Freight forwarders, air charter brokers and freighter operators are growing busier in Iraq as the commercial market takes over from military demands. The country is planning to increase oil production from 2.5 million barrels per day to 8-9 million and has huge future potential, having so far tapped only 20 to 25 percent of its reserves. There’s reconstruction business too, not to mention growing demand for consumer goods.
Nothing is straightforward, however. Iraq is divided into three distinct ethnic and religious regions: the south, covering a major group of oil fields, Basra and the port of Umm Qasr; central and western Iraq, dominated by Baghdad; and the northern, semi-autonomous Kurdish region around Erbil and Sulaimaniyah, also sitting on plentiful oil.
An uneasy political coalition shares power in Baghdad, with rival factions controlling different ministries. It remains to be seen whether elections due in April will clarify matters.
“Everyone thought there would be a big boom after everything settled down,” says one source who prefers not to be identified. “The problem is that the government had to divide the spoils with smaller parties. The transport guys got the meal ticket as far as airport revenues go, but made rules and regulations that are almost impossible to adhere to.”
Whichever way the elections go, it is certain that Kurdish separatism will remain the biggest threat to Iraqi stability.
“I can only see the Iraq market getting bigger and bigger, once it sorts out the oil issue with the Kurds,” says Justin Lancaster, cargo sales director at Air Charter Service. “A lot of new discoveries are being made but western companies will be reluctant to invest until the Oil Law is sorted out.”
This negotiation between Iraqi and Kurdish factions as to who gets what share of revenues has been mired in parliament for five years, and the lack of a resolution leaves the likes of Exxon Mobil and BP playing a high-stakes game of poker. They both have production-sharing contracts with Baghdad to develop oil fields around Rumaila in the south, but the Kurdistan Regional Government is warning them off the disputed Kirkuk area. Tension is ratcheting up, and military activity has recently intensified on Kurdistan’s southern border.
Bureaucracy and corruption are also major challenges in Iraq, says Jesse Damsky, Jordan and Iraq cluster manager at forwarder Damco. “The country has an incredible wealth of natural resources, and a society that is trying to pull together. It is one of the biggest commercial opportunities out there, because of the volume of work, high yields and the lack of organized competition. But it is not for the faint-hearted.”
Damco is managing construction projects in Basra and Baghdad for a company working on behalf of the U.S. Department of State, and also organizes shipments for a mid-stream oil service company working in the North Rumaila oil field.
“Oil and gas is the most attractive market right now, but there is significant construction and industrial equipment moving into the country as well,” Damsky says. “Iraq is also heavily dependent on imports to meet consumer demand. This includes reefer cargo such as meats and vegetables, FMCG, electronics and lifestyle products. We are actively targeting this market, but it requires a lot of local knowledge and relationship-building.”
Basra and Baghdad airports fall under the jurisdiction of the central government while Erbil, Iraq’s third major cargo airport, is under Kurdish control.
“This means that we sometimes see different laws, which are contradictory and hard to comply with,” Damsky says. “For instance, the government requires certificates of origin to be stamped by the Iraqi embassy in the country of origin.
“However, if you are buying products in Dubai for export to Iraq, they may have been produced in the Far East or elsewhere, and getting the certificate of origin stamped retroactively by the embassy is a major complication–among many other rules that are restricting business development.
“For this reason, many traders tend to ship their air cargo to Erbil. It is cheaper to truck from there rather than deal with the bureaucracy and other troubles at Baghdad and Basra airports.”
Certificates of origin are required not for the overall shipment, nor even the unit product, but for individual components such as computer parts. This has made Baghdad very difficult to serve and has inadvertently stimulated flows through Erbil, the anonymous airline source confirms.
DHL reports that while its main customers are still international oil companies and government authorities, it is seeing more requests from the engineering, manufacturing and telecoms sectors–and increasingly for end-to-end logistics services, not simply transportation and customs clearance.
Another forwarder to whom we spoke similarly points to increased traffic in medical freight, fashion, retail, electronics, mobile phones and consumables, mainly going through Erbil for redistribution across the rest of Iraq.
Eliska Mundell, general manager in Dubai for charter broker Chapman Freeborn, confirms: “We have seen charters for electrical and water installations, as well as commercial goods such as ballot papers and election materials. We’re also beginning to see movements of high-value goods such as mobile phone SIM cards.
