Iraq: Impact of the Syrian war’s next stage

Iraq: Impact of the Syrian war’s next stage

The Syrian Civil war is nearing its end game. This article, part three of a five-part series on the regional impact of this news, examines the current economic obstacles and opportunities for Iraq. Part one of the series considered Syria, the second part assessed Jordan.

Historically, Syria and Iraq have had a complex relationship with many political and economic ups and downs. In the years before the Syrian war broke out, the political relationship had been normalized. There were ongoing attempts to increase trade and make the economies more interdependent. As of 2010, Iraq was Syria’s largest single country export destination, with sales of $2.3bn out of a total $12.3bn. Iraq turned to Syria for a bevy of important goods including water and agricultural goods such as  sugar and cereal, among other commodities. Furthermore, it had a very diversified set of imports beyond just food and water, ranging from cleaning products to plastics and textiles.

Syria’s Impact on Iraq

The Syrian war and ensuing sanctions meant that Iraq had to find and establish new trading partners for these goods. Iraq went from importing $278 million in Syrian cleaning products in 2010 to a negligible amount in 2016. Additionally, Iraqi exports were negatively impacted. The country exports little else outside of petroleum products and sent Syria $387 million in refined petroleum in 2008, making it Iraq’s biggest refined petroleum customer. Today, petroleum continues to be Iraq’s biggest export product but essentially none of it goes to Syria.

In terms of security, Syria’s detrimental impact on Iraq cannot be understated. ISIS, otherwise known as Daesh, used the instability in Syria to rebuild its previously-decimated forces and launch a massive military offensive into western and northern Iraq. It claimed huge swaths of territory throughout the country, including its second largest city, Mosul. The deteriorating security situation led to huge drops in foreign direct investment, the destruction of important infrastructure, and border closures.

Iraq’s Economy Today

Since 2011, Iraq has dealt with a bevy of factors that made economic development incredibly difficult. Whether it was the Syrian conflict next door, sanctions prohibiting trade with neighbors, or the rise of ISIS within its territory. Without these complicating factors economic development in Iraq would have already been difficult but this made it exponentially harder. With that said, there are reasons for some optimism as 2018 GDP growth is projected to rebound to positive 1.5%. Foreign direct investment seems to have bottomed out, after decreasing from $4.1 billion in 2014 to $1.8 billion in 2017, and looks to be starting an upswing. Furthermore, in December 2017 Iraqi Prime Minister Haider al-Abadi announced that “Our forces fully control the Iraqi-Syrian border, and thus we can announce the end of the war against Daesh,” meaning that the destruction of the country’s infrastructure can now be more fully addressed.

Non-Oil Economy

The Iraqi economy was ravaged by the conflict, with non-oil GDP growth and GDP per Capita growth being negative from 2014 through 2016. Beginning in 2017 that started to turnaround, driven by increases in private consumption and investment as well as projects to rebuild infrastructure. There is huge room for more growth if Iraq can be successful in courting investment. In 2017, the National Investment Commission listed 157 critical reconstruction and development projects spanning from transportation to industry to real estate and beyond.

The construction sector, which contracted by 40% in 2016, is primed to productively expand if even a fraction of these projects can be initiated.

Oil Economy

Iraq is the second-largest crude oil producer in OPEC, the world’s third-largest oil exporter, and holds the world’s fifth-largest proven crude oil reserves. It has consistently ramped up its crude oil production since 2011, even throughout the conflict with Daesh. In 2018, Iraq was producing about 4.5 million b/d (barrels per day) and intends to expand that production to 6 million b/d by 2020. As of 2017, Iraq had a crude oil refinery capacity of about 640,000 b/d, but that is projected to increase as foreign companies have expressed firm interest in projects to develop more capacity. Projects to build a 300,000 b/d refinery at the port of Fao, a 150,000 b/d refinery in Nasiriya, and to expand the 20,000 b/d refinery in Qayara to 100,000 b/d are in the works. Iraq is also seeking investors for a series of projects to build more tank farms (oil storage units).

Asia is the main regional destination for Iraq’s crude exports and the regional demand for its oil is only expected to grow.  One can expect Iraq’s crude to be highly sought after due to US sanctions on Iran and the continued economic growth of places like China, India, and South Korea. These countries will likely fall in line with US sanctions to a significant extent and Iraq is a natural alternative. Additionally, 23% of Iraq’s crude oil exports go to Europe and there is reason to think that it will look to Iraq for more if pressure grows to repudiate Russia, a major energy provider, for its military adventurism and election-hacking.

Oil is especially important as it relates to the Iraqi government’s ability to provide services to its constituents, as it makes up about 90% of the central government’s revenue, according to the IMF. It also accounts for the vast majority of its exports and 65% of Iraq’s GDP.


The World Bank estimates post-ISIS reconstruction in Iraq will cost $88 billion, with $23 billion needed in the short-term. There have been attempts to raise pledges for aid, loans, and investment to cover this. Kuwait hosted The International Conference for the Reconstruction of Iraq in February 2018. The event led to pledges, mainly through credit facilities and investment, totaling $30 billion. While pledges are not the same as having the cash in hand, it is a positive first step.

