There is no doubt that external sanctions have altered Iran’s trade patterns because it has been forced to address three sanctions-related challenges:
- Secure sources of imports in light of the hesitation of the traditional sources of imported goods to work with Iran;
- Develop the potential of non-crude oil exports so that the country can compensate for the sharp fall in its crude oil exports; and
- Use new hubs for the indirect imports in order to secure products and services that could not be imported directly.
The current issue of Iran Strategic Focus analyses the trade patterns for the first half of the current Iranian year — 20 March to 21 September 2020 — which reveals how Iran is managing the above three challenges. It also addresses the question of how it has addressed the issue of transacting funds related to its external trade in light of severe banking sanctions.
We reveal that the US withdrawal from the JCPOA in 2018 and the re-introduction of harsh sanctions have compelled Iran’s stakeholders to intensify their efforts on the following strategies:
- Build domestic capacities, not necessarily focused on import substitution, but rather on expanding export potential;
- Reduce reliance on Western sources of technology by diversifying the countries of origins of imports. Where this is impossible it has used import hubs such as the UAE, Oman and others to import the necessary items.
- Promote trade with immediate neighbours. The majority of its top trading partners are immediate neighbours which are also the fastest growing ones. Although the UAE and Oman are mainly hubs for imports and reexports, their roles are significant.
- Develop payment solutions that do not rely on the international banking system including the oil-for -goods schemes.
The intensification of external sanctions has not forced Iran into international isolation but has led to a re-orientation of the country’s trading patterns. The EU — which was the country’s top trading partner until 2009 — has lost its significance and the future focus seems to be on China, the regional neighbourhood, and Russia.
It remains to be seen whether a potential revival of the JCPOA will increase Iran’s trade relations with Western countries but the signs are that, even in that scenario, the current focus on the immediate region and eastern powers will continue.