The EU is still Iran’s biggest trading partner – EU imports from Iran in 2008 amounted to €11.3 billion while exports to Iran amounted to €14.1 billion. The EU as a whole had €65 billion in trade with Iran in the past 3 years. Under the Labour government the UK cut its trade with Iran by more than 21% in 2008, but there are still European countries which increase their trade with the Islamic Republic, mainly Italy and Germany. It came as no surprise that last summer when the then Foreign Secretary David Miliband, asked his European counterparts to call their ambassadors back from Tehran, it was Rome and Berlin that rejected the idea. Although both countries stand at the forefront of international sanctions against Iran’s nuclear program, in reality, when it comes to bilateral trade, things looks different. Germany, one of Iran’s biggest trading partners in the EU, increased its exports to Iran by 8.3 percent in 2008 to €3.9 billion, while Italy’s bilateral trade exceeded over €8 billion as of 2009.
During the recession it was hard for European leaders to cut trade and economic relations with Iran, especially when Russia and China are strongly engaged economically with the Islamic Republic, but trade with Iran was reduced to €10 billion in 2009. Iran is heavily involved in trade with China while Russia is ranked as Iran’s seventh trading partner and has trade agreements amounting to over €3.2 billion with Iran. Iran’s economy relies heavily on energy imports from the EU and on EU technology for the energy market, that’s why it is encouraging to see that the EU foreign ministers decided to target the country’s oil and gas industry.
However the sanctions cannot be effective if the biggest economy in Europe, Germany, and the fourth biggest economy, Italy, will continue to increase or maintain their trade with the Islamic Republic. The German Federal Office of Economics and Export Control (BAFA) refuses to disclose the nature of such commercial agreements while those firms who trade with Iran, know to hide their business well while doing these deals sometimes through third countries. For the sanctions to be effective there has to be more transparency behind those deals to ensure those sanctions are being enforced. Moreover, this is a big test for the credibility and coherence of EU foreign policy, where it is common to see – particularly the large EU member states – pursue national over bloc interests.
The recent developments in Iran’s nuclear program are of grave concern not only to Iran’s neighbours in the Middle East but to the EU. While the EU tried to engage with Iran over the last few years and offered to freeze sanctions in exchange for agreements on nuclear enrichment, the Iranians have been playing for time and continued to defy international efforts. Although last week a new round of sanctions on Iran in the United Nations security council was approved, it is also the right time for the EU to take a pro-active approach and play its strongest card, external trade, and to use its economic clout as leverage against Iran. The EU’s benefits of preventing Iran a nuclear weapon massively outweigh the costs and the severe consequences should the Islamic Republic be successful in its way. While the EU is expected to approve a new round of sanctions on Iran by the end of July, it will be left to be seen whether those sanctions will be enforced when many EU members are in fragile economic situation and when history tells us that national interests take preference in foreign policy.