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The Cost of Economic Sanctions on Major Exporters to Iran


By Nader Habibi


If the United Nations Security Council agrees on a comprehensive economic sanction on Iran, the countries that are currently considered Iran's major trade partners will be forced to end or severely reduce their trade relations with that country. Doing so will impose a cost on their expert industries. For the past two decades the United States has imposed a partial but broad economic sanction on Iran and as a result the volume of trade between the two countries is minimal. Advanced European and Asian countries, on the other hand, have maintained close economic ties with Islamic Republic of Iran in this period and will have to give up their current share of Iran import market. Furthermore; the recent rise in Iran's oil revenues has allowed it to increase its merchandise imports in the past five years. Total volume of imports rose by 189% from $13.7 billion in 2000 to an estimated $39.7 billion in 2005.


In 2005 Germany had the largest share of Iran's export market with $5.67 billion (14.4%). Germany has indeed been Iran's top trade partner in the past 15 years but its share diminished from 17.8% of Iran's total imports in 1990 to 10.5% in 2000 before rising again in recent years. The second rank among top exporters to Iran in 2005 belongs to China with $3.3 billion or (8.3% of total). China's exports to Iran have enjoyed the fastest growth rate in the past five years. Iran's imports from China rose by 360% between 2000 and 2005. The rise of China has been associated with a decline in Japan's exports to Iran. In 1990 Japan was the second largest exporter to Iran with 11.2% of total market but this share has declined to 3.37% in 2005. Aside from China's inexpensive products, Iran is also buying more from China for strategic reasons. China is a member of the U.N Security Council and has repeatedly resisted the United States' calls for diplomatic and economic isolation of Iran. 


Italy and France are also among major exporters to Iran. Italy was the third largest exporter to Iran in 2005 with 7.5% of the market and France ranked sixth with 6.2%. Unlike continental Europe, the United Kingdom has lost a portion of its share of Iran market in recent years. While it ranked 4th among top exporters to Iran in 1995 with 5% of the market, it could not make it to top ten in 2005. This is partly due to the rising diplomatic tensions between the two countries. Iran has accused the U.K. of supporting the separatist militants that have been responsible for several bombings in the oil rich south-eastern province of Khuzestan. The U.K, on the other hand, has accused Iran of supporting the Shiite militias that have attacked its troops in Southern Iraq.


Iran has used its international trade relations for diplomatic goals in the past and it is likely to continue this policy in the coming years as the current nuclear crisis continues.  In 2005, Iran put severe restrictions on Korean exports after that country sided with the United States in an International Atomic Energy Agency (IAEA) ruling against Iran. A similar implicit boycott was also imposed on exports of the United Kingdom.  In the next two years Iran's trade with the European Union (EU) will be highly vulnerable to diplomatic developments. The share of EU in Iran import market has increased from 36% in 2000 to 41.7% in 2005 and the Iranian government had hoped that this steady growth will discourage EU from supporting an economic sanction against Iran. At the same time the growing share of Europe in Iran's merchandise imports has increased Iran's dependency on European industrial products and machinery.  Iran's manufacturing and industrial sector will experience a severe short-term recession if the supply of European exports are cut off. In the longer run Iran can find Chinese substitutes for most of these European products as long as China does not join the economic sanction against Iran.   


*Top ten exporters to Iran in 2000: Germany (10.45%), Korea (10%), UAE (7.6%), Italy (5.58%), France (5.3%), China (5.2%), Russia (4.6%), Japan (4.17%), Canada (3.25%), The United Kingdom (3.25%).


*Top ten exporters to Iran in 2005:  Germany (14.2%), China (8.3%), Italy (7.51%), UAE (6.8%), Korea (6.42%), France (6.25%), Russia (5.33%), India (3.42%), Brazil (3.41%) and Japan (3.4%)


The data presented in this article is reported in Direction of Trade Statistics (published regularly by the International Monetary Fund). It varies from the trade statistics of Iran Central Bank.


About the author: Nader Habibi is an economist with the Middle East department of Global Insight consulting Firm.


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