Iran-EU Trade Plummets After Sanctions: A Decade in Review
According to the Economic Desk of Webangah News Agency, the European Union, a major global economic power, has historically played a vital role in Iran’s oil exports, capital goods imports, technology, machinery, and financial transactions. However, political developments and international sanctions have heavily influenced this relationship. A key turning point was the United States’ withdrawal from the JCPOA in May 2018, which led to the reimposition of secondary sanctions against Iran, effectively dividing Iran-Europe trade into pre- and post-sanctions periods.
Before the U.S. withdrawal from the JCPOA, the implementation of the deal in January 2016 led to the lifting or suspension of many nuclear-related sanctions against Iran. This created a positive environment for European companies and banks to re-enter the Iranian market. From 2016 to mid-2018, trade between Iran and the EU saw significant growth in both Iranian exports to Europe and imports from the bloc. The EU became a primary destination for Iranian exports, particularly crude oil and gas condensates, with countries like Italy, France, Spain, and Greece being major buyers. Long-term oil contracts were established between the National Iranian Oil Company and European refineries.
Prior to the 2018 sanctions, trade between Iran and the EU was based on comparative advantages. Iran’s exports mainly included crude oil and petroleum products, petrochemicals, raw minerals and metals, and certain agricultural and food products. Imports from the EU consisted of capital and intermediate goods, such as industrial machinery and production equipment, automobiles and auto parts, medical and pharmaceutical equipment, advanced technologies, and energy and infrastructure equipment. This trade pattern indicated that Europe played a complementary role in Iran’s industrial modernization and technological advancement.
One notable achievement during the post-JCPOA period was the partial restoration of banking relations between Iran and some European banks. Although major banks remained cautious due to concerns about U.S. penalties, limited financial channels were established to facilitate trade, and European export insurance agencies gradually resumed covering risks associated with transactions with Iran.
The official U.S. withdrawal from the JCPOA in May 2018 and the reinstatement of secondary sanctions delivered a severe blow to trade relations between Iran and the EU. The sanctions were designed to penalize any company or bank that collaborated with Iran, effectively barring them from the U.S. market and financial system. This prompted even non-American companies to withdraw from the Iranian market, leading to a sharp decline in bilateral trade. Iranian oil exports to Europe nearly ceased, and many trade agreements were either canceled or suspended.
Following 2018, many large European companies that had returned to Iran during the post-JCPOA period halted their operations. Companies in the energy, automotive, aviation, insurance, and finance sectors left the Iranian market, reducing trade in goods and severely limiting technology transfer and foreign direct investment from Europe to Iran.
One of the most significant consequences of the new sanctions was the near-total severance of banking relations between Iran and Europe. Even small and medium-sized European banks were unwilling to continue cooperation for fear of U.S. sanctions. This significantly hampered formal trade and increased transaction costs. The use of intermediaries, third-party companies, and indirect payment methods replaced transparent and formal relationships, reducing the competitiveness of Iranian trade with Europe.
After the imposition of sanctions, the composition of trade between Iran and the EU changed significantly. Oil exports were virtually eliminated from Iran’s export basket to Europe, replaced by lower value-added items. Iran’s limited exports during this period mainly included specific agricultural products and dried fruits, certain non-sanctioned chemical and petrochemical products, and traditional goods in limited quantities. Imports from the EU were primarily limited to specific and largely humanitarian goods, including medicines and medical equipment, certain specialized machinery with special permits, and essential goods exempt from sanctions.
In response to the U.S. withdrawal from the JCPOA, the EU attempted to maintain a minimum level of trade with Iran through mechanisms such as INSTEX. However, these initiatives failed to meet Iran’s trade needs in practice, and INSTEX was effectively reduced to limited humanitarian exchanges.
The decline in trade with Europe has limited Iran’s access to advanced technologies, machinery, and foreign capital, increasing foreign trade costs. It has also accelerated the shift in Iran’s trade towards Asian and neighboring countries, although this replacement has not been complete or equivalent to Europe in terms of technology and added value.
An examination of Iran-EU trade before and after the 2018 sanctions reveals that the U.S. withdrawal from the JCPOA marked a significant rupture in these relations. While trade was recovering and expanding during the post-JCPOA period, the return of secondary sanctions halted and reversed this trend. The future revival of these relations depends primarily on political developments and the restoration of trust among European companies and banks.
