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ripple effect
iran sanctions affect iraqi tourism industry

Mohammed Hamid al-Sawaf
Normally thousands of Iranian tourists arrive in Karbala daily. But as Western sanctions on Iran hit, pilgrims are staying at home. And the ones that do come are not shopping. Karbala’s merchants say…
1.03.2012  |  Karbala
Sales to religious tourists from Iran on Karbala\\\'s streets have decreased due to sanctions on Iran.
Sales to religious tourists from Iran on Karbala\\\'s streets have decreased due to sanctions on Iran.

When textile merchant Fadel al-Bazzaz, ordered millions of Iraqi dinars worth of goods from China, he never expected that the rest of the world would cause him such a problem.

"I have a massive financial crisis,” al-Bazzaz, one of the longest established textile merchants in Karbala, said. “I imported goods worth millions of Iraqi dinars and I was hoping to sell these goods in Karbala, which has had a tourism boom with increased numbers of Iranian tourists coming to visit holy shrines.”

But with the recent economic sanctions imposed upon Iran by the US and European countries, as well as the boycott of Iranian oil imports and of the Iranian central bank, the value of the Iranian currency has plunged.

As news agency Bloomberg reported: “The sustained, global sanctions effort “has brought very substantial economic and financial pressure on the Iranian regime,” U.S. Undersecretary of Treasury David Cohen said in a speech in New York yesterday. That is reflected “most dramatically in its plummeting currency,” which has lost half its value since September, he said. It was a reference to the market rate that ordinary Iranians use to acquire a hard currency rather than the official rate.” The official rate has not actually moved much over the past few months but the unofficial rate certainly has.

But it is not only the Iranians who are feeling the effects of the international sanctions, which include restrictions on banking, shipping and all kinds of external commercial ties.

The southern Iraqi city of Karbala is a major destination for religious tourism and, although Muslim pilgrims come from all over the world, most of them have traditionally come from neighbouring Iran. Between 5,000 and 6,000 Iranian tourists come to Karbala every day and most stay for several days as part of package tours that take in all the surrounding holy sites.

Now, because of the sanctions against Iran and the currency devaluation, the numbers of Iranian tourists has dropped. Additionally the average Iranian visitor will need to spend double the amount they used to, to visit the various holy shrines they’d come to see. before sanctions, Iranians would have spent the equivalent of US$1,000. Now they’re spending nearly double that: around US$2,000.

Previously Iranian currency – the rial – had been traded in Karbala, along with the US dollar and the currencies of various Gulf Arab states, from where any of Karbala’s visitors also come. However the drop in value of the Iranian currency caused the city’s exchange shops to stop dealing in the Iranian rial two months ago.

Shop owners in both Karbala and Najaf, the other city popular with religious tourists, both stopped dealing in the Iranian rial two weeks ago, when its unofficial value crashed so dramatically. Now all transactions are done in either the Iraqi dinar or the US dollar.

Some local merchants expect the Iranian currency’s value to drop even further. All of which will impact on the number of tourists from Iran, many of whom had already expressed shock that the rial had fallen so far against the dinar and the dollar; apparently they had not expected it.

“Only a few people who have come here from Iran are buying gifts from Karbala shops these days,” lamented al-Bazzaz, who is left with his unsold fabrics. “Before, people were buying everything here in this holy city but the depreciation of Iran\'s rial has seen many visitors stop spending.”

The exchange shops in Karbala have also suffered due to the changes in the currency. The Iranian currency was a bigger part of their business than the US dollar and the owner of one exchange shop, Abdul-Amir al-Rakabi, told NIQASH that a lot of the stores have lost some of their liquidity as a result of the drop in the value of the Iranian rial.

Another exchange shop owner, Adel Ubaid, reported that some Iranian merchants were actually more interested in buying up the Iranian rials because it was cheaper for them to do so in Iraq, rather than on the international markets. “Here, the Iranian currency has dropped significantly in value,” he explained. “But this doesn’t reflect the price in Iran, or on international money markets.”

Karbala\'s governor, Amal al-Din al-Hir, has warned about the impact of the decrease in Iranian visitors. However he has also noted that other trends in tourism in Karbala – most significantly, the fact that visitors were also flooding into Karbala from elsewhere.

“Karbala is now receiving tourists from around the Arab, and the Islamic, world as well as from the west. The number of non-Iranian visitors has started to rise. It’s now in the thousands, whereas it used to just be hundreds,” al-Hir said.

There’s some disagreement though as to whether this can help Karbala’s economy. Some of the local hotel owners don’t think it will. They believe the decrease in Iranians will cause economic hardship in the area. Partially this is because, they explain, visitors from the Gulf and from Asian countries tend to travel only at certain times of the year. Their numbers remain small compared to numbers of religious tourists from Iran who arrive all year round. And Karbala’s business owners are predicting disaster and Tareq al-Khikani, the Chairman of the Economic Commission on Karbala\'s council, has even asked for help from Baghdad, calling for tax cuts that would encourage tourism and regulations stipulating that deals should be done in US dollars from now on.

"Karbala hasn\'t seen such a drop in Iranian tourist numbers since 2003 [when the US-led invasion of Iraq took place],” hotel owner, Hussein al-Anbari, told NIQASH. “Very soon, the city will be facing an economic crisis.”

“Our hotels don’t receive government funding,” al-Anbari continued. “We pay for fuel and we pay daily expenses whether there are guests staying or not. And soon we will be forced to start laying people off because we’ll be unable to pay wages.”