The Political Economy of EU Ties with Iraq and Iran

An Assessment of the Trade-Peace Relationship

Amir M. Kamel

• Publisher: Palgrave Macmillan
• Year: 2016
• Print ISBN:
  9781137439796
• eBook ISBN:
  9781137439802
• Topic: Business
• Subtopic: International Business
• Index: Business

This book analyzes the failure of the EU's peace-through-trade policy in Iraq and Iran between 1979 and 2009 from a theoretical and empirical perspective. The author adds to the trade-peace theory debate and provides evidence supporting the need to review the EU's peace-through-trade-policy towards Iraq and Iran, and in general.

1

Introducing the Subject

The assumption that trade and peace have a positive correlation is something that has been believed for millennia.¹ Further, such belief in the positive trade-peace relationship has manifested itself in the form of government and intergovernmental policies. More recently, liberal democracies in the West have implemented policies based on this assumption and, in turn, have expanded this policy when concerned with dealings with a foreign actor (or state). However, this policy has not always led to the desired peace-through-trade outcome.

Specifically, the European Union (EU) has maintained a belief in this policy since its foundation in 1951. More recently, in 1992, the EU highlighted its confidence in achieving peace through trade by introducing a renewed foreign-policy approach, the Common Foreign and Security Policy (CFSP). The CFSP specified that “member states shall apply to their trade with the countries and territories [i.e., non-EU states] the same treatment as they accord each other,”² with the aim of removing “restrictions on international trade [from which the] pooling [of] their resources [will] preserve and strengthen peace.”³ This book demonstrates how the CFSP was unsuccessful in reaching these goals when concerned with EU ties with Iraq and Iran, in spite of the confidence that Brussels had in this peace-through-trade policy. This is achieved by dividing each case study into two chapters—one assessing the peace-through-trade policy before and the other immediately after the introduction of the CFSP (between 1979 and 1991 and between 1992 and 2009, respectively). Additionally, this book also assesses the reasons behind the failure of the EU’s peace-through-trade policy from 1979 to 1991 (i.e., pre-CFSP).

The EU identifies itself as “an on-going exercise in making peace and prosperity, [and therefore] has a big role to play in global efforts for conflict prevention.”⁴ It carries out this role by instructing its member states to cooperate with one another when formulating policies to “maintain peace”⁵ and “prevent conflict.”⁶ Further, in its relations with foreign actors, the EU identifies “economic co-operation and trade [as a means to] directly or indirectly . . . prevent conflict.”⁷ This book demonstrates that this EU peace-through-trade policy has failed and adopts the following hypothesis: increasing EU trade failed to prevent conflict and maintain peace in Iraq and Iran between 1979 and 2009.

During this period, EU exports to and imports from Iraq totaled $80.71 billion and $98.83 billion, respectively,⁸ despite the fact that Iraq was involved in conflicts with Iran and Kuwait, was suspected to have pursued weapons of mass destruction (WMDs) development, and had experienced violent unrest following the removal of President Saddam Hussein. With respect to Iran, EU exports totaled $264.42 billion and imports reached an aggregated $239.18 billion in the same period.⁹ This was in spite of the fact that Iran was engaged in the Iran-Iraq War and carried out activities that the EU considered as barriers to peace, specifically nuclear technology development¹⁰ and the sponsoring of terrorist activities.¹¹

The Trade-Peace Theory

The peace-through-trade policy assumes a positive correlation between trade and peace, hereafter referred to as the “trade-peace theory.” The EU demonstrates its belief in this relationship through its treaty provisions, rhetoric, and foreign-policy actions. Chapter 2 provides a detailed discussion of the theory and literature concerned with the trade-peace debate. This acts as a basis for the following chapters, which provide evidence challenging the positive trade-peace relationship. As a result, this book concludes that commercial gains and each case study’s domestic political environment must be taken into consideration when formulating a peace-through-trade policy, and outlines the theoretical and policy implications of the findings.

