Economic ties with Iraq are strengthening

Jordan’s proximity to Iraq is of interest to the nation’s economic planners for obvious reasons. The troubled neighbour boasts proven oil reserves of 150bn barrels as of 2013, according to BP’s “Statistical Review of World Energy”, which are the third largest in the region, behind Saudi Arabia and Iran. With a population estimated by the World Bank at 33m, Iraq represents a major market with sizeable potential on Jordan’s doorstep.

There is also a long history of trade between the two countries. While Iraq and Jordan were originally both Hashemite kingdoms, relations between them became strained after Saddam Hussein took over the presidency in Baghdad in 1979. Economic links grew, however, and the port of Aqaba became a crucial supply point for Iraq during the Iran-Iraq War during the 1980s. Jordan stood aside during the 1990-91 Gulf War, a decision that had economic and political ramifications for the country. Later on, Jordan became the recipient of Iraqi oil, thanks to a special dispensation from the UN during the years of sanctions. More recently, the political marginalisation of Iraq’s Sunni population has led to tensions between Jordan and its neighbour’s Shiite government. However, the rise of the Islamic State of Iraq and Syria in eastern Syria and northern Iraq has provided the two governments with a common foe, which they are working together to combat.

Economic Links

The fact that economic ties between Jordan and Iraq have persisted in the face of such political turbulence is testament to the interlinked nature of the two economies. Jordan is both a natural gateway to Iraq for local and global business, and for Iraqi goods destined for world markets. Trade between Jordan and Iraq has thus developed strongly, as the kingdom provided an outlet for Iraqi businesses affected by years of UN sanctions and Saddam’s domestic policies. Following the coalition invasion in 2003, Jordan continued to provide a safe haven, with many Iraqis moving to the kingdom to escape the violence. Between 750,000 and 1m Iraqis were thought to be living in Jordan by 2007, according to the UN High Commission for Refugees. In 2013 Jordanian exports to the Greater Arab Trade Area (GAFTA) countries, valued at JD970m ($1.4bn) by the Department of Statistics, significantly exceeded exports to the nation’s other main trading partners – the North American Free Trade Agreement countries, non-Arab Asian countries and EU countries. Exports to Iraq account for a significant proportion of Jordan’s GAFTA trade, amounting to JD336m ($474.6m) of the total in 2013 and growing 15% year-on-year.

Future Plans

Despite Iraq’s political woes, the economic linkages between the two countries are expected to strengthen. A key development in this context is the plan to establish an $18bn oil and natural gas pipeline from the Iraqi city of Basra to Jordan’s Aqaba. The deal was inked by the two governments in April 2013 and involved the construction of a 1700-km link capable of carrying 850,000 barrels per day of oil and 258m cu feet of gas each day. In March 2014 the scope of the project was broadened to include Egypt, with the three countries signing a memorandum of understanding to examine the possibility of linking Iraq’s gas and oil fields with Egypt’s refineries. For Jordan, the deal potentially brings many benefits, such as job creation during the construction stage, transit revenues and access to a stable oil supply at discounted rates.

In the longer term the most salient question is to what extent Jordan’s private sector can make inroads into Iraq’s sizeable market. Some pioneers have already established footholds. Capital Bank’s acquisition of a 72% controlling stake in the National Bank of Iraq has seen it engage in a branch expansion across the country, including the capital of the Kurdistan region, Erbil. The unrest now seen in Iraq is a reminder of the risks faced by Jordan’s firms in investing in their neighbour, yet the rewards for such strategic boldness can be considerable: the profit of National Bank of Iraq rose sixfold in 2012, Capital Bank’s executive chairman, Bassem Khalil Al Salem, told The New York Timesin 2013. The latest alteration of Iraq’s political landscape is thus being observed with great interest on the Jordanian side of the border.