With the Iran-Iraq war over, Western companies are eager to participate in the postwar reconstruction boom, but for U.S. Companies the prospects are
Washington's diplomatic standoff from Iran has ruled out - at least for the time being - U.S. Participation in Iran's postwar reconstruction . There were no U.S. Companies seeking deals at the Tehran International Trade Fair that opened Tuesday.The U.S. Senate, meanwhile, has voted to impose economic sanctions on Iraq in response to the alleged use of chemical weapons against its Kurdish minority.
To have any effect, that measure would have to be approved by the House of Representatives and signed by President Reagan.
If sanctions are imposed, U.S. Companies risk being non-starters in a race to chase a market that could be worth up to $100 billion over the next five years.
The Senate vote, which has drawn some of the most virulent Iraqi criticism of the United States since diplomatic relations were restored in 1984, is in sharp contrast to the failure of West European governments to respond to Iraq's use of chemical weapons.
The European reticence reflects a desire not to jeopardize economic interests in Iraq, many commentators say.
The Senate-passed sanctions against Iraq would require the U.S. Government to vote against international loans to Iraq. But unlike the wartime trade ban imposed on Iran, the Senate bill would allow private companies to continue to do business with Baghdad.
In fact, the Commerce Department is helping to sponsor exhibits by private U.S. Companies at the Baghdad International Trade Fair on Nov. 1.
The San Francisco-based Bechtel Group, said to be bidding on several projects in Iraq, declined comment. A spokesman said the construction firm has not been following the Iraqi sanctions closely enough to predict their possible effect. The cease-fire between Iran and Iraq has rekindled hopes among Western companies of a return to the prewar bonanza eight years ago when soaring oil prices enabled Iran and Iraq to indulge in lavish investment projects.
While the United States is forced on the sidelines, its rivals are beating a path to Tehran and Baghdad to resume business links that were snapped eight years ago when the two countries switched the bulk of their spending to weapons.
Western businessmen are working in the dark and aiming at an unknown and
Construction companies and capital equipment manufacturers face daunting hurdles before they can cut solid deals with ministries in Iraq and Iran.
The war has bankrupted both countries, especially Iraq, which is saddled with foreign debts of $65 billion to $70 billion. Many Western contractors are still owed hundreds of millions of dollars for work done before the war started.
Crude oil, which generates 95 percent of their hard currency earnings, is now selling for $12 to $13 a barrel, only a third of its peak of $38 to $40 in 1980.
Bankers are wary of providing more loans before Iraq cuts its debt and Iran drops its aggressive anti-Western stance.
Moreover, most observers expect that spending on infrastructure initially will take a back seat, as both countries strive to rebuild their military forces and boost imports of food and consumer goods to reward, and placate, their war-weary populations.
However, Western contractors can count on a substantial slice of new business as Iran and Iraq repair their vital oil facilities, including refineries, oil fields, pipelines, loading terminals and strategic ports that were abandoned soon after the war began.
Iran intends to repair its oil installations at Maximum speed," according to Oil Minister Golamreza. Immediate projects include restoring Kharg Island - its huge crude oil export terminal - repairing seven existing refineries, rebuilding the giant 650,000-barrel-a-day refinery at Abadan and construction of two new plants - one at Arak in central Iran, the other near the Port of Bandar Abbas on the gulf coast.
Iran also wants to rebuild Bandar Khomeini, the northern gulf port that was its major entry point for containers, dry cargo and bulk shipments before the war. Six smaller ports are also planned at a cost of over $200 million.
Iraq, determined to rival Saudi Arabia as the region's leading oil power, wants to reopen the Shatt Al Arab waterway, repair the neighboring Khawr Abdallah export refinery and resume shipping from Basra - its leading oil and dry cargo port - before Iran cut its links to the sea.
Contractors hired for these projects will be in prime position to win later programs to repair housing, industrial plants, irrigation systems and roads.
The race has already begun. South Korean companies that were driving out higher-cost European and U.S. Competitors in the late 1970s are in an even stronger position today.
According to the Korea Institute of Economics and Technology (KIET), South Korean companies can look forward to booking construction orders worth between $15 billion and $17 billion in the first five years after the two countries start restoration work.
That's a sizeable chunk of the $80 billion to $88 billion KIET reckons the two formers combatants will spend during the period.
The South Korean government, anxious to open up new export markets, is likely to support its companies by offering soft loans to Iran and Iraq.
Japanese companies were burned by their earlier involvement in Iran and Iraq. Mitsui has just written off $1.25 billion invested in an Iranian petrochemical project. But this has not curbed its enthusiasm to return to the region.
Japan has managed to retain good relations with both combatants during the eight years of war. Tokyo gave only halfhearted support to Reagan's call for an oil embargo against Iran and Japanese trading houses last year deferred all short-term claims, totaling about $1.2 billion, to Baghdad.
Aside from chasing construction orders, Japanese firms are determined to restore their former role as major suppliers of cement, construction materials, steel products and heavy industrial machinery to Iran and Iraq.
Japanese charterers have begun to charter bulk ships for 1989 to carry additional exports to the gulf. Japanese steel firms have agreed to sell Iran 10,000 tons of steel pipes for pipelines and are now bidding for another contract for 20,000 tons.
European firms are fighting hard to stay in the race in the face of strained relations between their governments and Iran and Iraq and a lengthening backlog of unpaid debts.
West German companies are best placed to do business in the gulf, capitalizing on strong trading links with both Iran and Iraq and an evenhanded approach toward both countries.
West German businessmen have nursed their commercial links with Iran over the past eight years. More than 80 companies kept offices in Tehran during the war, while most other European companies packed their bags.
As a result, Iran boosted imports from West Germany from $2 billion in 1981 to $2.66 billion in 1985 before its worsening economic plight cut purchases to $1.5 billion in 1987.
Iraq is one of West Germany's biggest debtors, but Bonn is guaranteeing imports of up to $4.5 billion. West German companies hope to boost their sales of automobiles, textiles, pharmaceuticals and telecommunications equipment substantially.
The construction sector also is set to benefit with two major projects about to be resumed: a nuclear power plant at Bushir to be built by Siemens- KWU and a steel plant at Ahwaz.
British, Italian and French companies are rapidly rewiring their prewar connections, relying on their governments to normalize relations with Iran and Iraq and provide export credits.
France recently restored diplomatic relations with Tehran and has just lifted an oil embargo, paving the way for companies such as Schlumberger and Spie. Batignolles - market leaders in their fields - to land orders.
Italy's Foreign Trade Minister Renato Ruggiero visited Iran shortly after the cease-fire and is due to meet with an Iraqi delegation shortly. Leading oil services and contracting companies - including Saipem, which has worked in Iran throughout the war, Technipetrol and Snamprogetti - are already bidding for work.