As the Trump administration takes an increasingly tough stance against Iran, a country it calls the world’s number one state-sponsor of terrorism, one small government agency is working strategically to untangle other countries who have developed a deep dependency on Tehran - namely Iraq.
“Iraq currently gets one hundred percent of their electrical power from Iran. We are helping to finance power plants and transmission grids to make them independent of Iranian electricity,” Ray Washburne, President and CEO of the Overseas Private Investment Corporation (OPIC) which functions as a “self-sustaining” U.S agency that assists American businesses in emerging markets. “Iraq having its own power means the industry can build up. Right now Iranians can shut them off at any time.”
Exaclty that happened over a sweltering Middle East summer. Tehran suddenly stopped supplying electricity to Iraq in July due to unpaid bills, and a spike in Iran’s own needs. The move sparked unrest and protests across Iraq, with people taking to the streets to protest Iran's burgeoning influence.
Along with the energy section, Iraq's economy remains so tightly connected that Baghdad is set to request exemptions from Washington regarding some of the sanctions being re-imposed on Tehran.
President Donald Trump pulled the United States out of the JCPOA, better known as the Iran Deal, in May and reestablish hefty trade sanctions – some of which have already taken effect, while others won’t be enforced until November. Washburne said its critical now for Iraq to continue paving its own way.
“We can help with projects to get clean water to Iraqis too. As soon as those things started, industry started building up. That’s the idea. Iraq has a lot of great resources, but you can’t do it without the base foundation of the industrial world,” he continued.
OPIC currently has six Iraq-based endeavors ongoing in its portfolio, ranging from middle market development to affordable housing and hotel construction to supporting microfinancing operations. Particular focus has been placed on renovating Iraq’s hydroelectric dams, with the goal being that as dredging progresses Iraq will be able to aptly supply electricity to all parts of the country, improve food control and distribution, revive irrigation systems and therefore secure navigation for river transport.
At least one third of OPIC’s portfolio – which spans 130 countries – is in conflict regions, and Washburne sees the agency’s “soft power” approach as curbing refugee and migrant flows from abroad.
“If you look at political instability, it because these countries often have a very high unemployment rate. At OPIC we try to create jobs in those local markets the theory being that jobs create stable communities and in turn create stable countries,” he observed, highlighting their work in the “northern triangle of Central America” - Guatemala, El Salvador and Honduras. “There is extremely high unemployment, a lot of gang activity, lots of crime. People don’t have a hope; they don’t have a job. It’s in our national security or our soft power interest to go in those countries and create jobs. It might be through a large hotel or through an Industry being developed or bringing the energy cost down, that’s a soft power way of doing it where we actually get paid back for it rather than having to take other means.”
Last year, Washburne said OPIC made a $270 million profit from loaning out money and getting interest back on foreign projects. And in protecting American interests, OPIC is also turning its attention to countering the rise of Chinese hegemony abroad.
“China has focused the last few years on a supply chain, their ‘Belt Road Initiative’ is really a supply chain initiative. They have invested substantial amounts of money, a lot of it doesn’t make any economic sense whatsoever. But it is so they can control it from a trade standpoint,” Washburne said. “The U.S. has sat by as the Chinese have done this.”
Last year, China boldly announced its biggest challenge ever to America’s place in the world economy: the construction of a 21st Century version of the ancient and esteemed Silk Road. Known as the “Belt and Road Initiative,” it effectively built a network of railroads and shipping lanes linking itself with 70 countries across Asia, Africa, Europe, and Oceania. Countries including India, Pakistan, Russia, New Zealand and Poland have all signed on to the venture, making up more than a third of the world’s GDP.
For example, Washburne pointed out, in Sri Lanka China has loaned the government tens of millions of dollars to rebuild a port. Yet only two ships a day could come into it, Sri Lanka couldn’t service the debt, and they foreclosed on it.
“Now China controls that port. I call that a loan to own program,” he explained. “They are loaning it knowing they can’t pay it back so they can get control.”
And in keeping with the non-militaristic approach to national security, OPIC is focused on circumventing China’s growing dominance abroad and ensuring the markets remain free and fair.
“We back businesses that go in. China has stayed on enterprises. So in essence, it’s the Chinese government controlling this thing,” Washburne noted. “We just want to keep free enterprise going in these areas. There are a lot of areas the Chinese are trying to get control of and we just want to give people another alternative and help private businesses that want to get in.”
In that major quest to push back against China and reignite American leadership, lawmakers earlier this year introduced the Better Utilization of Investments Leading to Development (BUILD) Act, which aims to vastly increase the amount of money OPIC can loan out and double OPIC’s size.
Founded in 1971, OPIC has long provided businesses with the mechanisms to mitigate risks linked to foreign investment often in unstable areas through means of financing, political risk insurance, advocacy and by partnering with private equity investment fund managers. However, critics have long viewed OPIC’s approach has being dated and out-of-touch with modern times.
Yet critics of the BUILD Act have argued that the language remains “vague” and fails to adequately address “rule of law” challenges for investment internationally in the form of corruption, social and political unrest. Nonetheless, Washburne remains confident that the bill, which is currently awaiting consent from the Senate, can expedite economic progress and put the U.S back in the driving seat.
“By creating a modern U.S. development finance institution, this legislation will better equip the United States to address the world’s massive development needs and drive economic growth in emerging markets,” he said. “While also addressing American foreign policy and competiveness.”