WorldCity, Annual Report: No. 11 Iraq- Rebuilding Iraq thanks to oil | Connecting Local Business Leaders To The Global Economy

Annual Report: No. 11 Iraq- Rebuilding Iraq thanks to oil

July 6th, 2006

Houston’s exports to Iraq, while still small in value, have become more diverse.

It wasn’t completely a food-for-oil exchange, but Houston’s $3.6 billion in trade with Iraq in 2005 saw Texas importing oil from the war-torn country while supplying it with food and reconstruction materials.

The value of oil far outweighed that of shipments to Iraq, leaving the Customs district and the country with a lopsided trade relationship that gave Houston a $3.1 billion deficit.

The trade total with Houston represented a nearly 20 percent increase from 2004, according to WorldCity analysis of U.S. Census Bureau statistics.

Crude oil imports accounted for nearly 99 percent of the exchange. A year earlier, crude was 100 percent of the imports. In 2005, however, two other products joined the import list: $3.3 million in refined petroleum products and $100,000 in artwork.

Exports, meanwhile, totaled just $281 million. Although the value was nearly unchanged from a year earlier, Houston’s export lineup was more diverse in 2005.

Wheat exports topped the roster, gaining 187 percent to close the year just under $146 million. Rice – not an export at all in 2004 – was added to the trade exchange. It totaled more than $18 million.

Houston’s exports of wheat and rice, as well as flour and other foodstuffs, are being purchased by the Iraqi Transitional Government. The government is using oil revenues to make purchases, which are funneled through the Development Fund for Iraq for use in a monthly food basket. That program has been managed by the transitional government since 2004 as a reincarnation of the United Nations’ Oil-for-Food program.

So far, $11 billion in letters of credit have been issued by the Trade Bank of Iraq to guarantee payments to shippers from 69 countries that have been sending products to Iraq. The 3-year-old Trade Bank of Iraq is a consortium of 17 international banks and is being coordinated by J.P. Morgan Chase.

After wheat, more than $49 million in machinery parts proved to be the second most valuable export sent through Houston to Iraq. That’s a dramatic increase from $3.8 million in 2004. More than $48 million of that total came in the form of boring or sinking machinery. The rest was cranes, winches and derricks.

Trade experts said there are business opportunities for Texas companies to refurbish and upgrade Iraq’s outdated power grid. In addition to being devastated by the 3-year-old war, the infrastructure had been neglected for many years by the government of Saddam Hussein.

Specialists at J.P. Morgan Chase said the oil industry is another investment area that holds promise for U.S. companies. Only 17 of 80 existing oilfields in Iraq have been exploited. Iraq has 115 billion barrels of proven oil reserves and 120 billion of potential reserves.

Many oil fields have not seen new investment since the beginning of the eight-year Iran-Iraq War, which started in 1980. J.P. Morgan experts said European and Asian investors are already taking advantage of the opportunities.

Iraq has the fourth largest oil reserves in the world behind Saudi Arabia, Canada and Iran, according to the U.S. Energy Information Administration.

Other major exports to Iraq in 2005 included machinery for rubber and plastics manufacturing. Houston exports in that commodity category reached $10.5 million, a colossal jump from the $191,600 reported in 2004. Houston was also the source of $5.8 million in so-called "special purpose motor vehicles," including fire trucks and ambulances. In 2004, exports in that category totaled $1.6 million.