The Iranian consulate here dominates a section of this oil-rich city’s skyline. An enormous Iranian flag can be seen from half a mile away, ringed by a welter of radio towers and satellite dishes. The walled compound houses three large villas and six smaller buildings. It’s protected by well-trained Iranian and Iraqi troops. On a recent visit, I stopped my car and stepped out to take a few photos. Within seconds, a dozen men in tracksuits rushed out of adjacent houses and stores and surrounded me, handguns drawn. My translator assured them that we were journalists. The men, unsmiling, ordered me to hand over my camera and then methodically erased every picture I had taken since arriving in Basra four days earlier. They shoved us back toward our car and slammed the doors. Leaning into an open window, one of the guards told us to leave the area and not return. He was speaking Farsi.
The American officials left in Iraq see the Iranian consulate as a provocation. Washington has evidence that it is “actively involved” in funneling money and weapons—including sophisticated missiles and rockets—to the Shiite militias battling U.S. forces throughout southern Iraq, according to a top American military officer who asked to remain anonymous. U.S. officials worry about a future alliance between Iraq and Iran, two Shiite countries that have frosty relationships with nearby Sunni monarchies. In a worst-case scenario, Iran’s hard-line leaders would radicalize Iraq’s government, co-opting it into their shadow war with the United States.
But Iraqi business and political leaders in Basra, the country’s economic engine, aren’t interested in religious dogmas. Mostly, they’re grateful for the encroachments by Iran, which they view as their last ally in the city’s escalating fight against Baghdad and neighboring Kuwait. Basrawis, as the city’s residents are known, feel increasingly alienated from both.
On one side, they complain that they’re getting a raw deal from Prime Minister Nuri Kamal al-Maliki. The province sends roughly $50 billion each year to Baghdad from oil and natural gas sales, accounting for 75 percent of the Iraqi government’s total revenue, but it is supposed to receive just $1 billion per year in return, barely 10 percent of the money given to Kurdistan, the country’s other oil-rich region. Even then, the province actually gets only a tiny fraction of that tiny fraction: Baghdad, which wields veto power over local infrastructure projects, has allowed Basra to spend 3 percent of its allowance. The province can’t do anything meaningful with its own money.
On the other side, Basrawis are growing anxious about Kuwait. Leaders here believe that their neighbor is trying to block Iraq’s ability to export oil through the Persian Gulf by building an enormous $1.1 billion seaport that will make it physically difficult for large tankers to reach the Iraqi port of Um Qasr. They also think that Kuwait is using horizontal drilling technology to burrow under the border between the two countries and suck oil out of Iraq’s reservoirs. It’s a charge that both Kuwaitis and Americans here say is baseless, but it nevertheless galls the local government. “Day after day, Kuwait violates our sovereignty to steal Iraqi oil,” Fareed Ayoubi, the head of the Basra provincial council’s oil and energy committee, said in an interview. “Baghdad is ignoring that, and America is ignoring that. Iran is the only one listening to our concerns and talking about helping.” Locals say that, by failing to halt the port project and the theft, Americans have thrown them under the bus.
Feeling menaced by Kuwait, abandoned by Baghdad, and betrayed by Washington, Basrawis are blazing their own path. Led by Gov. Khalef Abdul Samed, they are trying to create a self-governing region modeled on northern Iraq’s quasi-independent Kurdistan. That status would allow local officials to sign their own oil deals and spend money largely as they see fit. “We consider Baghdad to be the central obstacle to our hopes of bringing prosperity to Basra,” says Ayad Hussein Emera, Samed’s chief of staff. “We want to free ourselves from their grasp.” Two-thirds of the provincial council recently voted to hold a binding referendum on Basra’s future. Maliki has refused to sign off on the measure, so Samed (whom Maliki handpicked for the post) is leading weekly protests demanding the plebiscite.
If Basra breaks away from Baghdad—and even if it doesn’t—Iran seems poised to become the province’s new best friend. Its consulate is the nerve center of a sprawling effort to expand Iran’s political and economic influence, from supporting local charities to building hotels and banks. Iran has also won points in Basra by taking a hard public line with Kuwait, deriding the oil-rich Persian Gulf state as an American stooge.
