x Abu Dhabi, UAEWednesday 17 January 2018

Iraqis feel the brunt of sanctions as trade slows

The number of Iranian pilgrims, who used to flock in their tens of thousands to the shrines in Iraq, has halved.

The number of Iranian pilgrims, who used to flock in their tens of thousands to the shrines in Iraq, has halved , say traders after the Iranian rial lost about 50 per cent of its value last year.

"They are coming in very little numbers," says Sabah Abbas, who sells abayas at his shop in a centuries-old market that faces the golden-domed Imam Ali shrine in Najaf. "The ones who come pay for the hotel but won't shop for souvenirs like they used to."

Mr Abbas is one of many businessmen who have purchased large quantities of goods with hopes of selling a big profit, yet find themselves bargaining hard with the small number of tourists that pass their shops.

Yousif Jassim Mohamed, who sells prayer beads, is in the same boat.

"They are not willing to open their wallets," he says.

Iran's currency, which has declined from 16,000 rials to the dollar last year to 36,000 rials at the open market last month, used to be traded in the Iraqi market by shopkeepers. But today, nobody is willing to take the risk, Mr Mohamed says.

"It's a difficult currency to deal with and very volatile," he says. "Now we only take Iraqi dinar or US dollar."

Iraqis have viewed Iranian pilgrims with some caution after Tehran's state-run travel company defaulted on millions of dollars in unpaid bills, according to Mahmoud Abdul-Jabbar Al Zubaidi, the head of Iraq's ministry of tourism and antiquities.

Whereas shopkeepers are wary of taking Iranian currency, money changers have profited incredibly by supplying dollars to Iran and Syria, seen as Iraq's closest allies. The result has been an accelerated decline in the value of the Iraqi dinar in the secondary market. Demand for dollars from money changers and financial institutions at the central bank's currency auctions has doubled to US$300 million. In 2011, the US banned Elaf Bank, based in Baghdad, from any dealings with the its banking system for allegedly functioning as a cash conduit to Iran.

Iranian companies boosted the value of the dollar against the dinar by entering the Central Bank of Iraq's (CBI) auction for hard-currency sales and buying large quantities to smuggle into Iran, says Al Monitor, a Middle East business website. On the other hand, a former senior official at the CBI said recently the rise was linked to increased government revenue from oil sales, leading to an increase in government spending.

"This has increased the demand for the dollar at the CBI auction," says economist Khaled Haidar.