International Herald Tribune

NAJAF, Iraq: While the Bush administration works to stop Iran from meddling in Iraq, Iranian air conditioners fill Iraqi appliance stores, Iranian tomatoes ripen on the window sills of kitchens here and white Iranian-made Peugeots sit in Iraqi driveways.

Some Iraqi cities, including the oil- producing enclave of Basra, buy electricity from Iran. The Iraqi government is relying on Iranian companies to bring gasoline from Turkmenistan to alleviate a severe shortage. Iraqi officials are reviewing an application by Iran to open a branch of an Iranian national bank in Baghdad, and Iran has offered Iraq $1 billion in soft loans.

The economies of Iraq and Iran, the largest Shiite countries in the world, are becoming closely intertwined, with Iranian goods flooding Iraqi markets and Iraqi cities looking to Iran for basic services.

After the two countries fought a bitter war from 1980 to 1988, Saddam Hussein maintained tight control over cross-border trade, but commerce has exploded since the American invasion. Much of the money is heading in one direction, though: Iraq is becoming dependent on imports from Iran and elsewhere because industries here have been gutted by the economic sanctions of the 1990s and the current turmoil.

"What is happening in Iraq at the moment is a lot of trade, but it's almost all one-way trade," Barham Salih, the Iraqi deputy prime minister of finance, said of Iraq's economic ties with Iran and other neighbors. "If you take oil away, there's a lot of imbalance in this."

Iraqi leaders from the ruling Shiite bloc say that political and economic ties with Iran, which is governed by Shiite Persians, will inevitably strengthen. As driving factors they cite the hostility of Sunni Arab nations to a Shiite-run Iraq and the ambivalence of the White House toward the devout Shiite parties here.

"If the Shiites do not feel protected, if they feel what they've achieved can't be maintained, much of the leadership will have to work with Iran," said Sami al-Askari, a Shiite legislator who advises Prime Minister Nuri Kamal al- Maliki, himself a religious Shiite with close ties to Iran. "The Arabs and the Americans are saying Iran is bad, but it's the only recourse."

According to one commonly cited statistic, trade between Iraq and Iran has grown by 30 percent a year since the American invasion in 2003. But American officials here say there are no accurate numbers because Iran refuses to release figures.

Statistics from the U.S. Embassy's economic section show that Syria accounted for 22 percent of Iraqi imports in 2005 and Turkey 21 percent. Iran, which has the longest border with Iraq of any neighboring country, would likely fall in that range, officials said. The CIA World Factbook estimates Iraq's total imports in 2006 at $20.8 billion.

Iran has divulged a few trade numbers. Tehran told the regional government of the Kurdish north that trade with Iraqi Kurdistan amounted to more than $1 billion in 2006, said Hassan Baqi, president of the chamber of commerce in the Kurdish city of Sulaimaniya.

Hoshyar Zebari, the Iraqi foreign minister and a Kurd, said provincial governments have been making their own commercial deals with Iranian interests, but that lately he has started ordering them to go through the Foreign Ministry.

"We have a number of agreements with Iran on energy, on trade, on oil, on visitors — that is pilgrims, which is very important to them," he said. "And this is building and really on the border provinces they've been very helpful. It's a whole network.

"Soon we're going to have a conference of all the border provinces and Iran to discuss economic ties and our interest," he added.

Here in the Shiite religious heartland of the south, Iraqis have profited handsomely off the new economic ties with Iran, most notably in the holy cities of Najaf and Karbala, whose shrines draw Iranian pilgrims by the thousands each month. The headquarters here of revered Shiite clerics like Grand Ayatollah Ali al- Sistani also collect enormous dues from their satellite offices in Iran. That money ends up in the local economy.

The Iranian government gives the Najaf government $20 million a year to build and improve tourist facilities for pilgrims, said Asaad Abu Galal, the governor of Najaf and a member of the Supreme Council for the Islamic Revolution in Iraq, an influential Iraqi political party founded in Iran. Karbala gets roughly $3 million a year, Abu Galal said. In addition, each Iranian pilgrim spends up to $1,000 on hotels, food and souvenirs.

Crippled, Iraq leans on longtime enemy Iran for trade

Economies of the ex-enemies are increasingly intertwined

Provincial tourism officials estimate that at least 22,000 Iranian pilgrims visit Najaf each month and at least 10,000 travel to Karbala. Most come on package tours.

"We must increase the number of pilgrims," Abu Galal said.

The close ties with Iran in the south have drawn scrutiny from the American government, Iraqi officials say. Najaf province had come close to contracting an Iranian company to build an airport, but the deal was scuttled at the last minute by the Transportation Ministry in Baghdad, said Shiite officials with the Supreme Council. They suspect the Americans of putting pressure on the ministry; the Najaf government is still trying to find a contractor.

"The Americans don't want to bring Iranians to Najaf," Abu Galal said. "The Americans want to control the sky."

A senior American official in Baghdad declined to comment specifically on the Najaf airport project, but said the Americans do look carefully at major business exchanges with Iran.

"We pay a lot of attention," he said. "We don't want people working for the intelligence services to get contracts for projects here in Iraq."

Tensions between the United States and Iran have risen tremendously in recent months. The White House says Iran has ambitions to develop nuclear weapons and has been urging the United Nations to impose harsh sanctions. It has also accused Iranian groups of exporting deadly explosives to Shiite militias here.

But the senior American official said the growth in trade between Iraq and Iran was generally a positive thing.

"I wouldn't link the rise in trade with Iran with Iranian political influence," he said. "As long as this is normal economic activity that doesn't have security implications, it's a good step."

Cities near the Iranian border have turned to Iran to help alleviate Iraq's chronic electricity shortage.

Iranian goods have proliferated throughout Iraq. White Peugeot sedans that began rolling out of Iranian factories in 2005 are sold everywhere in Iraq — Iranian companies offer attractive financing packages to Iraqi sellers. In the far south, Basra imports $45 million of goods from Iran each year, from carpets to construction materials to fish and spices, said Muhammad al-Waeli, the governor of Basra. Each day, 100 to 150 commercial trucks drive from Iran to Iraq at the nearby Shalamcha border crossing.

In the rugged north, Kurdish officials say trade has boomed. "I think 2006 was the biggest year," Baqi said. "But at the same time, export to Iran from Kurdistan is zero. Agriculture and industry in Kurdistan are messed up."

In central Baghdad, piles of Iranian air conditioners with brand names like Sona, Jayan and Aysan Khazar sit next to Chinese television sets on sidewalks outside appliance stores. The blue-and- white air conditioners use a water-cooling technology and can run on generator power, making them popular with electricity-starved Iraqis.

Damien Cave, Alissa J. Rubin and Wisam A. Habeeb contributed reporting from Baghdad, and Yerevan Adham from Halabja.

______