The assumption of a positive trade-peace link dates back to around AD 100 when the Greek thinker Plutarch, who was referring to the benefits of sea trade, noted that “when our life was savage and unsociable, [the sea] linked it together and made it complete, redressing defects by mutual assistance and exchange and so bringing about cooperation and friendship.”¹² In 1758, Scottish economist David Hume asserted that an increase in trade leads to a flourishing global economy and a mutually beneficial environment as all parties see gains in growth, development, and welfare.¹³ In the same period, French thinker Charles-Louis Montesquieu stated that “peace is the natural effect of trade.”¹⁴ This stance is part of Economic anti-Mercantilist thought, which operates under the Liberal positive-sum assumption that trade leads to mutual benefits for all the actors involved (see chapter 2), and provides the basis for the following concept: an increase in trade between two actors leads to an increase in influence through trust and confidence, and through this influence, the ability to prevent conflict and maintain peace between or in the countries involved (provided this is the goal of the interacting countries).

Liberal International Relations (IR) Theory also supports the positive trade-peace relationship. Liberal IR Theory identifies individuals and nonstate groups, made up of the population, as the primary actors in the international political system. Further, the theory postulates that the state represents the most dominant group, which is made up of the population, and therefore it is the population’s interests that determine state behavior.¹⁵ With respect to the trade-peace relationship, Liberal IR Theory determines that gains from international trade benefit the population and thus the state; conversely, losses from trade lead to conflict.¹⁶ Liberal IR Theory supports the same trade-peace stance pointed out by Hume and Montesquieu, but for different reasons. Under Economic anti-Mercantilism, the positive trade-peace link is derived from the assumption that repeated trade interactions lead to mutual economic benefits, more confidence, and thus influence in a relationship between two actors,¹⁷ whereas Liberal IR Theory’s assumption is based on mutual benefits that are not restricted to the economic sphere.

Peace Theory also supports the positive trade-peace ideal. Immanuel Kant’s notion (encapsulated in his work titled Perpetual Peace), the basis of most peace theories, asserted that states must overcome “natural conditions” of anarchy, war, and competition to achieve peace¹⁸ and identified economic interdependence and trade as a means to do so.¹⁹

The purpose of this section is to highlight the theory discussed in this book. Chapter 2 provides a more detailed analysis and appraisal of this theoretical debate on the issue.

Before moving on to defining the terms of the argument of this book, it is useful to demonstrate, using a couple of examples involving two interacting trade partners, the trade-peace theory themes. This will not only demonstrate how the actors concerned gave priority to commercial and political interests, but also pull out some of the issues concerned with the peace-through-trade policy, which are then explored in detail in the chapters that follow.

Examples of Peace-through-Trade Failure

The 1970s Iraq-USSR Relationship

Moscow-Baghdad ties during the 1970s provide a pertinent example of the Liberal trade-peace theory’s failure. In the early 1970s, total Iraq-Soviet and other Communist Eastern European countries’ (namely, East Germany, Poland, Hungary, Bulgaria, Czechoslovakia, and Romania) imports and exports increased from $183 million in 1971 to $1 billion in 1975, as Iraq’s oil revenues provided the capital needed to finance Baghdad’s purchases, which were mainly comprised of weapons.²⁰ This increase in trade between the two actors demonstrated how Saddam’s and the Soviet leader Leonid Brezhnev’s interests complemented one another. At this point, Iraq was seeking greater military and economic power, and the Union of Soviet Socialist Republics (USSR) aimed to offset the US presence in the region during the Cold War by increasing its influence in Iraq.²¹ This led to a spiraling effect on the relationship between Iraq-Soviet trade and policy, as Iraq’s hunger for international economic independence (by reaping the benefits of trade) led to greater demand for Soviet imports, and the increase in imports inched Iraq closer toward its desired independence. It is worth noting that alongside Iraq’s economic development, Baghdad increased its ability to shop elsewhere for more advanced weapons.²² This meant that Iraq and the USSR forged a strategic alliance, as opposed to an alliance dependent on trade,²³ and was the result of Saddam’s will to maintain power in Iraq²⁴ and economic independence that complemented Brezhnev’s aim to offset US influence in the region. This mutually beneficial circumstance therefore maintained the Iraq-Soviet connection.

