May 01, 2004

Iraqi Flooded with Cars in Occupation’s Wake

Under Saddam Hussein, automobiles carried an import tariff of close to 100%. Combined with little free capital, this led to very low levels of motorization, despite the low price of gasoline. In the 12 months since the U.S. invasion of Iraq, tariffs have not been enforced. This has lead to well over half a billion dollars worth of car purchases coming in from one port alone, according to people familiar with these shipments interviewed by ITDP.

Initially, adjacent countries like Jordan and Saudi Arabia emptied out their used cars into Iraq. Remaining demand for higher quality vehicles then created a supply chain that brings used cars from Europe, Japan and elsewhere into Iraq through ports in Jordan and Saudi Arabia. One port became so full of cars that all other shipments were disrupted. To clear the way, the shippers bought empty land nearby to use as storage.

Photo: The remains of a used car shipment into Aqaba (Jordan) awaiting transfer into Iraq. 

The mid-nineties models sell for about $3000 in Iraq. Receiving ports earn about $20-30 a car, and the shipper gets $100 a car. The vehicles come in on container ships with 2,000-3,000 cars, which are emptied within 48 hours, creating a convoy of cars and car trailers from the port to Iraq.

Since last April, over 250,000 cars are estimated as having gone into Iraq from Aqaba. Minivans are particularly popular.

The resulting motorization has already led to congestion in Baghdad’s streets, but the consequences of this rapid influx of cars are potentially far-reaching. As Iraq rebuilds, traffic jams will likely lead to pressure to spend scarce public resources on road building. Because these are older vehicles, and no emissions controls are in place, Iraq’s car fleet will be far more polluting than its western counterparts.

Motor vehicles are a poor investment, especially in a weak economy. Economic growth rates are lower in countries with higher levels of elite consumption (which includes non-essential car ownership), because it leaves less for investment and savings. Meanwhile, though profits are made all along the supply chain stretching from European used car dealers to the Iraqi end user, the Iraqi government is too much in disarray to capture any taxes and import duties. Iraq will be paying for this year of chaos for decades to come.

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