Jordan strikes delicate balance in its Iraqi and US ties

Published November 6th, 2000 - 02:00 GMT

Jordan has managed to strike a delicate balance by turning over a new leaf in ties with Iraq, its major trading partner, while maintaining good relations with the US, its main aid donor, experts and political analysts agreed on Saturday.  


Prime Minister Ali Abul Ragheb's three-day ground-breaking visit to Baghdad ended on Friday with major agreements that ensured Amman's full oil supplies for 2001 and broadened trade links — two vital components to help the recession-hit economy, they added.  


The trip to Baghdad also bolstered bilateral political ties that have been volatile since 1995 when Jordan turned against Iraq and gave shelter to top defectors. Ties with Iraq have been improving since July, when Vice President Taha Yassin Ramadan visited Amman a month after King Abdullah named Abul Ragheb as premier.  


Abul Ragheb's much-publicized trip, the first by an Arab prime minister to Iraq since the UN-imposed economic sanctions on Iraq following its August 1990 invasion of Kuwait, came almost two weeks after King Abdullah witnessed the signing of a Jordan-US Free Trade Agreement in Washington.  


Economists have seen the FTA as a vital vehicle to lure foreign investors to Jordan as a launch pad to the vast US market. Only three other countries — Canada, Mexico and Israel — have preceded Jordan in striking FTAs with the US.  


Jordan's eastward trek to sanctions-hit Baghdad bore a political dimension in addition to satisfying economic needs, said another analyst. Following rounds of intensive talks in Baghdad, Abul Ragheb, who enjoys close ties with Iraqi officials, succeeded in clinching a balanced bargain to provide Jordan with five million tones of Iraqi crude and oil derivatives at a ceiling price of $20.9 per barrel — including nearly one dollar for overland trucking.  


This equation was tied to a pricing mechanism under which a barrel's price should go down in line with any future downward slide in international oil prices. Albeit nearly two dollars higher than the fixed ceiling adopted in 2000 the new arrangement diminished the looming burdens on an already tight budget.  


According to economists, every one-dollar over the $19 per barrel price of 2000, will cost the economy at least $35 million a year. The government had hinted that it might hike the prices of oil and gas next year if it failed to strike a “comfortable” deal with Iraq. Until now, the government had been unable to draw up the 2001 draft budget pending the benchmark of Iraqi oil.  


The Kingdom's oil bill of over $600 million — half of it in the form of an Iraqi grant — makes up a major component of the budget's expenditures. “Now we can start charting the year 2001 budget in light of the new oil prices,” said one official on condition of anonymity.  


“The prospects for raising fuel prices have gone slimmer, and if we decide to do so, it will be by a very small margin,” Minister of Energy Wael Sabri said on Jordan Television after returning from Baghdad. Officials said the Council of Ministers will meet soon to look into ways of covering the nearly $70 million extra gap resulting from the new oil deal.  


Last year the government had to squeeze security and other expenditures to cover a 120 million Jordanian dinars deficit that emanated from a five-dollar increase per barrel in 2000, up from $14 in 1999. That hike meant the government would have been unable to meet the seven percent budget deficit target set by the World Bank and the International Monetary Fund.  


“For now, we managed to get away with the new deal,” said a government official. “But that does not mean we should not look at ways to arrive at a better price structure that reflects actual cost,” he told the Jordan Times. The official also said that as the Kingdom's economy becomes stronger through exports, it is hoped that eventually Jordan would be able to buy oil at market rates instead of having to go to Iraq every year.  


Abul Ragheb and Iraqi officials also agreed to raise the barter trade protocol to $450 million next year, up from $300 million in 2000. Officials, however, cautioned that this increase is bound to add an extra burden on Jordan's foreign exchange reserves as the Central Bank of Jordan will have to settle the growing bills for local exporters.  


Hence, officials managed to extract another positive opening from the Iraqis by ensuring that their country gets a chunk of oil-for-food contracts, a separate UN deal. Under this formula, which is renewable every six months, Iraq is allowed to export $5.2 billion worth of oil in return for basic commodities.  


Jordanian industrialists have exported goods worth $850 million to Iraq since this deal was introduced in 1996. In the first half of 2000, exports under this formula reached $204 million. “As a matter of fact, the quotas of almost all types of goods will double under the new protocol,” Industry and Trade Minister Wasef Azar told the Jordan Times


Azar played a pivotal role in Abul Ragheb's negotiating team with Baghdad, which included six ministers and scores of high-ranking employees and energy experts. “The Iraqi vice president told us that his country is ready to increase the volume of trade to one billion dollars,” he said.  