That last point is the biggest worry for U.S. policymakers. Oil contracts are the ultimate zero-sum game—they either go to Western firms or they don’t. Losing out on those incredibly lucrative deals (regardless of whether Iranian companies win them) would be a major blow to U.S. and European oil interests. The growing ties between Basra and Tehran aren’t motivated by any shared Shiite religious ideology. Instead, they come down to something much more prosaic: oil and the eye-popping sums of revenue it generates.
A local adage holds that the last barrel of oil in the world will come from Iraq—and that barrel will come from Basra. Saddam Hussein badly neglected the country’s oil sector, and foreign firms have only recently returned to the country after the years of chaos unleashed by the 2003 U.S. invasion. Iraq produces approximately 2.6 million barrels of oil per day, up more than 15 percent from last year, but Western energy firms believe that millions of additional barrels per day can be tapped, and Baghdad hopes to more than quadruple its current production.
With oil prices hovering near historic highs, Basra, which accounts for some two-thirds of Iraq’s oil output, is beginning to feel like a boomtown. Baghdad’s crumbling hotels haven’t been renovated since the late 1970s and don’t accept credit cards. But in Basra, newly built hotels with Western-quality fitness centers, Wi-Fi, and flat-screen TVs dot the streets. Real-estate prices are soaring, and new banks are setting up shop. Iranian companies own many of the hotels and banks, according to local business and political leaders.
Still, the city has serious problems. Roads are pockmarked. In poor and middle-class neighborhoods, sewage pools in the streets. Children play hide-and-seek amid mounds of uncollected trash. Temperatures often top 115 degrees in the summer, but Basra receives less than 4 hours of electricity per day from the national grid, leaving it reliant on power transmitted from Iran. The provincial-council building, the seat of government power, lacks air-conditioning; paint peels off the walls. Ayoubi, one of the most influential politicians in southern Iraq, works out of a tiny office that barely has room for his desk. When I motion toward his darkened computer monitor and ask when it was last turned on, he shrugs and says, “Never.”
What galls Basrawi leaders is their absolute certainty (shared by U.S. officials here) that the city should be in much better shape. Basra is sitting on some of the most valuable natural resources in the world. There is no reason it should look more like Falluja than Dubai. But it does—a function, the local power brokers believe, of unfair treatment from Baghdad and of Kuwait’s nefarious behavior.
Sheikh Ahmed al-Sulaiti, the vice president of the Basra provincial council, has an immaculate office suite furnished with overstuffed couches and a gold-trimmed copy of the Koran. He speaks softly. Basra, he says, simply isn’t getting its fair share. In 2009, Maliki helped push a law through parliament limiting Basra to just $1 for each barrel of petroleum exported from its oil fields, which means that the province is receiving about $51 million per month, according to estimates recently published in The Wall Street Journal. Maliki has hinted at new legislation that could make the outlay 3 percent of its oil sales (the value would float with the price of oil), boosting the province’s revenue to about $2 billion per year, but he has yet to introduce it in parliament, and it’s unclear when, or if, he will.
Even that amount would be much too little, according to Sulaiti. He notes that Kurdistan—which produces roughly one-third of the oil that Basra does—will receive $9.5 billion from Baghdad in 2011. U.S. officials privately estimate that Basra is entitled to $9 billion or $10 billion a year, more than 10 times its current allocation. “We are the largest province in Iraq and the one which should be the richest,” Sulaiti says, passing a string of worry beads between his fingers. “The money we receive isn’t enough to provide essential services to our people. We need and deserve more.”