There is also reason to believe that America will be deeply involved in maintaining Iraq’s security and protection from the resurgence of Daesh. The withdrawal of US forces in 2011 is widely viewed as a mistake that paved the way for the rise of Daesh and regional instability.   Moreover, President Trump recently stated that he is committed to “maintaining the U.S. presence in Iraq to prevent an ISIS resurgence and to protect U.S. interests, and also to always watch very closely over any potential reformation of ISIS.”

Opportunity to Engage with Syria

Before the Syrian conflict began, Iraq was Syria’s biggest export destination. While there have been previous time periods when trade between the two nations exploded. For example, from 2007 to 2008 Syrian exports to Iraq jumped from approximately $642 million to $2.55 billion. It will be difficult to mimic that trade increase today. This is because many of the factors of production in Syria have been damaged or destroyed.

Therefore, resurgence in trade will be based off of Syria’s ability to restart domestic industry. If that happens, it is likely Iraqis will return to those supply chains. Especially as sanctions against Iran make trade with that country increasingly difficult. Iraq has a huge population, an expansive geography (including a 376 mile-long Syrian border), and imported $33 billion worth of goods in 2016. Syria will have an opportunity to capture some of that expansive market. However, the relationship between the two will likely be more about trade as opposed to investment.

However, currently, there are barriers to resuming the trade relationship. US coalition forces control the al-Tanf border crossing and have closed down the Damascus-Baghdad highway, one of three main border crossings between the countries. The Assad regime will certainly continue to buy Iranian and Russian energy, thereby keeping it from becoming a big consumer of Iraqi oil again. The Iraqi government will attempt to leverage market access in exchange for more oil exports. However, it is doubtful it will be very successful in this endeavor.

The Iraqi government will also be wary of building trade ties with the Kurdish-controlled northeast Syria for fear of emboldening the Kurds in its own territory and strengthening the always simmering regional movement to build a Kurdish state. Although, Iraqi Kurds could view this as an opportunity to strengthen each other and their ties by trading with each other.

Opportunity to Engage with the Region

At the Iraq reconstruction conference Kuwait earmarked $1 billion in loans and $1 billion in investments, even as Iraq still owes it reparations payments from the Gulf War. Kuwait is invested in keeping Iraq stable as it worries that protests or instability could spill over its insecure border. Kuwait also has strong trade ties and is an exporter of machinery and agricultural goods to Iraq.

At the Iraq reconstruction conference Saudi Arabia promised $1 billion from its development fund and another $500 million in export credit. In 2018, Saudi Arabia announced that it set a target of 23 billion Saudi Riyals in trade with Iraq throughout the next 10 years. This trade has historically spanned the spectrum from fruits to metals and chemical products. Saudi Arabia will work to create economic interdependence and build stronger relations between the two nations. Doing so will help to keep Iraq out of Iran’s orbit and strengthen a Saudi export market. For this reason, Saudi Arabia has also been widely discussed as an option for a new major electricity supplier for Iraq as it seeks an alternative to Iran.

Jordan will have the chance to re-capture a larger share of Iraq’s imports, as it had in 2014 when it exported $1.37 billion of diverse goods to Iraq. Recently, movement between the two countries normalized at the Trebil border crossing, which had been a concern for Jordan when ISIS forces were prevalent in the area on the Iraqi side, and 563 Jordanian trucks entered Iraq. There are also ongoing discussions between the two governments to create a joint industrial zone along its shared border.


Many of Iraq’s neighbors and western countries are deeply motivated to support security and development in the country. The US and its allies have spent a lot of resources and should continue to have a strong relationship. Iraq’s neighbors are competing for influence and pushing for strong bilateral relations. Iraq has historically been one of the powerhouses of the Middle East.

Iran is looking to establish and build trade ties very quickly as US sanctions start to bite. As the Iranian rial has been devalued, exports to Iraq have flooded in and trade has been robust. This has been happening even as Iraq looks to other sources of natural gas for electricity generation, due to sanctions. Iran will continue to work hard to build trade ties with its neighbor as it attempts to increase its influence and stave off the effects of US sanctions.

However, obstacles remain for Iraq’s development and future prosperity. Corruption in Iraq is endemic and it has a massive public sector as a result of strong patronage networks that still exist. This makes foreign investors very wary of putting money into projects in the country. While Daesh no longer holds large swathes of territory, it still exists within Iraq’s borders and has shifted to an insurgency campaign. Iraq’s new prime minister, Adil Abdul-Mahdi, has been unable to form a complete cabinet to tackle the many obstacles facing the country. All of these issues will need to be addressed for the sake of Iraqi people.

Part four of the series will consider the economic impact of the Syrian war on Lebanon, and its future implications.

About Author

Alexander Werman

Alexander Werman is a Middle East analyst currently studying Arabic in Amman, Jordan and interning at The Jordan Times. He previously interned at the Middle East Security Initiative in the Atlantic Council, the U.S. Department of State, Search for Common Ground, and the American Foreign Policy Council. His research focuses on security challenges and governance in fragile states in the Middle East and North Africa. He graduated from George Washington University with a Master's in Security Policy Studies in May 2018.