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Viewing cable 09BAGHDAD2744, EVOLUTION OF INFLUENCE IN IRAQ: COMMERCIAL

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Reference ID Created Released Classification Origin
09BAGHDAD2744 2009-10-12 15:03 2011-02-09 21:09 SECRET Embassy Baghdad
VZCZCXRO7880
PP RUEHAG RUEHBC RUEHDE RUEHDH RUEHIHL RUEHKUK RUEHROV RUEHSL
DE RUEHGB #2744/01 2851510
ZNY SSSSS ZZH
P 121510Z OCT 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 5039
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHAM/AMEMBASSY AMMAN 2277
RUEHAK/AMEMBASSY ANKARA 0664
RUEHBJ/AMEMBASSY BEIJING 0080
RUEHRL/AMEMBASSY BERLIN 0119
RUEHEG/AMEMBASSY CAIRO 0319
RUEHDM/AMEMBASSY DAMASCUS 0013
RUEHKU/AMEMBASSY KUWAIT 0612
RUEHLO/AMEMBASSY LONDON 2021
RUEHMO/AMEMBASSY MOSCOW 0130
RUEHUL/AMEMBASSY SEOUL 0041
RUEHSM/AMEMBASSY STOCKHOLM 0049
RUEHKO/AMEMBASSY TOKYO 0093
S E C R E T SECTION 01 OF 04 BAGHDAD 002744 
 
SIPDIS 

COMMERCE PASS TO A/S FOR MAC

E.O. 12958: DECL: 10/05/2014
TAGS: ECON POL PGOV PREL IZ EINV SUBJECT: EVOLUTION OF INFLUENCE IN IRAQ: COMMERCIAL
ENGAGEMENT AS A POLITICAL TOOL

REF: A. BAGHDAD 1805
B. BAGHDAD 2078
C. BAGHDAD 2637
D. BAGHDAD 2561
E. BAGHDAD 2562

Classified By: Classified By: Economic Minister-Counselor John Desroche
r for reasons 1.4 b and d

1. (C) SUMMARY: Iraq's evolving political and economic
environment has led to increased engagement from other
countries using commercial advocacy on behalf of their
national political interests. The GOI has begun to engage
a number of countries in high level commercial dialogue, and
despite its budgetary challenges, is providing
contracts to international firms for materials, goods, and
services. We expect that the GOI will use these
commercial relationships not only for its economic benefit,
but also to achieve political and diplomatic objectives,
including balancing the perception of undue U.S. influence.
END SUMMARY.


THE CHANGING FACE OF ECONOMIC ENGAGEMENT IN IRAQ, AN OVERVIEW:
--------------------------------------------- ----------------

RUSSIA/CHINA
------------

2. (C) Punctuated by Prime Minister Maliki's state visit to
Moscow earlier this year, Iraqi-Russian commercial ties are
strengthening. Long a commercial and military trading
partner with Iraq during the Saddam era, Russia is
expanding its commercial engagement, with dedicated
commercial advocacy offices in both Baghdad and Erbil.
Most notably, Lukoil and Gazprom participated in the recent
oil and gas bid round (ref A), and post continues to hear
reports of visits from Russian business executives in
addition to discussions between the GOI and GOR on foreign
military sales. (Note: Russian Deputy FM Alexander Sultanov
recently met with PM Maliki and expressed Russia's desire
to assist Iraq with economic development. Additionally,
Sultanov announced plans for a Russian/Iraqi Investment
Conference to occur in 2010. End Note)

3. (C) China is posturing to be a major player in the oil and
gas sector and has shown interest in the construction
and telecommunications sectors as well. Together with
British Petroleum, CNPC was the sole international oil
company (IOC) to agree to commercially unattractive terms in
Iraq's recent oil and gas bid round (ref A). CNPC is
already working on a smaller field (Ahdab) near Baghdad.
China appears to be adopting the same model in Iraq that it
utilizes in other developing countries, namely the
importation of low cost Chinese labor to reduce costs and
the focus on using state assets to acquire natural resources
with little concern for profitability. (Note:
CNPC has experienced a measure of local resistance to the
company,s use of imported Chinese labor at Ahdab. End
Note.)


THE EUROPEANS: "WE DON'T HAVE THE SAME BAGGAGE."
--------------------------------------------- --

4. (C) France, Germany, Sweden and the U.K. have signed
bilateral commercial agreements with the GOI. With the
exception of the U.K., the Europeans see themselves as having
a commercial advantage over the United States
because they do not have the same public perception
Qbecause they do not have the same public perception
challenges arising from our military presence. France and
Germany have a history of doing business in Iraq during the
Saddam era and are re-kindling those ties and
relationships. In the past six months, we have seen nearly a

BAGHDAD 00002744 002 OF 004


dozen high-level commercial visits and/or delegations
from European countries; among the most visible are: French
President Nicholas Sarkozy, the U.K.'s Lord Peter
Mandelson, and German Foreign Minister Frank-Walter
Steinmeier. (Note: Major European companies currently
contracting with or negotiating with Iraq include: EADS,
British Petroleum, Lefarge, Total, Shell, and Deutche Bahn.
End note.) In a recent meeting, the German trade
representative to Iraq made special mention that "we don't
have the same baggage as you" when discussing Germany's
business prospects in Iraq. The Governments of France,
Sweden and Germany are planning to hold investment
conferences with the GOI in the coming months.

