August 04, 2009
Iran's Soft Power in Iraq
In addition to hard power, Iran uses the soft power of its considerable political, economic, and religious influence to pursue its national interests in Iraq.
Close relationships with Iraq’s Shi’a political parties enhance Iran’s ability to pursue its national objectives in Iraq. While Iran maintains close ties with the Islamic Supreme Council of Iraq (formerly SCIRI), it has also funded Dawa, the Sadrist Trend, and other sympathetic political groups. Iran has leveraged these ties to pressure Iraqi politicians to pursue policies favorable to Iranian interests, particularly through overt and covert attempts to scuttle the U.S.-Iraq Security Agreement and Strategic Framework Agreement. Iraq’s passage of the agreements against strong Iranian opposition suggests some limits to Iran’s influence. However, Iran continues to enjoy close relationships with many top officials within the current Iraqi government and reciprocal visits by high-level Iranian and Iraqi officials have accelerated since early 2009.
Iran also uses its economic influence in Iraq to further its national interest. Iran is Iraq’s largest trading partner and by early 2009, bilateral trade reached an estimated $4 billion. Yet Iran’s economic influence in Iraq has generated negative effects: an effort by the Iranian government to flood Iraq’s markets with cheap goods—produce, construction materials, vehicles—has dramatically lowered the price of Iranian goods in the Iraqi market, stifling Iraq’s economic growth. The Iranian government has subsidized its exports by granting “tax breaks to Iranian manufacturers and [paying] its exporters 3% of the value of the goods they send out of the country. Iran also levies import tariffs of up to 150% on inbound goods.” This allows for the sale of Iranian goods in Iraq below the market price and makes it nearly impossible for Iraqi merchants to compete. The agricultural sector, which once dominated Iraq’s economy, has fared particularly poorly due to Iran’s economic activities: Iraq became a net importer of food in 2008.
Iran’s close economic ties with Iraq extend beyond trade. The Iranian government and state-owned companies have invested heavily in Iraq’s reconstruction. In advance of Iranian President Mahmoud Ahmadinejad’s first visit to Iraq in March 2008, the Iranian government offered a $1 billion loan for projects in Iraq that use Iranian contractors and equipment. Iran’s state-owned companies have invested heavily in the Iraqi holy cities of Najaf and Karbala,  which are home to some of the holiest shrines in the Shi’a tradition and host hundreds of thousands of Iranian pilgrims each year. According to the governor of Najaf province, the Iranian government has provided $20 million a year for construction projects aimed at improving the city’s tourism infrastructure.
Iranian government-owned tourism companies, which sponsor pilgrimages to Iraq’s holy cities, “choose which Iraqi companies to deal with for the transportation, protection and accommodation of pilgrims.” Yet, “Almost of all [Iran’s] partners are companies affiliated with Iraqi political parties close to Iran,” further allowing Iran to exert its influence in the city. In 2005, Iran offered a $1 billion low-interest loan to finance the construction of a new airport near the holy shrine city of Najaf. However, it does not appear that the Iranian funds were ever received; when the Najaf Airport opened in July 2008, the airport was reported to have been built and funded by a Kuwaiti company. Still, Iranian companies have continued to expand their reconstruction efforts in Iraq; in February 2009, Iran won a $1.5 billion contract to build a complex of houses, hotels, schools, markets, and other commercial buildings in Basra.
Iran’s role in reconstruction has also drawn the ire of Iraqis. In February, Minister of Interior Jawad al-Bolani banned the public use of foreign-language signage in Najaf and Karbala, a move targeting the prevalent use of Farsi (the official language of Iran). Two months later, residents of Karbala “demonstrated against the awarding of a contract to an Iranian company, Al Kawthar, to renovate the historic city center, including the area around the shrines of Imam Hussein and his brother Abu Fadhil al-Abbas, part of a $100-million project.”
In the last few years, Iran has initiated a number of projects to build power plants in Iraq and to link Iraqi cities to the Iranian electricity grid. Iran currently supplies power to Basra and Khanaqin, and may extend supply to other areas through projects in planning stages. In March 2008, during Iranian President Ahmadinejad’s first visit to Iraq, several agreements were reached on:
While these existing and planned arrangements provide Iraq with desperately-needed electricity, Iraq’s dependence makes it vulnerable to Iranian manipulation of its energy supply. For example, after the Iraqi government launched its crackdown in Basra in the spring of 2008, Iran cut the city’s supply of electricity. While the connection was eventually restored, Basra remains tied to the Iranian electricity grid.
Iran has also made investments in Iraq’s banking sector. In June 2007, Iran opened a Bank Melli branch in Baghdad. The U.S. Treasury has designated Bank Melli as a financial conduit for the purchase of materials for Iran’s nuclear and missile program; the bank also provides financial services for Iran’s Islamic Revolutionary Guard Corps-Quds Force, which has provided training, financial, and material support for militias in Iraq. Other agreements have paved the way for the Tejarat Bank and Export Development Bank of Iran (EDBI) to open branches in Sulaymaniyah. Iranian-owned Bank Eqtesad Novin and Bank Keshavarzi have also established three bank branches in Karbala, Najaf, and Baghdad.
The majority of Iranian and Iraqi citizens share a common faith, Shi’a Islam. The hawzas, or seminaries, in the religious cities of Qom in Iran and Najaf in Iraq are the centers for Shiite learning. Yet, they have developed under two distinct and competing traditions. Najaf is home to the Imam Ali shrine, one of the holiest sites in Shi’a Islam. The Najaf Hawza is the oldest Shi’a seminary and is the center of the Quietist tradition, which holds that clerics should not get involved in politics and should instead focus on guiding the religious life of their followers. Najaf flourished as the center of Shiite learning and faith for hundreds of years until its influence was limited under the repressive policies of Saddam Hussein’s Baathist regime.
Following the Islamic Revolution in 1979, the Iranian city of Qom eclipsed Najaf as an intellectual center for Shi’ism during the 1980s and 1990s. The Qom Hawza subscribes to the Khomeinist tradition, where “a high Shi’a scholar, or group of scholars, [is granted] absolute authority over all political, religious and social matters in the Muslim community.” The clerical establishment in Qom has close ties with the government of the Islamic Republic of Iran. Following the 2003 invasion, Najaf re-emerged as an intellectual and religious Shiite center under Grand Ayatollah Ali al-Sistani, a highly-revered and immensely popular quietist cleric. While there is a great deal of interaction (religious, economic, et al.) between Qom and Najaf, the reemergence of Najaf presents a challenge to “the religious authority of the hawza in the Iranian city of Qom.” Iran has pursued a strategy of expanding its influence in Iraq’s holy cities by investing heavily in reconstruction and the religious tourism industry and facilitating the travel of hundreds of thousands of Iranian religious pilgrims each year. Yet, it has also sought to use its influence to ensure the ascendance of Najaf does not happen at the expense of Qom’s influence.
Given these political, economic, and religious interests, Iran will likely continue to exert and even expand its soft power in Iraq. As Iraq emerges as a sovereign state, it remains wary of its eastern neighbor and may seek to check Iran’s influence within its borders.