“But the Iraq Civil Aviation Authority seemingly wants to make it as difficult as possible to fly freight into the country. It’s still a very manual process in Baghdad, and you never see a computer. Basra airport is a real mess, and badly needs investment.”
The rules that cover Baghdad and Basra technically also apply in Kurdistan, but in practical terms Erbil, where dnata is the handling agent, is “worlds apart,” according to Mundell. “They have tried to make it more attractive, with good infrastructure, modern handling equipment and lower charges. You wouldn’t even know you’re in Iraq–and there is more choice of operators available now that Erbil has opened up its airspace for US carriers.”
Atlas Air, for example, notified customers in January that it can now operate to Erbil and Sulaimaniyah, though not Baghdad.
“Most airfreight users prefer Erbil as their prime gateway to Iraq,” says Emirates SkyCargo’s VP of commercial operations, Duncan Watson. Emirates operates three B777 freighters and six wide-body passenger services per week into Erbil, a theoretical capacity of nearly 450 tonnes, as well as daily passenger flights into Baghdad and Basra.
An expert on the Iraq market claims that Emirates has been limited to a maximum of three tonnes into Basra even though its aircraft will take five times this amount, one of several examples of seemingly arbitrary rule-setting. The carrier could not substantiate this and said discussions on a number of sensitive issues were ongoing.
Etihad runs three freighters per week plus daily passenger narrow-bodies into Erbil, while Qatar Airways also operates a mix of passenger and cargo flights into Erbil, Baghdad and Basra. The only scheduled freighter currently operating direct into Baghdad is thought to be Royal Jordanian’s relatively limited A310 service.
ACS’s Lancaster says that to get landing permits prior to the opening up of the market in September 2011 it was necessary to pay “a substantial fee” to the Sharjah-based cargo airline RUS Aviation, which had the exclusive franchise.
RUS operated its own services and was free to set royalty levels for third parties, loosely based on the value of the charter, recalls Michael Goodisman, commercial executive at Ruslan International (which has no connection with RUS).
Ruslan markets a fleet of 17 An-124-100s operated by Volga-Dnepr and Antonov Airlines, and was responsible for up to 300 charters per year for the armed forces and the U.S. embassy during the peak of military operations in Iraq. Activity is much lower now, with just 12 flights last year. A number of approved local agents now grant permits on payment of a royalty, and the process normally takes about a week, Goodisman says.
RUS not only lost its sole franchise, but also was eventually blocked from operating to Iraq at all. Meanwhile, operators such as Etihad and Emirates, initially also barred, were forced to fight their corner and cite their countries’ bilateral agreements before being allowed to fly cargo into Iraq on strictly controlled terms.
Mundell says the fee is now $0.25 per kilo on an aircraft’s maximum payload (not the actual load), so landing an IL-76 will cost $10,000. This fee goes to state-owned Iraqi Airways, and hence into government coffers.
“The goalposts keep moving,” Lancaster complains. “You can get the landing permits, it’s just a case of making the customer aware of the costs.”
Among these is a requirement to have every aircraft’s maintenance records approved by the Iraqi aviation safety authority. Goodisman says Ruslan has registered its whole fleet of An-124s at a cost of $800 per frame.
Chapman Freeborn aims to get five or six aircraft pre-approved for one operator. “We’re trying to convince the authorities that this will convince people to call,” Mundell says.
Damco’s Jesse Damsky says future prospects are bright in Iraq, despite the many obstacles. “Political problems, as well as violence, must be factored in. However, those who wait until it is entirely stable before investing in Iraq will find themselves struggling to enter the market, and if they succeed it will be a much more competitive environment.”
The oil industry will remain Iraq’s main economic driver for the next decade. Construction and infrastructure activities will depend on government spending plans, which–outside of the energy sector–are still clear, a DHL spokeswoman says. She cautions, however, that regional inter-governmental issues and constantly changing national plans, regulations and federal laws will slow economic development.
Our anonymous source summarizes: “The Iraqis want it all for themselves, but the infrastructure and service culture are lacking after the years of paralysis under the former regime. The oil and gas business needs to get up and running but the transport and security people are blocking the way, and too many people are lining their pockets. It’s sad to see what’s happening there. Politics is ruling, not business.”