5. (SBU) Another examples of European activity includes the
recent visit of French Prime Minister Francois Fillon, who
brought with him a trio of French companies and a variety of
MOUs to be signed with the GOI on commercial and
security-related areas of cooperation. Speaking at a press
conference during the French visit, GOI spokesman Ali al
Dabbagh noted that "our country wants to become a strategic
partner (with France), especially in the economic field."
Post has also noted the development of the familiar Boeing
vs. Airbus interplay for commercial aviation contracts, in
which Boeing claims Airbus is lobbying the GOI to cancel its
current contract with Boeing in exchange for a
comparable Airbus offering with 100 percent Airbus/EADS
Financing.


JAPAN/SOUTH KOREA
-----------------

6. (C) The Japanese also see themselves as having an
advantage in Iraq, given their lack of strategic
intervention in the region and historically strong commercial
ties. Primarily concerned with the energy
sector, the Japanese continue to enlist USG assistance to
support their risk adverse diplomatic mission in Iraq.
After a spring trade delegation in Iraq led by senior MOFA
officials, the GOJ hosted senior GOI officials in Tokyo in
June. Likewise, South Korean economic interests are notable,
particularly in the Kurdistan region. With
commercial representation at their Embassy in Baghdad and a
Consulate in Erbil, South Korean firms are engaging in the
oil and gas, energy, engineering, manufacturing (steel) and
auto sectors.


REGIONAL INTERESTS
------------------

7. (C) The geographic proximity of Turkey, Jordan, Lebanon,
Syria, and Egypt encourages natural trading partnerships.
These countries continue to do business in and with Iraq.
The relationship between Turkey and Iraq, predicated on
security and cross border cooperation, has improved
dramatically in recent months. Turkish PM Recep Tayyip
Edrogan made his first state visit to Iraq earlier this year
and is planning another for late 2009. Turkey's
commercial interests continue to grow, particularly in the
Kurdistan region, but they are also focused on Mosul,
Baghdad, and Basra where it recently opened a consulate.
Turkish companies are operating in the oil, construction,
QTurkish companies are operating in the oil, construction,
transportation, and defense sectors, and Turkish interest in
Iraqi natural gas is keen (ref C). (Note: PM Maliki
recently committed Iraq to supply roughly half of the gas for
the proposed Nabucco pipeline, a pledge that reveals
the desire to be a regional energy supplier in the coming
years (ref B) End Note.) The Egyptian Minister of
Investment visited Baghdad in August with a delegation of
eighty businessmen and government officials, signing
several MOUs. The UAE, Saudi Arabia, Qatar, and Kuwait could
become influential in Iraq's economic development by

BAGHDAD 00002744 003 OF 004


leveraging their substantial capital resources.


IRAN: UNIQUE CHALLENGES
-----------------------

8. (S) Sharing a border of nearly 1000 miles, Iran has long
been a key trading partner with Iraq and the commercial
ties continue today. Reliable statistics are hard to come
by; however, the bilateral trade relationship appears to
favor Iran given its stronger manufacturing and export sector
and ability to penetrate the Iraqi market. The
relationship presents several unique issues in the context of
broader policy concerns for governance,
Sunni-Shia-Kurdish relations, and domestic and regional
influence. From a purely economic standpoint however, the
challenge remains in separating legitimate
commercially-focused Iranian trade and investment in Iraq
from that which serves malign political or ideological
agendas. Iranian commercial interests focus chiefly on
exports to Iraq, construction (including religious sites),
religious tourism, banking, and project finance. These
efforts form an important part of Iran's 'soft power'
approach to expanding its sphere of influence in Iraq and
the region. In discussions with Iraqi businessmen, post
frequently hears that Iraqis do business with Iran largely
out of necessity and proximity.


WHY SHOULD WE CARE? - WHERE THE IRAQIS ARE GOING
--------------------------------------------- ---

9. (C) The GOI is beginning to utilize commercial
relationships with a wide variety of countries not only for
economic benefit, but also for its political and diplomatic
objectives. One objective that is becoming increasingly
clear is Iraq's desire to distance itself from the perception
of undue USG influence. As the world learned at
Iraq's last oil and gas bid round, the GOI is not afraid to
drive a hard bargain, even when faced with significant
budgetary pressures (ref A). The political influences on
economic structures are many, and Iraqi nationalism is not
a concept to be taken lightly by the international community.
Iraq's actions in widely engaging the world's
major powers may belie a strategy that places commercial
engagement as a major tool in their political and diplomatic
toolbox.


WHY SHOULD WE CARE? - THE STRATEGIC FRAMEWORK AGREEMENT
(SFA)
--------------------------------------------- ----------


10. (SBU) The USG has committed to assisting the GOI with
economic development and integration into the global
marketplace within the context of the SFA. Initiatives such
as Iraq's accession to the WTO, ratification of the
OPIC Investor Incentive Agreement, the Trade and Investment
Framework Agreement, and the Bilateral Assistance Agreement
are all priority issues currently being addressed, although
progress remains slow. In addition to USAID programs
targeting economic development, other examples of USG
assistance include the DOC Commercial Law Development
Program (CLDP), funding for land registration technology
modernization, an extensive judicial training program that
will in part, focus on commercial and customs law, and the
Qwill in part, focus on commercial and customs law, and the
October 20-21 USG/U.S. Chamber of Commerce-hosted U.S.-Iraq
Business and Investment Conference.


COMMMENT
--------


BAGHDAD 00002744 004 OF 004


11. (C) Despite the many high-level visits, MOUs, and
agreements, few international companies, including from the
United States, have had tangible commercial successes in
Iraq. That said, demand for U.S. products and investment
presents opportunities in almost every sector of the Iraqi
economy. The upcoming October 20-21 U.S.-Iraq Business and
Investment Conference in Washington has the potential to
measurably build on this demand and improve overall
commercial ties.
HILL