Locals would look for outside help, they say, but officials in Baghdad routinely veto deals to bring foreign funds and technical expertise to the province’s aging oil, electricity, and sewage infrastructure. In separate interviews, nearly a dozen Basrawi leaders cited Baghdad’s recent refusal to sign off on a 2,500-megawatt power plant—a critical tool for establishing reliable electricity before temperatures soar next summer. The project has been indefinitely delayed, as has a parallel plan to purchase generators and fuel. “Basra has Third World infrastructure, if that,” says Abdullah al-Toblani, a businessman and independent politician. “Even worse, our oil refineries are 50 years old and are falling apart. We need foreign investment, but Baghdad is making that very difficult.”
Maliki’s aides declined repeated requests to comment for this article. They also ignored numerous text messages and e-mails asking for his views on Basra. But Basrawi officials feel that he wants to keep as much of the country’s oil wealth under his control as possible. The less money he sends to Basra, the more he can spend on the military or on infrastructure elsewhere. Maliki is also emerging as a leader who believes—like Saddam before him—in a strong central government. Iraq’s Kurds have used the billions of dollars they receive each year from Baghdad to build a quasi-independent state in northern Iraq. Maliki seems determined not to give Basra the means to follow suit.
Maliki’s speeches leave little doubt that he opposes allowing Basra to break away and form such a self-governing region. “The existence of a strong central, federal government that is able to preserve the country’s unity is not detrimental to the provinces,” he said in 2009, shortly after a pro-autonomy referendum in Basra failed amid widespread reports of voting irregularities and accusations of government interference. “They will have more support and money to bring about achievements, develop the economy, and increase services.”
Toblani, like many here, says that Kuwait, which has spent the last few years building a massive seaport called Mubarak al-Kabir, is threatening the future of Iraq’s oil sector. The port is being constructed on Bubiyan Island, Kuwaiti-controlled territory at the northern end of the Persian Gulf. Iraqis worry that the facility will hamper their ability to sell oil from Um Qasr and from a port planned for the fishing village of Faw. The construction on Bubiyan is filling Iraq’s part of the Shatt al Arab waterway with silt, they say, making it hard for deep-drafted tankers to reach Iraqi ports. And they worry that large Western vessels will simply bypass the older Um Qasr to buy and sell oil exclusively from the new Kuwaiti port.
Baghdad has lodged mild protests over the project, but Basrawis are frustrated that the government has not taken stronger steps—such as appealing to the Arab League or the United Nations—to block Mubarak al-Kabir. U.S. officials following the issue believe that Maliki has stayed out of the dispute to curry favor with Kuwait and Saudi Arabia, wealthy Sunni states that haven’t done much to work with his Shia-dominated government. He also wants Kuwait to release Iraq from reparations imposed by the U.N. Security Council after the first Persian Gulf War, so he is unlikely to pick a fight over the port.
None of those geopolitical concerns resonate with Basrawis, whose bad feelings toward Kuwait—rooted in fights over oil and natural gas—go back decades. The pretense of the first Gulf War, after all, was that Saddam merely wanted to take back oil the Iraqis felt had long belonged to them. “The Kuwaitis are building their port to destroy our port,” Ayoubi said. “Where is Maliki? Where is America? Remember this: Iraqis only return love to those who love them.”
Just three years ago, Maliki was extremely popular here after he ordered a high-risk assault into Basra to wrest back control from the Shiite militias that had taken over the city. Today, the security situation suggests Iran’s rise. Iranian-backed militias regularly lob missiles and rockets into the large American military base at Basra’s airport and the smaller U.S. outposts scattered across southern Iraq. June was the deadliest month in more than two years for U.S. troops, with 14 killed. Senior U.S. commanders say that three primary Iranian-backed militias—Kataib Hezbollah, the Promised Day Brigade, and Asaib al Haq—were responsible for at least 12 of the deaths, and they believe that Iran is funneling matériel into Iraq. “There are still weapons coming across the border,” says Lt. Col. Andy Poznick, the top U.S. officer in Basra. “I know there are Iranian Quds Force operatives in Basra province. We’ve arrested targets with clear ties back to Iran.”