“Hence, Jordanian investors and businessmen have no more excuses that they don't have open markets for their goods,” he added. “All they need is to compete with other countries in terms of quality and price.”  


The two countries also highlighted the strategic importance of using Jordan's Red Sea Port of Aqaba for Iraqi-bound transit goods. They equated the importance of Aqaba to that of Iraq's sole Um Qasr port. Jordan has slashed handling fees and reduced bureaucratic hurdles at Aqaba to enable it to compete with other regional ports and lure back Iraqi trade.  


For his part, Abul Ragheb underlined the political and economic outcome of his visit to Baghdad. “The (oil) price (this year) is slightly higher but there are some positive aspects,” he said. “The visit was very successful and the results of the work of the joint committee (which had not met since 1989) will have a very positive impact on economic and commercial cooperation,” Abul Ragheb told reporters. The Higher Committee is co-chaired by the prime ministers of the two countries and is responsible for charting strategies for cooperation in all fields.  


Asked about the possibilities of resuming regular air links between Amman and Baghdad, he said the issue was discussed in broad terms. “It needs further study,” he said. Officials who accompanied Abul Ragheb on his visit said Jordan planned to widen the scope of its imports from Iraq. “We will start importing sulphur, urea, barley and dates,” one official said.  


Sulphur, a vital input for the fertilizer industry, until now has been purchased either from Saudi Arabia or the United Arab Emirates at $47 per ton, much higher than the Iraqi rate of $32. Jordan consumes nearly 750,000 tons of this material each year.  


Ironically, some parliamentarians who visited Baghdad along with Abul Ragheb said Syria used to buy barley from Iraq for $40 per ton and sell to Jordan for $70. “In economic terms, we are the biggest losers,” explained one official. “UN sanctions have affected Jordan nearly as much as they have affected Iraq.”  


Officials were clear to stress that Jordan's economic and political rapprochement will not come at the expense of Jordan's ties with any Western or Arab countries. “Our [having] relations with Iraq does not mean we ever deviate from our long-standing respect to international legitimacy,” said a Cabinet minister.  


Jordan has been one of the few Arab countries to champion the Iraq cause in both Arab and Western capitals, calling for an end to the sanctions regime that has gravely hit the Iraqis, and in the past month has shored up words with action. King Abdullah, during an Arab summit in Cairo late last month, told Arab leaders in blunt terms that the situation of Iraq was a challenge that required serious attention.  


“King Abdullah sent a clear message to the Arab leaders at the summit ... that the sanctions cannot be tolerated any longer because of their drastic repercussions on the people,” the minister said. The official said Abul Ragheb's visit set the ground for a “fresh start in relations with Iraq and paved the way for a new era in which the Arabs will start learning how to reconcile as they learned how to splinter.”  


The two countries have also revived a five-year-old blueprint to build a 750-kilometer oil pipeline from Haditha in Iraq to the Petroleum Refinery at Zarqa, 25 kilometers northeast of Amman. The project is expected to be finalized within three to four years, according to Sabri.  


A Jordanian official said Amman and Baghdad would ask a consultant whether to build an export-oriented pipeline for future use or one solely for supplies to the Jordanian market. “Under the first option, the pipeline will be designed to have a 28-inch diameter at an estimated cost of $320 million and a daily capacity of 350,000 tons,” the official added.  


Under the second option, both countries will build a 20 to 22-inch pipeline at a cost of $250 million with a carrying capacity of 150,000 to 160,000 tons. The two countries agreed to initiate the 400-kilometer Jordanian stretch of the “viable” project, pending a lifting of sanctions on Iraq.  


Currently, Jordan pays nearly $70 million each year to cover the oil shipments aboard 5,000 tanker trucks. Last month, Abul Ragheb called on British insurers Lloyd's Register inspections to halt their search of Iraq-bound imports at Aqaba, a procedure in force since 1994. The decision was hailed by Baghdad as a step in the right direction.  


On September 27, Jordan became the first Arab country to defy the 10-year-old UN air ban imposed on Iraq when it flew a humanitarian flight to Baghdad. Iraq wants commercial airlines to resume regular service between Baghdad and Amman, arguing that no UN resolution prohibits such flights. Jordan filed an official request to the UN in September for a resumption of Baghdad-Amman flights. — ( Jordan Times )  


By Saad G. Hattar

© 2000 Mena Report (

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