Iraq unfazed by US tariffs, but sees opportunity to reform trade

Washington will impose a tariff rate of 30 per cent on non-oil Iraqi exports from next month

An oil tanker docks at a floating platform on December 23, 2015, offshore from the southern Iraqi port city of Al Faw, 90 kilometres south of Basra. AFP

On Wednesday, the US President Donald Trump issued a new round of tariff letters to several countries, including Iraq.

The letter sent to Iraqi Prime Minister Mohammed Shia Al Sudani said a tariff rate of 30 per cent would be imposed on Iraqi exports starting August 1 – lower than the 39 per cent tariff Mr Trump announced in April.

The US President's tariff letter was identical for all the countries, apart from the tariff rates, and contained the same warning: do not impose retaliatory measures.

“If for any reason you decide to raise your tariffs, then, whatever the number you choose to raise them by, will be added on to the 30 per cent that we charge,” Mr Trump wrote in the letter, which he posted on social media.

However, Iraqi officials and economists have said the move will have little effect on the country’s economy.

Petroleum exempted

Iraq's main exports to the US are crude oil and petroleum products, with about 200,000 barrels are shipped to the US every day, generating approximately $4.5 billion annually, according to an Iraqi Oil Ministry official.

This means that Iraq “will not be affected by the new 30 per cent customs duties as crude oil is the primary Iraqi product exported to US,” Ministry of Trade spokesman Mohammed Hanon told The National.

However, Mr Trump's new tariff has prompted calls for Iraq to reorganise and regulate its trade with the US to be more direct.

Many Iraqi goods imported from or exported to the US currently pass through third-party regional dealers, Mr Hanon said. “That practice makes trade flows difficult to monitor and leaves Iraqi producers with thin margins,” he said.

Iraq's registered non-oil exports to the US in 2024 were at around $650 million, mostly of dates and amber rice – a prized fragrant and short-grained variety.

“There are many items that go first to dealers in the region, such as Dubai, where they prepare and export them to US,” Mr Mahon said, and added that the real trade volume with Washington could be as high as $10 billion.

Iraq plans to respond?

Mr Trump's tariff drive has also highlighted a structural issue : Iraq’s trade relationship with the US lacks transparency and efficiency.

Mr Hanon said Mr Al Sudani ordered in April that steps be take taken to address the problem, including encouraging American companies to open outlets for their products in Iraq or appoint local distributors to engage in direct trade.

He also called for enhanced co-operation in the banking and financial sectors, and the start of negotiations with Washington to review and improve Iraqi-US trade to be more balanced and mutually beneficial.

Iraqi Prime Minister Mohammed Shia Al Sudani attends a press briefing in Tehran, Iran. Reuters

Worry over indirect tariff impact

Even though the new US tariffs exclude crude exports, Iraq’s economic lifeline, there is concern that they might cause oil prices to slip further in the international market.

Mr Hanon said there was anxiety over the stability of Iraq’s oil revenue, which fund the majority of government spending.

“The impact of the tariffs could be felt on global oil prices and may even lead to a relative decline,” he said.

He noted that "rising global inflationary pressures are putting pressure on oil markets and changing the rules of supply and demand, leading to a potential decline in the price of crude oil, which would impact economic growth and the state budget."

Oil exports make up more than 90 per cent of Iraq’s revenue.