ID:229310
    Date:2009-10-12 15:10:00
    Origin:09BAGHDAD2744
    Source:Embassy Baghdad
    Classification:SECRET
    Dunno:09BAGHDAD1805 09BAGHDAD2078 09BAGHDAD2561 09BAGHDAD2562 09BAGHDAD2637
    Destination: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