IRAQ - Trade With Iran.

While the US works to stop Iran from meddling in Iraq, Iranian air conditioners fill Iraqi appliance stores, Iranian tomatoes ripen on the window sills of kitchens in Najaf and white Iranian-made Peugeots sit in Iraqi driveways. Some Iraqi cities, including the oil-producing enclave of Basra, buy electricity from Iran.

The government relies on Iranian firms to bring gasoline from Turkmenistan to alleviate a severe shortage. Iraqi officials are reviewing an application by Iran to open a branch of an Iranian bank in Baghdad, and Iran has offered Iraq $1 bn in soft loans.

The economies of Iraq and Iran, the largest Shi'ite countries in the world, are becoming closely inter-twined, with Iranian goods flooding Iraqi markets and Iraqi cities looking to Iran for basic services.

After Iran and Iraq fought a bitter war in 1980-88, Saddam's Sunni/Ba'thist dictatorship maintained tight control over cross-border trade, but trade has exploded since the US invasion. Much of the money is heading in one direction: Iraq is becoming dependent on imports from Iran and elsewhere because Iraqi industries have been gutted by the UN economic sanctions of the 1990s and the current turmoil.

Deputy PM for Economics Bahram Saleh, a Kurd, on March 13 was quoted as saying: "What is happening in Iraq at the moment is a lot of trade, but it's almost all one-way trade" with Iran. If you take oil away, there's a lot of imbalance in this". As driving factors Iraqi Shi'ites cite the hostility of Sunni Arab states to a Shiite-run Iraq and the ambivalence of the White House towards Iraq's Islamist Shi'ite parties.

The New York Times on March 13 quoted Sami al-Askari, a Shi'ite MP who advises PM Maliki, himself a religious Shi'ite with close ties to Iran, as saying: "If the Shi'ites do not feel protected, if they feel what they've achieved can't be maintained, much of the leadership will have to work with Iran. The Arabs and the Americans are saying Iran is bad, but it's the only recourse".

According to one commonly cited statistic, trade between Iraq and Iran has grown 30% a year since the US invasion in 2003. Statistics from the US Embassy's economic section show that Syria accounted for 22% of Iraqi imports in 2005 and Turkey 21%. Iran, which has the longest border with Iraq of any neighbouring country, would fall in that range. The CIA World Factbook estimates Iraq's total imports in 2006 at $20.8 bn.

Iranian trade with Iraqi Kurdistan amounted to more than $1 bn in 2006. Iraqi Foreign Minister Hoshyar Zebari, a Kurd, says provincial governments have been making their own commercial deals with Iranian interests, but lately he has started ordering them to go through the Foreign Ministry.

In the Shi'ite religious heartland of the south, Iraqis have gained handsomely off the new economic ties with Iran, most notably in the holy cities of Najaf and Karbala', whose shrines draw Iranian pilgrims by the thousands each month. The headquarters in Najaf of revered Shi'ite clerics like Grand Ayatollah Ali al-Sistani collect enormous dues from their satellite offices in Iran. That money ends up in the local economy.

The Iranian government gives the Najaf government $20m a year to build and improve tourist facilities for pilgrims. Karbala' gets about $3m a year. In addition, each Iranian pilgrim spends up to $1,000 on hotels, food and souvenirs. Provincial tourism officials estimate that at least 22,000 Iranian pilgrims visit Najaf each month and at least 10,000 travel to Karbala'. Most come on package tours.

The close ties with Iran in the south have drawn scrutiny from the US. Najaf province had come close to contracting an Iranian firm to build an airport, but the deal was scuttled at the last minute by the Transport Ministry in Baghdad after US pressure.

Cities near the Iranian border have turned to Iran to help alleviate Iraq's chronic power shortage. Iranian goods have proliferated throughout Iraq. White Peugeot sedans which began rolling out of Iranian factories in 2005 are sold everywhere in Iraq - Iranian companies offer attractive financing packages to Iraqi sellers. In the far south, Basra imports $45m of goods from Iran each year, from carpets to construction materials to fish and spices. Each day, 100 to 150 commercial trucks drive from Iran to Iraq at the nearby Shalamcha border crossing.

In the rugged north, Kurdish officials say trade has boomed. In central Baghdad, piles of Iranian air conditioners with brand names like Sona, Jayan and Aysan Khazar sit next to Chinese TV sets on sidewalks outside appliance stores. The blue-and-white air conditioners use a water-cooling technology and can run on generator power, making them popular with electricity-starved Iraqis.

Syria For US Talks: Syrian Deputy Foreign Minister Faisal Meqdad on March 12 called for a "comprehensive dialogue" with the US after talks in Damascus with US Assistant Secretary of State for Population, Refugees and Migration Ellen Sauerbrey on the plight of up to 1m Iraqi refugees in Syria. Sauerbrey ranks as the most senior US official to visit Damascus since the Bush administration cut high-level ties with Syria's Alawite/Ba'thist dictatorship of Bashar al-Assad in 2005, accusing it of negative interference in neighbouring Lebanon and Iraq.

During her visit, Ms Sauerbrey reviewed the refugee situation with Meqdad and with officials from the UN High Commissioner for Refugees (UNHCR). Meqdad said: "We told [Ms Sauerbrey] that all questions are linked in the Arab region and that a comprehensive dialogue is needed". The FT on March 13 reported that US officials in Damascus were unwilling to comment on the trip, saying only: "Her sole focus will be the Iraqi refugee issue". Syrian officials, however, have said they want broader discussions with the US. The US trip is another example of Washington's flirting with Damascus, after two years of frozen diplomatic relations.

Ms Sauerbrey's arrival was welcomed by Laurens Jolles, the high representative for the UNHCR in Syria, who said: "The fact that she is here is an expression of the fact that a lot more needs to be done". According to UNHCR estimates, more than 2m Iraqis have fled the violence in Iraq into neighbouring countries since 2003, while another 1.7m have been displaced internally. Of the bordering countries, Syria has been affected the most, sheltering close to 1m Iraqis, with up to 2,000 more arriving each day. Recent Syrian government legislation had proposed a tightening of restrictions but the government has now said it will not forcibly deport any Iraqis. Ms Sauerbrey's regional tour - she was also visiting Jordan and Egypt - was an indication of a more active US engagement in the refugee crisis, following recent criticism from Congress.

The tentative US moves encouraged the EU to resume high-level contacts with Syria, with EU foreign policy chief Javier Solana visiting Beirut on March 12, Riyadh on March 13 and Damascus on March 14. Solana urged President Assad for Syria to change its regional policies and behaviour concerning Lebanon and the Palestinians.