Gulf Arab states test waters with Iraq investment

In Baghdad’s Green Zone, a heavily fortified legacy from Iraq’s war-torn years, the glitzy Qatar-financed Rixos Hotel is taking shape, highlighting growing investment interest from Gulf Arab states. The government of Iraqi Prime Minister Mohammed Shia’ Al-Sudani hopes to host Gulf Arab monarchs and other Middle Eastern emissaries in the Rixos Baghdad’s 470 luxury rooms and suites when they arrive for a planned Arab League summit next year.

Al-Sudani’s government has been pushing for more investment from the region for an economy ravaged by decades of war and instability, but which is benefiting from record oil revenues, helping to spur demand for consumer goods from its rapidly growing population of at least 43 million.

OPEC member Iraq has seen relative calm since defeating ISIS/Daesh in 2017, although there has been sporadic violence, including among ruling Shi’ite Muslim factions and more recently attacks from Iran-aligned groups.

The country’s top trade partners are currently China, Iran and Turkey. However, Gulf Arab states, which have had a complicated relationship with Iraq, have pledged a string of investments as they seek to grow soft power in a country where regional rival Iran has unparalleled influence via a powerful network of allies. This has been partially enabled by a detente in ties between Iran and Saudi Arabia.

“It is the right time to go there,” said Moutaz Al-Khayyat, chairman of Qatar’s Estithmar Holdings which is behind the Rixos project. He cited the Iraqi government’s ability to build huge projects and attract international investors. “The country is safe and more controlled. We believe that Baghdad will be one of the most important Arab capitals for the next 25 years.”

Sunni-dominated Gulf states severed ties with Iraq after Sunni dictator Saddam Hussein’s 1990 invasion of Kuwait, only to see Iran-backed Shia factions gain the upper hand when he was ousted and executed after the 2003 US-led invasion and war.

In 2014, the then-Prime Minister Nouri Al-Maliki accused Saudi Arabia and Qatar of inciting and funding ISIS/Daesh fighters in Iraq, claims that both states denied. Links have been growing as Baghdad seeks to turn Iraq into a place of cooperation between regional rivals, including by hosting Saudi Arabia-Iran talks in 2021 and 2022 that helped pave the way for their landmark resumption of ties in March last year.

Saudi Arabia, Qatar and the UAE subsequently set out to strengthen economic ties with Iraq in an effort to push Baghdad away from Iran and closer to the “Arab political environment,” said Mahjoob Zweiri, director of the Gulf Studies Centre at Qatar University.

In May 2023, Saudi Arabia said that it had set aside $3 billion for investment in Iraq via its Public Investment Fund and later announced a $1bn mixed-use project including offices, shops and more than 6,000 residential units.

Qatar’s Emir visited Baghdad in June last year, when Estithmar signed memoranda of understanding worth $7bn to develop two new residential cities, five-star hotels and deals to manage and operate hospitals.

“Iraq is a huge country,” said Abdul Aziz Al Ghurair, chairman of the Dubai Chamber of Commerce (DCC). “They have great potential. They have probably realised the biggest and the best partner should come from the region.” Exports from DCC members soared almost 96 per cent in the first half of last year.

Gulf nations have also signalled growing interest in Iraq’s energy sector, a key zone of influence for Iran that currently supplies up to 40 per cent of Iraq’s power.

Qatar last year took a 25 per cent stake in a $27bn deal led by France’s TotalEnergies to develop oil production and capture gas that Iraq currently flares, while Qatar’s UCC Holding signed a $2.5bn MoU to develop two power plants totalling 2,400 megawatts.

UAE-based Crescent Petroleum last year signed three 20-year contracts to develop natural gas fields in Iraq’s southern Basra and Diyala provinces. Saudi Arabia’s ACWA power plans a 1,000 MW solar farm. And Iraq is in the process of linking its power grid to Kuwait and, in the future, to Saudi Arabia.

Questions remain over how Iran will react to a growing Gulf presence in its neighbour, while an upswing of violence has highlighted the fragility of Iraq’s relative stability. There have been more than four months of near daily rocket and missile attacks by Iran-aligned armed groups on US forces, who are in Iraq to help local troops prevent a resurgence of ISIS/Daesh. In January, an Iranian ballistic missile attack on Iraq’s autonomous Kurdistan region killed a prominent businessman.

Many investors also have concerns about rampant corruption and stifling bureaucracy that make everything from signing a contract in Iraq to getting paid difficult, placing a heavy emphasis on political connections and promises.

“I’m not sure these outside investments in Iraq will help politically or economically” said the Gulf Studies Centre’s Zweiri, due to high corruption and political infighting.

Iraq’s top court ruled last September that an accord demarcating the maritime border with Kuwait was unconstitutional, in a blow to growing goodwill with Gulf neighbours. The court’s decision, which was slammed as “null and void” by the Gulf Cooperation Council, is final, although parliament could endorse a new agreement and Iraqi officials say that talks are ongoing.

“We remain positive about working in Iraq, said one Gulf Arab diplomat, “although there are fears that some in the region could seek to spoil that.”

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