Prospects and context of the economic bloc proposal including Turkey, Iran and Iraq

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During the Iraqi-Turkish Business Forum for Investment and Contracting, which took place in Istanbul on November 19, Iraq, represented by its Ministry of Trade, Muhammad Hanoun, called for building an economic bloc that includes Turkey, Iraq, and Iran. A very intriguing proposal, but does it make sense?

First, let’s consider some of divisive and integrative factors.

Historically, Iraq was the seat of the Abbasid caliphate, the Sunni dynasty that represented the Islamic civilization before Ottoman Sultanate, the last Islamic governing system before the abolishing of the Islamic unifying governing authority. Before that, Turkey was a seat of other empires, including Byzantium, while Iran represented the thousand years old Persian dynasties and civilization. Today, Iran is the most powerful nation state with a majority population following the Imami Shia mazhab with a system of governance build on Shia Islam. Turkey continues to see itself as the heir of the Sunni community, with a hybrid governing system build on an Islamic foundation shaped by Western institutions and value systems. Iraq, still emerging from a violent and destabilizing invasion and subsequent occupation is still trying to figure out a path that meets the preference of its Shia majority population and the influence of a powerful Sunni minority still enjoying a sense of entitlement given their monopoly on power under Baath regimes.

The three countries (and Syria) face a common challenge: a Kurdish community denied statehood by colonial forces and unaccommodated by independent nation states.

Governments of the three countries are on opposite ends in terms of where they stand in relations to the armed conflicts in their neighborhood. Iran is supportive of Syrian government. Turkey is still the main sponsor of armed opposition groups that wanted to overthrow the Syrian Government. Iraqi government supports the Syrian government in its war of Salafi Armed groups, ISIS and al-Qaeda, but many Sunni tribes provided support to these groups. Turkey sees Kurdish groups as a national security threat, Iraq seems comfortable with the arrangement it has with its autonomous Kurdish citizens, while Iran continue to see Kurdish groups along its borders as a threat to national security.

All these facts seem to suggest that building an economic consortium among these three different nation states is a losing proposition… until economic and geopolitical factors are taken into consideration.

The figures from the World Bank database show that the gross domestic product of the three countries in 2020 amounted to more than one trillion dollars. Turkey comes first with about 720 billion dollars, Iran second with about 191 billion dollars, and Iraq comes last with 167 billion dollars. Taking into account that the decline in Iran’s domestic product is caused by the economic sanctions imposed on it by the West, and given that its output before the sanctions in 2017 was about 445 billion dollars, we can see that Iran has unrealized potential.

In terms of population, according to 2020 data, the population of the three countries is about 208 million, with Turkey coming first, with a population of 84.3 million; Iran, coming close second with a population of 83.9 million, and Iraq, with a population of 40.2 million.

In terms of land and geography, the total land area of the three countries is about 2.8 million square kilometers. Iran is the largest of the three consisting of 1.6 million square kilometers, almost the size of Turkey and Iraq combined. Turkey has an area of 769,000 square kilometers and Iraq is 434 million square kilometers large.

Iraq and Iran are among the oil-exporting countries, and they are members of the Organization of Petroleum Exporting Countries, and they have production and reserves of oil and natural gas. Turkey should see access to nearby sources of energy as a strategic benefit.

While Iran and Iraq energy sources rich, Turkey enjoys an advantage when it comes to another important natural resource: water. Major rivers upon which Iraq and Iran depend originate in Turkey. Agricultural and food production in Turkey is an important source for both Iraq and Iran and Turkey is becoming more and more an important industrial nation.

 

As for the volume of trade exchange between the three countries, data show that the trade exchange between Iran and Turkey in March 2021 on an annual basis amounted to 6.8 billion dollars, and that this was reflected in the form of a surplus in favor of Turkey by up to two billion dollars, but these data reflect the impact of economic sanctions imposed on Iran. For comparison, natural Iranian gas and oil exports to Turkey amounted to about $9 billion before the sanctions. Trade between Turkey and Iraq amounted to about 17.3 billion dollars in 2020. As for the trade exchange between Iran and Iraq, it amounted to $13 billion (data from March 2020), with a surplus for Iran of about $5 billion.

The three countries form a geographical link between the regions of Central and Western Asia, Europe and North Africa. At this point, these countries will have the opportunity to turn them into the node of land and sea links in the tracks of the Chinese “Belt and Road” initiative.

It should be noted that Iran is the only source of electricity export to Iraq. Transactions covering this sector between the two countries was exempted in from US sanctions imposed on Iran.

If practical steps are taken to activate this economic consortium, several benefits can accrue for everyone, provided that there is better political and security stability in Iraq. In the event of the development of forms of integration between the three countries, Iraq would be in a better position in terms of diversifying its economy, so that oil would be one of the resources, and the agricultural sector could be developed better after reaching better agreement on sharing of water of the rivers.

Turkey, too, will benefit as it will have a better opportunity to expand its regional relations, which will increase its regional position in a geopolitical framework.

The lifting of sanctions on Iran will enable Turkey to contribute the development of Iran’s infrastructure, which is reflected well on the Turkish companies specialized in this field, from the construction of roads and power stations, as well as the establishment of many of the industries that can come within the framework of the partnership between the two countries.

A consortium among Iran, Iraq, and Turkey will benefit the region as well. The consortium could enhance other economic cooperatives in the region, especially the Gulf Cooperation Council, which has been greatly shaken since the crisis of the blockade of Qatar in June 2017.

On the agenda of relations between the countries that are included in the proposed economic cooperative, a set of issues that need to be resolved, chief among them the issue of water, and the demand from both Iran and Iraq from Turkey as a source country for better sharing agreements of water than current status.

The countries will need to upgrade their customs-related procedures to align them with the rules of the World Trade Organization. The three countries will need to address financial and banking transactions especially given the sanctions imposed on Iran.

Such project will require that all three countries invest in infrastructure and road networks between the countries, which would facilitate the flow of goods, as well as shorten shipping time.

Against the potential outlined above, one cannot downplay the challenges facing the building of such consortium.

Political and security matters are creating instability, which discourage economic development. Political and security instability in Iraq seem to be difficult in the short term, which leads to the absence of commitment by the Iraqi government to fulfill its obligations, and the problems raised by the Iraqi Kurds towards Turkey and Iran will lead to a careful consideration of their commitment.

Potentially, an economic structure tying the fate of these three countries could lead to easing tension and even solving perineal problems. For instance, the economic benefits of such consortium could force Iran and Turkey to work together to solve the political and security problems in Syria created by a decade long proxy-war, in which they were directly involved. Also, stronger ties between the three countries could improve the status of Kurds in the three countries and produce an enduring solution. Lastly, collaboration between Turkey, a Sunni majority country, and Iran, the Shia majority country, will reduce sectarian tension, the singular historical issue Muslims have never fully addressed in the context of politics, law, religion, culture, and social equity.

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