least $100 million to the Qods Force," the U.S. Treasury warned in October 2007. "When handling financial transactions on behalf of the IRGC, Bank Melli has employed deceptive banking practices to obscure its involvement from the international banking system."

Two agreements on electricity supply were also solidified during Ahmadinejad's visit: one is a 400-megawatt electricity line running from the Iranian port city of Abadan to the Iraqi town of Alharasa, which should become operational this year; the second is on a transmission line that will run from the Iranian Kurdish city of Marivan to Panjwin in Iraqi Kurdistan.

Tehran already signed a $150 million contract last year to build a 300-megawatt power plant in Baghdad, and it supplies power to Khanaqin, in Iraq's Diyala Governorate. Ahmadinejad was expected to attend groundbreaking ceremonies for two more power plants in Al-Najaf and Al-Amarah during his visit but cancelled, allegedly because of time constraints.

Iran's Deputy Energy Minister Mohammad Ahmadian said on February 29 that Iran intends to link its power networks to Iraq through nine border points, IRNA reported. The deals will benefit Iran's longtime allies in Iraq, the Shi'a and the Kurds.

Other agreements include cooperation in education, customs affairs, insurance, and transportation; the establishment of industrial towns; supervision of imports; and the implementation of joint industrial projects. In addition, Iran offered Baghdad a $1 billion soft loan, though Iraq reportedly had a budget surplus of between $21 billion and $28 billion last year.

Good For Iraq?

Iraq's locally produced products, including agricultural products, are already struggling to compete in marketplaces flooded with Iranian goods, the "Ilaf" website reported on March 2.

Farmers say that Iranian goods are sold at far below Iraqi market prices, which places a strain on local producers. In addition to official trade, smuggling generates hundreds of millions of dollars a year.

The head of Iraq's Supreme Audit Board said in October that at least 15,000 barrels of crude oil are smuggled everyday from Iraq's southern fields to Iran and the Persian Gulf states. In reality, the figure could be significantly higher.

In January 2007, U.S.-based petroleum expert Jerry Kiser told the BBC that up to 300,000 barrels per day are smuggled from Al-Basrah to Iran through smuggling routes established by Saddam Hussein when Iraq was under sanctions in the 1990s.

The smuggling of alcoholic beverages between Iraq and Iran along the northern borders is estimated to be worth $2.5 million a day.

Food, illicit drugs, livestock, cars, and other commodities also fuel the black market. Sunni Press Criticizes VisitSunni Arabs have attacked the latest agreements forged between the two countries.

Al-Sharqiyah television, which represents the Sunni Arab perspective, claimed on March 3 that Ahmadinejad "asked Iraqi officials to merge the Iraqi economy with the Iranian economy and ensure that they complement each other, particularly in the financial and industrial areas, with a view to breaking the sanctions imposed on Iran in the fields of banking and money transfers."Ghassan al-Atiyah, who heads the Iraqi Foundation for Development and Democracy, told Al-Sharqiyah on March 2 that Ahmadinejad's visit "will give the impression that Iraq is to be politically and economically subordinate to Iran, which will raise much Iraqi concern, particularly since there is a well-established Iraqi political inclination toward independence."

Asked about the $1 billion Iranian loan, he said: "The Iranian aid to Iraq is in reality a shop window for Iranian economic activities in Iraq, and consequently if we follow this line we will find that it is merely economic subordination to Iran....

Rather than unifying the Iraqis, this visit will split them more and arouse feelings of mistrust and fear" among Sunni Arabs.

Summarizing the Shi'ite perspective on relations with Iran, Shi'ite legislator Hamid al-Mu'allah told Al-Jazeera television on March 2:

"Iran came [to Iraq] while [other states] were absent. We [Shi'a] regret the strange paradox that the absentee is calling to account the one who is present. The other [Arab states] should also come and find themselves a place in Iraq." Indeed, that point was not lost on the pages of the pan-Arab press this week.

A March 3 commentary published in "Al-Dustur" noted: "This visit indicates the growing status and influence of Iran as a regional power.... Ahmadinejad is in Baghdad, while all Arab leaders have not been in Iraq for the last two decades."

A March 4 commentary in the same daily written by Husayn al-Rawashdah adopted a similar line. Rawashdah said it would have been "acceptable to understand the protests staged in our Arab world against Ahmadinejad's visit to Iraq if there was a united Arab stance towards Iraq, its occupation, and the U.S. threats to Iran, and if the Arab world had already settled its crises in Lebanon and Palestine in particular."

A commentary by Wahid Abd al-Majid in Cairo's "Al-Wafd" noted: "It seems that it was only the Turks [referring to Turkey's cross-border incursion last week] who were compelled to cross the border on a specific and brief mission were the ones who violated Iraq's sovereignty.

As for the Iranians who infiltrated Iraq and influenced its people, they are not guests and not even partners.... Rather they are the owners of the country."

In a scathing criticism of Iraq's Shi'ite-led administration, Abd al-Majid continued, "As far as the Iraqi rulers, or to be fair, most of them, are concerned, everything these Iranians do tastes better than honey.

"A March 2 commentary in "Ilaf," a Saudi-funded website, claimed: "Now that Iranian agencies have infiltrated the Iraqi state agencies and religious parties whose vile political practices have been exposed up and down the country, Iran's aim is to subjugate the Iraqis and impose a de facto situation on them.

That is the odious psychological aim that will fulfill the Tehran rulers' cheap desire for revenge" for the suffering imposed by Saddam Hussein on Iran.

Meanwhile, the Iranian press described the visit as a success. Golam Reza Karami, a member of the Iranian parliament's National Security and Foreign Policy Committee, said on March 3 that Ahmadinejad's visit confirmed Iran's strength in the region.

"Although there are no Iranian troops in Iraq, the results of Tehran's spiritual power in Iraq are fully visible," ISNA quoted Karami as saying.

Iranian Foreign Minister Manuchehr Mottaki, who accompanied Ahmadinejad to Baghdad said Iran is able to resolve a number of concerns existing in the region, so those countries making wrong interpretations against Iran must reform their policies and interpretations, ISNA reported on March 3.

While it is natural to assume that Iraq would establish economic ties to neighboring states in the post-Hussein era, the establishment of such ties with Iran could have substantial negative effects on the security situation, particularly with regards to the Sunni Arab community.

While the Iraqi government has seen few overtures by neighboring Arab states in recent years, strengthened relations with Iran is an affront to the sacrifices Sunni Arabs say they have made in recent months in the fight against Al-Qaeda. The Iraqi government is alienating Sunni Arabs at a time when it should be building on recent strides.

The failure of Iraqi leaders to address Iranian support for Shi'ite militias before the government concluded an array of investment and integration projects severely damages the government's credibility among the Sunni Arab population, and by extension, its Sunni Arab neighbors.