Poznick and other U.S. officials think that Iran is playing a double game in the south—building stronger ties with the Basrawi government and arming proxies that can intimidate locals who don’t bow to Tehran’s wishes after the coming American withdrawal. “They’re trying to keep Iraq dependent on them economically and politically,” says Maj. Gen. Jeffrey Buchanan, the top American military spokesman in Iraq. The American official who asked to remain anonymous also believes that Iran plans to use its militias to threaten (if necessary, to kill) local Iraqi officials who refuse to give Iranian businesses preferential treatment in the south. “That [consulate] is effectively an enemy outpost in the heart of one of Iraq’s largest cities,” he said. “It’s home to a lot of bad apples who pose a threat to both U.S. interests and the future of Iraq itself.”
Iran’s growing influence isn’t limited to Basra. Maliki, too, has deepened ties with Tehran. Trade between the two countries set a record in 2011, and Iran sent more than 1.5 million tourists, mostly to Shiite shrines in southern Iraq, another record. This fall, the Iraqi premier inked a plan for Baghdad and Tehran to collaborate on technology, transportation, and trade projects. Maliki said that the deals would bring about “a new stage of cooperation” with Iran, according to The Washington Post. More recently, he has offered financial and political support to Syrian strongman Bashar al-Assad, a key Iranian ally, rebuffing American entreaties that he help isolate the Syrian leader. Maliki has also publicly supported Iran’s nuclear program.
But Basrawis believe that ties with Iran should be even stronger, filling the vacuum left by Baghdad and Washington. Ayoubi explicitly threatened to shut U.S. companies out of future oil contracts in southern Iraq—and shift some of the contracts to Iranian firms—unless Washington helped to block the new Kuwaiti seaport and protect Iraq’s oil reservoirs from its neighbor. He sees America’s refusal to intervene as Washington siding with Kuwait over Iraq. “This U.S. indifference will influence our relationship with the Americans, no question,” he said. “And it’s stupid. In 10 or 20 years, Kuwait’s oil will run out and all they’ll have left are their camels. We’ll still have tons more.”
Some signs already indicate that Iraq, as part of a reorientation toward Iran, is turning against American oil firms. Antonia Juhasz, an industry analyst and the author of The Tyranny of Oil, said that Western companies have been winning fewer oil contracts than had been anticipated. Chevron recently withdrew from the competition for an oil deal after Baghdad hinted that its bid would be rejected; BP, ExxonMobil, and other Western firms partnered with Chinese companies—which are far more popular inside Iraq—to win their contracts. U.S. officials think that Western firms will be shut out entirely from Basra after it gets autonomy, when Basrawis have permission to negotiate their own oil deals.
Juhasz said in an interview that Iranian companies probably won’t get contracts (thanks to lingering resentment over the Iran-Iraq war in the 1980s), but she added, “Iran certainly has the expertise to play a leading role in Iraq if asked.” Iran’s recent history of running its state-owned oil firms while partnering with foreign companies to gain specific technical expertise could help Tehran gain a foothold in an arena that Western companies once thought they would dominate. “At the end of the day, these fights all boil down to oil,” Juhasz says.
For the United States, Basra is rapidly turning into a no-win scenario. Washington can curry favor with Iraqi officials here by trying to block the Kuwaiti seaport, but that would risk rupturing a vital relationship with a close U.S. ally that provides more of America’s oil than Russia does. Doing nothing will accelerate Basra’s effort to form an autonomous region. Samed, the Basrawi governor, has promised to continue leading weekly protests until Maliki gives his go-ahead for the province to hold a referendum on its future, a step the Iraqi constitution explicitly permits. And an independent Basra would open the door for Iran to compete with—and displace—American influence here.
As the interview in his plush office wound down, Sulaiti, the vice president of the Basra provincial council, said he was furious that Basra’s Arab neighbors “meddled” here in pursuit of their interests but haven’t followed through with diplomatic facilities or significant business relationships. Iran, which maintains an enormous consulate and is helping to rebuild Basra, has done both. “Arab countries have turned their back on us. Egypt, Saudi Arabia, Kuwait—where are they?” he said. “They closed all of their windows to Basra. So we are opening our window to Iran.”