Iraqi importers offer the U.S. a valuable geopolitical opportunity

Dr. Steven Terner

February 23, 2024

The discourse in U.S. foreign policy circles regarding what Iran might do or what China is planning can easily be described as alarmist. Titles like “What China wants in the Middle East” and “How China is winning the Middle East” are supplemented by articles discussing Chinese policy in the Middle East, China’s leverage over Iran, and how to or not to confront Iran. This gives the impression that, at the very least, U.S. decision-makers are looking for options regarding how to assert American influence in the region over that of China and Iran. For the sake of brevity, here’s an easy one: export to Iraq.

In my own efforts to facilitate cross-border business relationships, I work a lot with Iraqi importers looking for U.S. suppliers. For the past twelve months, they have consistently expressed their frustration with Chinese and Iranian suppliers, and asked for help finding American companies to replace them. These requests have come from Iraqi importers of electronics and motor vehicles, pharmaceuticals and medical supplies, heavy machinery, industrial and manufacturing equipment, mining, extraction, and processing systems, and telecommunications infrastructure.

Unfortunately, and shockingly, major American corporations are neither interested nor equipped to sell into the Middle East’s fastest growing market. That’s bad business. Furthermore, the fact that Iraqi importers are specifically trying to find American companies to replace their Chinese and Iranian suppliers means that for the U.S. to not be exporting to Iraq is also bad geopolitics.

According to the Chinese consulate in Erbil, Iraq, “In 2022, the bilateral trade volume between China and Iraq was USD 53.37 billion, a year-on-year increase of 43.1 percent. Among them, China’s exports were USD 13.99 billion, a year-on-year increase of 31.3 percent…From January to June 2023…China’s exports were USD 7.12 billion, a year-on-year increase of 15.9 percent.”

Tasnim news agency referenced a member of the Iran-Iraq Chamber of Commerce, who said that Iranian non-oil exports to Iraq from March to December 2023 were USD 6.2 billion, and are expected to reach USD 10 billion for the period from March 2023-March 2024.

The issues Iraqi importers have with China are mainly with the quality of Chinese goods. It has become so bad that Iraqi wholesale customers are no longer interested in Chinese-made products. In fact, they are in the process of cutting ties to Chinese exporters altogether and are specifically seeking U.S. companies to fill the void.

The issues Iraqi importers have with Iran are largely due to the complex relations between the two countries. Preference in Iraq for American products over Iranian products is in part due to resentment toward Iranian economic and political influence. However, American-made products are also considered to be of superior quality to Iranian-made products, and the U.S. is a more reliable trading partner than Iran. For example, due to economic mismanagement and international sanctions, Iranian manufacturers are hindered by shortages of raw materials and equipment, fluctuating production capacities, and high inflation.

To fill Iraqi importers’ needs, I initially found regional distributors of American products. But this was not sufficient for Iraqi wholesale customers. The effect of flimsy products and unreliable equipment in the Iraqi market has been so pronounced that wholesale and retail buyers in Iraq are distrustful of not just the products they’ve been receiving, but also the suppliers. Therefore, they want guarantees from Iraqi importers and distributors that the items they intend to purchase from U.S. companies are authentic. This has presented a challenge to importers that U.S. companies have unfortunately not been able, or perhaps willing, to understand.

In part, there exists a gap in business culture. Business in Iraq relies heavily on interpersonal trust. Contracts are not enough to mitigate risk when institutions cannot be relied upon to enforce them. Therefore, integrity and personal relationships are not simply matters of professional networks, but devices integral to risk mitigation. The way this is currently being expressed in the import market may be surprising.

Iraqi importers are expected by their wholesale customers to personally vouch for the authenticity of the products they are distributing. To do this, they request not only personal introductions to U.S.-based sales representatives, but also in-person tours of manufacturing facilities where the products they intend to purchase are made. This allows them, when meeting with their wholesale customers in Iraq, to attest to the fact that they went to the U.S. and personally witnessed the products being manufactured, purchased the items on-site, and oversaw their shipping back to Iraq for distribution. This level of chain-of-custody asks a lot from the importer, but the premium in cost is more than worth it to customers who are unable to move products that are notoriously inauthentic and unreliable.

Unfortunately, the business models of major U.S. corporations are not used to these requests, and not particularly amenable to them. Since companies that operate internationally have regional distribution hubs, they expect regional sales to go through their respective sales funnels. Requests made that circumvent those systems are, through bureaucratic reflex, simply redirected back to the regional hubs. Requests to operate outside that system are categorically rejected with statements such as, “We [US-based distributors] can’t sell to Iraqis, they have to purchase from Middle East regional distributors.” In some cases, when I’ve asked for in-person product demonstrations for Iraqi importers visiting the US, requests were denied outright, and referred back to the regional funnel. To make matters worse, even some Middle East-based distributors of US companies are not willing to sell products to Iraqi purchasers because “Iraq is not on our priority list currently.”

The causes for such a categorically negative response to the prospect of developing long-standing orders of wholesale quantities of goods is multi-faceted. First, U.S. companies are not aware of the size of Iraq’s market and its recent rampant economic development. The question of why corporations are not aware is complex and a matter for another article. For now, it’s enough to state that, unlike Chinese, Iranian, and other Western corporations, American corporations are not paying attention to the fact that Iraq’s economy is developing extremely quickly. The competition for influence in Iraq has, for the past several decades, been militaristic, and characterized by weapons flowing into the country from regional and global powers. However, for the past several years, this competition has shifted dramatically, and is now largely economic. In addition to, though not yet in place of weapons, billions of dollars are flowing into the country annually in order to purchase influence through economic development.

Second, U.S. companies are too bureaucratized. Sales representatives, and even sales executives, do not have the authority to change strategy. If their job is to sell to specific types of customers based on geography, for example, and one from outside that pipeline approaches them, they are not entrusted to take the initiative to make decisions on their own. They might be willing to bring the prospect to the strategy-making body, but that decision cannot be made swiftly. As a result, they are not willing to increase their market share in this way. Business-to-business sales processes take time because compliance departments must vet customers, products need to be demonstrated, terms need to be negotiated, and so on. Refusing to get that process started, and categorically rejecting the possibility of an exploratory conversation with wholesale importers is extremely short-sighted from an economic standpoint. It also has significant geopolitical implications.

Iraqi businesses are trying to hand the U.S. economic and political influence on a silver platter. Up until this point, China and Iran have enjoyed such influence. Now, the Iraqi market is asking the U.S. to replace them. Politics follows economics and not the other way around. So, forget policy recommendations. This is something US corporations can and should take on. Suppliers of electronics equipment, pharmaceutical and medical supplies, industrial machinery, and telecommunications systems should make lists of all the obstacles stopping them from accepting standing orders of several shipping crates per purchase per month. Then, throw out the list and do some business.

Author

  • Steven Terner

    Steven Terner is an advisor at Gulf State Analytics, a Washington-DC based geopolitical risk consultancy. He runs Iranian Economic News, a website that analyzes Iran’s domestic economic issues.