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October 2018, No. 89


Trade & Business

 

Trade with Neighbors: Evading US Sanctions!

Iran has sea and land borders with 15 countries. This number of neighbors has become a positive leverage for Iran to counter the US sanctions. According to official statistics, Iran’s total trade with these countries exceeds $36 billion. The figure on the one hand reflects the potentials of trade with its neighbors, and on the other hand shows the correct targets of the government in this field.

For the first time, Es’haq Jahangiri, the First Vice President unveiled the government’s new plan to bypass the sanctions. Referring to US sanctions against Iran, he said in the new situation, border countries and border cities can turn into corridors of Iranian business with the world. He urged the authorities in the border provinces to become more active in this field.

However, the Interior Minister Abdol-Reza Rahmani Fazli was more transparent and said, “The government’s policy is to boost trade in the border areas.” He said in the current situation, border regions should assume more responsibility; under the sanctions, we should try to have the highest exchanges with neighboring countries in the border regions.” According to the minister, new guidelines will be communicated in this regard. As he has said, the government apparently intends to strengthen border trade through the markets and the traffic of local businessmen. “We hope that the people of the border areas will use their capacities and strengthen the existing trade route,” he emphasized. 

UAE: In Favor of the Sanctions or Worried about the Future?

On the path to trade with neighbors, one way to reduce the pressure of the sanctions is to clarify the role of the United Arab Emirates, because it is one of the main trading partners of Iran and, of course, plays more a mediating role in Iran’s trade with other countries. Over the past two decades, by creating transportation infrastructure and banking communications, it has been able to play the main role in Iran’s trade with the world. UAE’s support for the anti-Iran sanctions is not unexpected but would be costly. Some other countries, especially Turkey and some of the northern neighboring countries of Iran, can reduce the UAE’s share of trade with Iran. A review of Iran’s trade trends over the past 10 years shows that the volume of Iranian exports to the UAE following trade agreements with other countries has the potential to go down. 

Turkey: The Alternate Route

The alternative route for Iran to replace the UAE is to expand its business cooperation with Turkey, because Tehran and Ankara do not have major disagreement over trade. The 25% share of Turkey in trade with Iran among its neighbors and 17% of Iranian exports to Turkey among neighbors shows that there are still incomplete capacities for trade development. Meanwhile, the banking and currency transfer channels, especially after Tehran-Ankara agreement on trade with the national currencies of the two countries, can be a platform to save trade between the two neighbors from the sanctions. Declining differences between the two neighboring countries, especially in the area of ​​regional disputes, will be a win-win game for both Iran and Turkey, but the dependence of bilateral trade on the land borders and some outstanding differences on preferential tariffs continue to prevent the volume of the two countries’ trade from reaching the projected 30 billion dollars. 

Customers in Danger

Obviously Iraq and Afghanistan are the two main customers of Iran’s export goods and services these years, one in east of Iran and the other in the west. Perhaps the government’s goal in boosting trade through strengthening of border markets is the strengthening of trade corridors between Tehran and Kabul in the east and Tehran and Baghdad in the west. To maintain Iran’s current share from the two nations is hard and more difficult in the Iraqi market. The weak Afghan economy and the lack of infrastructure for transport and banking are a challenge, and the absence of serious rivals in the Afghan market is an opportunity. The structure of the Iraqi market, however, is different and full of challenges; on the one hand, serious rivals, including Turkish goods and on the other hand the conflicting behaviors of the Iraqi provincial authorities neighboring Iran will be disruptive, but it seems that Iran does not want to lose its two main markets, Afghanistan and Iraq at any cost.

The key to the future of trade depends on maintaining security in the three countries of Pakistan, Afghanistan and Iraq and, of course, massive investment to build transport lines and border infrastructure to reduce the problems and gaps. 

Positive Signals from the North, Negative Signals from the South

Political pulses indicate positive signals in favor of more trade with the Caspian littoral states, but the signals on trade with the Persian Gulf states do not agree much with the policy of expanding trade with Iran. Although Iran’s foreign policy is to improve relations with its neighbors, disputes over the regional issues with the Persian Gulf states and its southern neighbors, including Saudi Arabia, Bahrain and even the UAE, can make trade routes bumpy. Although the markets of countries like Qatar and Oman are still more attractive it seems that in northern Iran, the focus is on developing trade with Russia. This is while trade routes are not smooth, and trade facilitation with the northern neighbors, depending on bilateral and multilateral relations with the Caspian Sea and other northern neighbors, can help resolve the problems.

 

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  October 2018
No. 89