In a move that may appear more than a little risky to say the least, the Financial Times reported on Monday morning that Citigroup (C) is set to become the first U.S. bank to open representative offices in the oil-rich and war-torn country of Iraq.
The announcement comes at a time when the bank, headed by new CEO Mike Corbat, is in the process of reconsidering many of its foreign offices for closure. But Citi, like many institutions, has had its eyes on Iraq since the controversial and globally unpopular 2003 Anglo-American invasion, having provided financial services to companies operating in the country via its offices in Dubai, Amman, and London.
Though the Bush administration reassured the world that coalition forces entering the country to personally unsure the removal of Ba’athist dictator Saddam Hussein would be welcomed as liberators, the invasion upset a decades-old sectarian balance that had a roughly 20 percent Sunni minority dominating a far larger majority of Shi’ites, some 60 percent of the populace, as well as another 20 percent of ethnic Kurds located mainly in the north. Iraq’s ethnically diverse society also includes a significant but rapidly dwindling Christian community that is one of the world’s oldest.
Iraq’s civilian infrastructure, as well as its formerly proud and nationalized oil industry, had already been vastly decimated by some ten years of Western-imposed sanctions that have been blamed for destroying what was once on the brink of becoming a first-world country. The absolutely brutal sectarian civil war that was set off by the invasion and is still ongoing has destroyed what little was left of that legacy, and has furthermore caused a situation in which a country previously known for its relative secularism and interfaith harmony, however dictatorially imposed this may have been, has become one defined by an entrenched sectarian animosity and defacto Balkanization.
After numerous unmet promises from the Bush administration that the Iraq’s enormous oil reserves would pay for both the invasion as well as reconstruction, Citigroup estimates that oil exports will provide for a $2 trillion economy by 2050 (the war itself has cost the U.S. some $3 trillion and counting, according to Nobel prize-winning economist Joseph Stiglitz). The bank plans to open offices in the capital Baghdad, as well as in the Northern Kurdish city of Erbil (said to be the world’s longest-standing city), and the Southern port city of Basra.
It is a “toe in the water” strategy on the part of Citi, who plans to expand these offices into full branches sometime within the next year, likely depending on the security situation. But while Citi’s estimates about the future size of the Iraqi economy are probably inarguable, as oil firms and related industrial and construction companies have finally been awarded the rebuilding contracts for which they have been clamoring for years, there are a number of obstacles for the foreseeable future.
Primarily, the ever-expanding civil war next door in Syria has breathed life into Iraq’s Sunni extremist groups that had previously been all but crushed. Quite the opposite of Iraq, Syria is a country whose 60 percent Sunni majority has been brutally dominated for decades by a group of much smaller minorities led by the al-Assad family that has run the place as its own personal fiefdom for decades. Cross-border cooperation between Sunni extremists has become nearly institutionalized over the past two years of hostilities in Syria.
Additionally, there has been a growing and increasingly significant, if completely unreported, push-back against the involvement of foreign oil companies and other interests on the part of the country’s trade unions, as has been described in detail by Greg Muttitt’s excellent recent book on the subject “Fuel on the Fire: Oil and Politics in Occupied Iraq”. Both of these developments taken together are extremely fluid and could make it very difficult indeed for oil companies and others to secure the returns that have been promised for years by various politicians and other vested interests seeking to justify or profit from the 2003 invasion.
This perhaps explains, for now at least, the “toe in the water” strategy on the part of Citi, especially when other banks like HSBC (HBC) are putting their operations in the country under review. Initially, Citi will not be allowed to engage in full-on banking activities, though that is the eventual goal. For the time being, it will provide support services to the bank’s many clients operating in the country.
Shares for Citigroup were down 2.5 percent on Monday in midday trading to $45.73 against the backdrop of a steep sell-off in markets both domestic and global.