KARBALA (Iraq) - IRANIAN rials change hands as easily as Iraqi dinars in this holy city's old bazaar, its alleyways teeming with Iranian pilgrims bused in on package tours run by Teheran.
The Ayatollah Khomeini banknotes and Farsi chatter aren't alone in lending a Persian flavor. Shelves in merchant stalls like Yassin Saleh's sit heavy with containers of honey, cosmetics and toothpaste, all made across the still-disputed border. Best-sellers include travel-size bottles of Iranian Sehat brand shampoo.
Trade with longtime rival Iran is bringing Iraq investments it sorely needs. Billion-dollar pacts are being signed. Branches of Iranian banks blacklisted by the United States are opening. But the growing ties also frame a political imbalance the US is loath to see in a country struggling to rebuild after years of war. As America's influence wanes in Iraq, and its troops withdraw, Iran is capitalising on centuries-old religious and cultural ties to secure greater leverage in the country - even as Washington works to dissuade others from dealing with Teheran over its nuclear programme.
It's a political and economic tug-of-war the US risks losing, if only because Iraq's reconstruction needs open the door for a marriage of convenience. Iran, squeezed elsewhere by sanctions, finds in Iraq a rare and ready market at a time when lingering security fears continue to discourage Western investments in the country. 'Iran would like to have a stronger presence in Iraq ... primarily because so many other places have been closed off to it. It's partly necessity,' said Anoush Ehteshami, a professor at Britain's Durham University. 'Iran doesn't want to lose its footing again in Iraq.'
Under Saddam Hussein, Iraq fought a ruinous eight-year war with Iran beginning in 1980 that killed hundreds of thousands of people and devastated both countries' economies. Many of Iraq's majority Shiites, persecuted by Saddam, sought sanctuary in Iran, only to return after the Iraqi dictator's fall in 2003. Some now hold key government posts. Many others have bought homes and set up businesses in places like Karbala, relying on Farsi learned in exile to cater to Iranians. That allows the trade links to keep growing - quadrupling to US$4 billion (S$5.6 billion) last year compared to three years earlier, according to Iranian government figures.
Senior Iraqi and Iranian officials meet frequently. The visits have netted a series of economic cooperation agreements, including power supply deals for Iraq and pledges to create cross-border free trade zones. Iran has offered its neighbour a US$1 billion loan to buy Iranian goods. In Basra, Iraq's second largest city and a nucleus for powerful Shiite groups, more than 60 Iranian companies gathered this year for a five-day trade fair. The fair was the biggest such Iranian-run event since the US-led invasion. Freezer trucks and motorcycles were on display, along with dairy products, canned goods, clothes and cement. -- AP