Political scientists Oles and Betty Smolansky argue that economics did have an impact on, but was unable to influence, politics in this case²⁵ as both the USSR and Iraq pursued their own interests. However, the spiraling of Iraq’s financial (and military) capabilities was perceived to have allowed Saddam to develop his own WMD program, using imports from the USSR in 1987,²⁶ which helped prolong the Iran-Iraq War. This demonstrates how trade did not prevent Saddam from pursing his political aim of invading Iran (see chapter 4).

While Moscow was not explicitly operating under the peace-through-trade policy, and increased trade did not prevent conflict, nevertheless, the events that transpired demonstrated how the theory failed as the pursuit of political interests resulted in an increasing level of conflict in the form of the Iran-Iraq War. It is also worth noting that the EU’s peace-through-trade policy operates under the assumption that trade prevents conflict and maintains peace no matter what the peace status of the country involved is or how much influence other actors have in the country concerned (see the section titled “The Argument”). As a result, the intentions of the USSR in Iraq, that is, gaining influence in the region over the United States, in this case did not affect the EU’s belief in the positive trade-peace link.

The Aftermath of the 1970s Oil Crisis and the EU-Saudi Arabian Policy

An examination of the aftermath of the 1970s oil crisis and the EU’s policy toward Saudi Arabia also demonstrates how the trade-peace theory failed. In the early 1970s, the countries forming the Organization for Petroleum Exporting Countries (OPEC) began to nationalize their respective oil industries. The subsequent control that OPEC had over oil supplies and prices meant that the cartel was able to limit its supply of oil following a fall in demand for the resource, which in turn led to an increase in oil prices and the 1973–1974 oil crisis.²⁷ Further, following the 1979 Iranian Revolution, the subsequent fall in Iran’s oil production (more details in chapter 6) led to the second crisis in this period, between 1979 and 1980. OPEC did however work to stabilize world oil supplies and prices following these two crises.²⁸

EU-Gulf Cooperation Council (GCC), of which Saudi Arabia is a founding and influential member, trade increased for over 30 years following the oil crises of the 1970s and early 1980s.²⁹ During this time, Saudi Arabia’s oil revenues leapt from $4.3 billion to $101.8 billion.³⁰ While there was a delayed reaction to the increase in oil exports in 1981, the steep drop in exports after 1982, from a high of around $116.45 billion in 1982 to around $21.36 billion in 1986, were due to the depletion of oil reserves.³¹

On a policy level, the birth of the GCC in 1981 led to a general EU policy that addressed the GCC as a whole in 1988.³² It was this EU-GCC bilateral agreement that aimed to enhance “cooperation in the two regions by energy undertakings of the Community [referring to the EU members] and the GCC countries [as the EU initiated a] joint analyses of trade between the two regions in . . . oil . . . with a view to considering ways and means of improving their trade exchange.”³³ This EU emphasis on securing energy resources from Saudi Arabia (through the EU-GCC policy) explicitly demonstrated how it prioritized EU demand for oil. Indeed, by ensuring the security of EU oil imports from Saudi Arabia, the EU put aside its aim, as noted by the scholar Nonneman, of “domestic and regional stability in the Gulf [which did not materialize as] the process remained essentially deadlocked for some years,”³⁴ proving how energy interests overrode political goals under the EU-GCC policy. This account furthers the idea of trade failing to prevent conflict and maintain peace. An increase in oil trade did not lead to peace in the region as the Gulf³⁵ experienced conflict in the form of the Iraq-Iran and Gulf wars, despite the increased EU-GCC trade in oil...

Table of contents

• Cover
• Title
• 1   Introducing the Subject
• 2   The Trade-Peace Theory
• 3   The European Union’s Peace-through-Trade Policy
• 4   Iraq, Part I: From the Iranian Revolution to the Gulf War (1979–1991)
• 5   Iraq, Part II: Iraq under the Common Foreign and Security Policy (1992–2009)
• 6   Iran, Part I: The Revolution and Two Gulf Wars (1979–1991)
• 7   Iran, Part II: EU Involvement under the Common Foreign and Security Policy (1992–2009)
• 8   Comparing the Two Cases to Conclude
• Notes
• Bibliography
• Index