Cola Wars as Coke Moves on Baghdad

Coca-Cola has returned to Iraq after an absence of nearly four decades, triggering a cola war in a lucrative but potentially hostile market.

Coke ended its 37-year exile last week by setting up a joint-venture bottling company to compete with Pepsi for 26 million consumers.

The upsides for Coke include a thirst-inducing climate and burgeoning Islamic conservatism which has banned beer and other alcoholic drinks in much of the country.

The downsides, besides Pepsi's head start, are a raging insurgency and banditry which threaten supply routes, and a perception that Coca-Cola is linked to Israel and "American Zionists".

Coke withdrew from Iraq in 1968 when the Arab League declared a boycott because of business ties to Israel, leaving Pepsi to dominate the Middle East market for soft drinks. The boycott ended in 1991, but sanctions and wars kept Coke out of Iraq.

After a trickle of Coca-Cola imports from neighbouring countries, the company is attempting a proper comeback by launching a joint venture with a Turkish company, Efes Invest, and its Iraqi partner HMBS, which will reportedly bottle the Coke in Dubai and distribute it across Iraq.

"A local bottling company will employ local people to do this," a Coca-Cola spokesman said yesterday. "This happens in most of the 200 countries in which we operate around the world, despite the perception of us as an American company."

The response in Baghdad yesterday was mixed. One drink wholesaler, Abbas Salih, said the initiative was doomed. "Coca-Cola does business with those who are shooting our brothers in Palestine," he said. "How can we drink it?"

Abu Ream, a shop owner in Baghdad, repeated a widespread conspiracy theory: "If you hold up a Coke can to the mirror, the writing says 'No Allah'," Mr Ream said. "Or maybe 'No Mohammad'. I can't remember which."

But Mr Ream said since supplies became available two years ago he had sold more Coke than Pepsi. "People like the taste better. And they like the novelty."

Coca-Cola denies any political or religious bias. "The myth is indeed sometimes perpetuated, but has no truth to it," the spokesman said. "We are a local business that employs local people ... Our Palestinian bottler employs 250 Palestinians."

After the 1990 invasion of Kuwait, sanctions led the Iraqi licence holder, Baghdad Soft Drinks, to replace the authentic Pepsi concentrate it had used with fakes smuggled from eastern Europe. Matters were not helped when Saddam Hussein's son Uday bought 10% of the company. But Baghdad Soft Drinks says Pepsi is rebuilding, with bottling operations in the capital and southern Iraq.

In the west, Coke and Pepsi have been targeted as US symbols. Entrepreneurs have produced alternatives such as Mecca-Cola and Muslim Up. But in Iraq, hostility to the US is expressed more directly in attacks on US troops; Sunni Arab insurgent sympathisers have no problem drinking and serving Pepsi.