Growing Gulf-Iraq economic ties a welcome boost for region

The past year has witnessed an upswing in the Gulf states’ investment in Iraq. The year 2023 was a crucial one for the Iraqi economy, as the Saudi Public Investment Fund in May established the $3 billion Saudi-Iraqi Investment Company to finance multisectoral investments in Iraq. This was followed a month later by Qatari conglomerate Estithmar Holdings’ signing of memorandums of understanding worth $7 billion with the Iraqi National Investment Commission in order to develop modern cities, hospital infrastructure and tourism facilities. Estithmar also announced last August that it will construct a tourist complex in Baghdad under its brand Rixos, including luxury hotels, apartments and villas, fine dining restaurants, conference halls and tourist experiences.

The UAE has also played a key role in port development and post-conflict reconstruction in Iraq, while Kuwait seeks to cooperate with Baghdad on establishing a telecommunications corridor from the Gulf to Europe. Gulf interests are, however, not limited to infrastructure and rebuilding, as Iraq’s wider potential has become the focus of foreign direct investment.

The momentum has continued in 2024. In February, the Saudi energy company ACWA Power signed an agreement with the Iraqi Ministry of Electricity to develop a 1,000-megawatt solar power plant in Iraq to boost its renewable energy industry. And Emirati petroleum company Crescent Petroleum established three contracts with the Iraqi Ministry of Oil to develop oil and natural gas fields in Basra and Diyala. This 20-year partnership should generate more than 250 million cubic feet of natural gas per day, which will significantly reduce the country’s reliance on imported gas to power its electricity grid.

Also this year, Qatari interests represented by UCC Holding signed a $2.5 billion deal with the Iraqi National Investment Commission to establish two power plants. Qatar’s national petroleum company QatarEnergy also holds a 25 percent stake in TotalEnergies’ $27 billion oil, gas and renewable energy projects in Iraq.

Iraq’s geostrategic location and its historic centrality to the Arab world make it an important neighbor to the GCC states

Zaid M. Belbagi

Thus, Gulf investments in Iraq are not only restricted to infrastructure, as the country’s Gulf Cooperation Council neighbors have shown a keen interest in investing in its oil and energy sector.

Iraq’s geostrategic location and its historic centrality to the Arab world make it an important neighbor to the GCC states. However, GCC-Iraq relations underwent a period of hostility following Saddam Hussein’s invasion of Kuwait in 1990. As a rift emerged between the Gulf states and Iraq over subsequent decades, this vacuum was filled by Iran in the form of economic cooperation, political influence and a network of proxy militias.

Effectively, this raised the specter of Iran’s ability to interfere in the affairs of the wider region, with the Iraqi vacuum also leading to the emergence of militant groups, particularly Daesh, which further strained relations. However, in recent years, the Gulf states, especially Saudi Arabia, the UAE and Qatar, have found that security and economic cooperation with Iraq is key to bringing stability back to the region.

Economic cooperation agreements were preceded by diplomatic engagements. For instance, between 2015 and 2019, Saudi Arabia reopened its diplomatic missions in Baghdad and Basra and appointed an ambassador to Iraq for the first time in more than 20 years. The policy premise that the Gulf states have employed is that continued stability in Iraq will enhance their own ongoing socioeconomic transitions.

Several developments in the Gulf over recent years provided the impetus for the latest investments in Iraq. As the GCC states are moving to reform their economies and seeking to forge strategic autonomy, they see the value of economic reintegration with Iraq. For instance, the 2020 reopening of the Arar border crossing between Saudi Arabia and Iraq after three decades of closure resulted in more than SR900 million ($239 million) of trade in the first half of 2023 alone.

The GCC has already seen the success of member states’ economic cooperation with Iraqi Kurdistan over the past decade, with partnership agreements in sectors such as agriculture, oil and energy. Investments in Iraq will boost the prospects of regional trade, the potential of which has not yet been fully explored due to political differences and Iraq’s absence from the GCC.

Investments in Iraq will boost the prospects of regional trade, the potential of which has not yet been fully explored

Zaid M. Belbagi

Further, a growing detente between Iran and the GCC states, particularly Saudi Arabia, has enabled an environment where Gulf-based companies can maintain a market presence in Iraq. At the same time, the Gulf states’ investments in natural gas, power plants and alternative sources of power, such as solar energy, have served as a measure to curb Iranian influence in Iraq. Baghdad has traditionally imported natural gas from Iran to power its energy grid and, at present, Tehran meets nearly 40 percent of Iraq’s energy demand.

Prime Minister Mohammed Shia Al-Sudani, who took office in October 2022, has played a key role in drawing Gulf investments to the country. While his predecessors lacked the autonomy to seek closer ties with Arab allies, he has advocated for economic, trade, energy and counterterrorism cooperation with Iraq’s GCC neighbors. In February 2023, Al-Sudani met UAE President Sheikh Mohammed bin Zayed Al-Nahyan on his first ever visit to a GCC state, signaling Iraq’s commitment to reviving relations with the Gulf.

Al-Sudani has also maintained the momentum of the annual Baghdad Summit, a multilateral forum that indicates Iraq’s resolve to cooperate with key international players to address domestic challenges. This comes as the country is working toward strengthening its economy, which has been impacted by years of political turmoil and militancy. Volatilities in the oil sector since 2022, including the ongoing curbs on oil production by the OPEC+ states, have also affected the Iraqi economy.

In this light, Gulf investment in Iraq is a welcome move that will herald greater cooperation, integration and regional stability.

• Zaid M. Belbagi is a political commentator and an adviser to private clients between London and the Gulf Cooperation Council region. X: @Moulay_Zaid