Iran offers to build refineries in Iraq and Pakistan

State Deparment

An Iraq oil worker monitors crude oil as it passes from the incoming trains in Haqlaniyah, Iraq, Oct. 12, 2008 to reservoir tanks

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  • Pakistan remains distrustful of Iran for sectarian reasons.

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  • The Iranian offer to build refineries in Iraq and Pakistan suggests that Iran is looking to nearby markets to win some much-needed hard currency.

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A frequent refrain of the Iranian government is that the Islamic Republic has benefited from international sanctions because it has forced Iranians to become self-sufficient. While it may be a stretch to suggest that indigenous Iranian industry can compensate for external refining, the Iranian offer to build refineries in Iraq and Pakistan suggests that the Islamic Republic is looking to nearby markets to win some much-needed hard currency.

The Iranian government will be hard-pressed to capitalize on such a strategy, however. Pakistan remains distrustful of Iran for sectarian reasons, especially as tension increases between Sunni radicals who have influence within the Pakistani government and Pakistan’s Shi‘ite minority.

Nor will Iranian inroads into Iraq be so easy. While critics accuse Iraqi Prime Minister Nouri al-Maliki of pursuing a sectarian agenda, ethnic and national differences often drive a wedge between Iranian Shi‘ites and their Iraqi counterparts. While Iran dominates the market in Iraq for packaged foodstuffs—largely a result of Iraq’s lack of manufacturing—Iranian businessmen have had difficulty making further inroads into Iraq. The market in southern Iraq—where Shi‘ites predominate—is wide open because of a combination of Iraq’s oil boom and the withdrawal of many Turkish businesses, the latter being a result of popular Iraqi reaction to Turkish Prime Minister Recep Tayyip Erdoğan’s sectarian incitement. Nevertheless, Iranian businessmen have had difficulty overcoming a reputation for high prices and inferior goods. Southern Iraqi officials have moved in recent months to entice American and European businessmen back into the Iraqi market in a conscious effort to balance the pressure from Iranian businesses and the Islamic Revolutionary Guard Corps’ economic wing.

Iranian officials have responded by utilizing proxies in the Basra Airport and other officials elsewhere to put extra-legal hurdles in the way of Western businessmen entering Iraq or prospecting for business. Such extra-legal hurdles include misapplication of HIV test provisions and imposition of a nonexistent requirement to have an Iraqi official’s sponsorship to leave the airport. Such efforts, however, are unsustainable as the Iraqi government moves to crackdown on local officials who interfere in commerce.

Iranian officials may brag about their expanding domestic industries, but just as in the East bloc before the fall of the Cold War, they often find that domestic monopolies and local brand names and companies are insufficient in the face of international competition. While the Iranian recourse to this is diplomatic or more underhanded pressure, in the long term neither the Iraqi nor Pakistani markets will fulfill Iranian expectations absent improvement in the quality of Iranian goods and their cost-effectiveness.

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