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Iran - Trade and Diplomatic Relations with the EU

Individual State level

Germany

At state level Germany is Iran's biggest supplier of imports. According to the German government Germany's exports to Iran for the year 2003 amounted to EUR 2,678 million indicating a 20% increase on exports from the year before. Germany's imports to Iran for the same year were EUR 290 million.

The strength of the economic relationship between the two countries is due to the fact that Iran is a major supplier of oil to the German economy. Furthermore Iran is a major market for German industrial and technological products, especially for the oil, telecommunications, food and power generation sector in Iran. At a political level Germany was one of the few Western countries to maintain relatively good relations with the Iranian government after the revolution. This was due to the fact that the new Islamic regime did not view the German government as an ally of the Shah regime. Furthermore the presence of the large Iranian community in Germany contributed to the strength of the relationship. However relations suffered a major setback during the “Mykonos trials” of 1997 when agents of the Iranian government were implicated in the murder of Iranian dissidents on German soil. However relations between the two countries began to improve after the re-election of President Khatami in 1997 and his moderate overtures towards the EU which culminated in a successful trip to Germany by the Iranian president in 2000. Another interesting positive factor in relations between the two countries is the presence of a number of famous Iranian football players in Germany's premier football league (the Bundesliga).

Italy

Iran's biggest export client in the EU is Italy, however in monetary value terms it is placed as Iran's second biggest trade partner in the EU. According to estimates the approximate value of Iran's to Italy for the year 2002 amounted to EUR 900 million. Italy is also a major European market for Iranian oil, and handicrafts including carpets. Italian tourists make up one of the largest groups of tourists in Iran. Furthermore Italian auto makers such as Fiat and Italian oil companies have been very active in the Iranian economy. The relationship between the two countries was strengthened by President Khatami's state visit to Italy in 2000. Subsequently a number of high level visits by Italian politicians have been taking place. France is the third biggest EU trade partner with Iran, followed by Spain in the fourth place.  

Entity Level

Post revolution Iran's relations with the EU have faced a number of crisis amongst which are:

•  Iran's fatwa to kill the British author Salman Rushdie in 1989 lead to strong condemnation from the EU

•  Involvement of Iranian government agents in the “Mykonos trials” in Germany during which Iranian government's involvement in assassination of dissident Iranians on German soil became evident

•  Arrest of Iranian government sponsored Islamic dissidents on Spanish soil in the mid 1980s

Nevertheless relations between Iran and the EU began to improve after President Khatami's successful trip to Italy and Germany in 2000. At a strategic level the most fundamental reasons behind the recent improvements were the political and economic value added to each side by the other as part of their relationship. To the EU Iran is an influential player in the Middle East and in the Islamic world and thus its relations with the EU can add value to EU policies and relations in the Middle East and Islamic world. Iran also presents huge economic potential to the EU due its young population and plentiful resources of oil and gas.

To Iran the EU is an important economic block and an important client for Iran's oil and gas. Furthermore the availability of EU's technological products to Iran allows the Iranian government to purchase them for the advancement of Iranian economy. This is especially crucial in the absence of US technology in Iran due to the imposed embargo. Furthermore the EU's political power is useful to the Iranian regime as means of countering America's pressure and hostility against the Iranian regime in the international arena. This was evident during the recent negotiations aimed at curbing Iranian government's nuclear ambitions where the EU's good offices with Iran were used as one of the most crucial diplomatic means of trying to resolve the crisis.

Trade Relations

According to the EU, the European Union is Iran's main trading partner concerning both imports and exports. Except for 1998, when oil prices were at a record low, the EU has had a negative trade balance with Iran. In 2001 EU imports from Iran totalled 6,7 billion Euro, whereas the value of EU exports to Iran in the same year amounted to 6,6 billion Euro. Whereas more than 80 % of EU imports from Iran consist of oil products, the EU exports to Iran are more diversified, with power generation plants, large machinery and electrical and mechanical appliances making-up about 45 percent of the total exports.

By: Meir Javedanfar

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