Iran's foreign trade, excluding crude oil, declined to a 10-year low in the fiscal 2020-21.
Non-oil trade decreased from $105.9 billion in the fiscal 2011-12 by an annual average of 3.9% to $73.9 billion in the last Iranian year that ended on March 20, 2021.
The intensification of sanctions in the fiscal 2011-12 led to, on the one hand, a sharp decline in the export of commodities like chemicals, petrochemicals and petroleum products, as well as nuts and dried fruits, and on the other, government restrictions on imports to economize on foreign currency until the fiscal 2015-16.
Amid heavy sanctions against the Islamic Republic, the government placed an all-out ban, or restriction on imports of commodities.
“A list of banned imports, including 1,600 items, was released by the government a few years ago to economize on foreign currency reserves in the wake of the US reimposition of sanctions. The number of these items increased to 2,262 last [fiscal] year,” Mehrad Ebad, a member of Iran Chamber of Commerce, Industries, Mines and Agriculture said in a write-up for the news portal of Tehran Chamber of Commerce, Industries, Mines and Agriculture.
Minister of Industries, Mining and Trade Alireza Razm-Hosseini said the prevailing restrictions, or total ban on imports, will remain even if sanctions against Iran are lifted.
“These measures are aimed at giving a boost to domestic production,” he was quoted as saying by IRNA.
Razm-Hosseini said the production of parts in many industries have been localized, such that domestic manufacturers account for 75% of home appliance and 80% of car production.
Ups and Downs
The highest trade value during the 10 years under review was $104 billion registered in the fiscal 2014-15, of which exports accounted for $50.1 billion and imports for $53.6 billion.
Iran and P5+1 signed the Joint Comprehensive Plan of Action in July 2015, which culminated in the removal of international sanctions in January 2016.
United States ex-president, Donald Trump, withdrew from JCPOA in May 2018 and reimposed sanctions on Iran’s economy.
“The US withdrawal from JCPOA in May 2018 and the intensification of restrictions, especially in the field of currency transfer, caused a severe contraction in foreign trade. Under the circumstances, in addition to severe restrictions on the export of oil and petroleum products, non-oil exports also faced many problems,” Marjan Faqih Nassiri, the head of the Institute for Trade Studies and Research, was quoted as saying by ILNA.
“The reduction of foreign exchange resources due to the decrease in exports naturally affected the volume of imports. However, in the fiscal 2019-20, despite the 7% decline in non-oil exports, due to the necessity of meeting the country’s needs and handling the domestic market, imports increased by 1.2%.”
The value of exports started declining from the fiscal 2018-19 to reach $35 billion – the lowest in the 10-year period – in the fiscal 2020-21 from $47 billion in the fiscal 2017-18.
During the period under review, the value of import fluctuated, such that it hit the highest of $54.5 billion in 2017-18 and the lowest of $38.9 billion in 2020-21.
Focus on Neighbors
Referring to the impact of the Covid-19 pandemic, Nassiri said, “The fiscal 2019-20 coincided with the outbreak of coronavirus and caused a decline in world trade and naturally our country was also affected by it; the existence of sanctions and the resulting restrictions exacerbated the impact of the outbreak on our country. Since then, restrictions and sanctions have led trade planners to focus on exports to 15 neighboring countries, as well as India and China.”
Data released by the Islamic Republic of Iran Customs Administration show Iran’s neighboring countries accounted for about half of its non-oil trade in the last Iranian year.
Iran traded $36.45 billion worth of non-oil goods with its neighboring countries, namely the UAE, Iraq, Turkey, Afghanistan, Pakistan, Russia, Oman, Azerbaijan, Turkmenistan, Kuwait, Qatar, Kazakhstan, Armenia, Bahrain and Saudi Arabia, in the last Iranian year.
Non-oil trade with neighbors, however, posted a decrease compared with the preceding year’s $40 billion.
Iran’s exports to its neighbors totaled $20.35 billion in the fiscal 2021-22, indicating a $4 billion decrease in value year-on-year.
Imports amounted to $16.09 billion during the period under review, unchanged compared with the same period of last year.
The UAE was Iran’s leading trade partner among neighboring states, with $14.4 billion worth of non-oil exchanges.
Following the UAE in the list of Iran’s trade partners among the neighboring countries were Iraq with $7.58 billion, followed by Turkey with $6.9 billion, Afghanistan with $2.31 billion and Russia with $1.53 billion.
Pakistan and Oman followed with $1.17 billion and $871 million, respectively.
Iranian goods and commodities worth $7.44 billion were exported to Iraq, making it Iran’s top export destination among neighboring states.
The UAE, Turkey and Afghanistan came next with $4.66 billion, $2.53 billion and $2.3 billion, respectively.
The UAE, with $9.75 billion, accounted for the largest share of Iranian imports from neighboring countries during the period. Turkey followed with $4.39 billion worth of goods to Iran. Russia was next with $1.03 billion worth of goods exported to Iran.
Pandemic Effect
After the Covid-19 outbreak, the export of new products related to coronavirus, such as medical equipment and medicines, seemed a good opportunity to compensate some of the losses in earnings.
But in practice, due to restrictions on foreign exchange transfers and blockade of a portion of foreign exchange earnings by some of Iran’s trading partners, exports were not as successful as expected.
The pandemic led to closure of borders and restrictions on transfer of goods, and considerably reduced Iran’s foreign trade. This issue was more prominent in transactions with trading partners such as Turkey.
Other partners more or less imposed such restrictions due to concerns about the consequences of the Covid-19 pandemic, especially in the first months of the fiscal 2020-21.
The study of trade statistics from the fiscal 2018-19 to 2020-21 indicates that restrictions due to the spread of coronavirus alongside sanctions have caused an annual decline of 10% in the value of foreign trade, reaching the lowest level of $73.9 billion in the fiscal 2020-21.
Prospects for Improvement
Currently, the possibility of improvement in foreign trade has strengthened, as indirect talks are being held in Vienna, Austria, to revive JCPOA.
A third round of the talks is underway this week, in which representatives of Britain, China, France, Germany, Russia and European Union shuttle between US and Iranian delegations.
JCPOA limited the scope of Iran's nuclear program and in return, the Islamic Republic received relief from the US and international sanctions.
“In any case, the lifting of sanctions will have a significant impact on reducing trade risks and investment development in the country in order to stabilize the markets and create positive sentiments for investment," Nassiri said.
Referring to Iran’s trade agreement with the Eurasian Economic Union, she said Iran needs to deepen its ties with the bloc in the future.
“In the fiscal 2020-21, Iran’s exports to EEU hit $1.1 billion, registering a 4% fall compared with the previous year while imports from the Eurasian bloc stood at around $1 billion, showing a 16.5% decrease. Despite the trade value of $2 billion between Iran and the region, the figure is far from the expected level of trade. Therefore, the issue of deepening the agreement to the level of free trade is being pursued by the Institute for Trade Studies and Research,” she said.
The Eurasian Economic Union member states include Russia, Kazakhstan, Armenia, Belarus and Kyrgyzstan.
Iran and EEU signed a three-year provisional agreement in Astana, Kazakhstan, on May 17, 2018, for the bloc to welcome Iran into EEU. The arrangement, which lowers or abolishes customs duties, is the first step toward implementing free trade between Iran and the five members of the union. The PTA came into effect in October 2019.
Iran and EEU are holding talks on abolishing customs duties to achieve free trade with zero tariffs.
Overall, a combination of factors caused a decline in Iran’s trade volume over the years, most notably sanctions and more recently the Covid-19 pandemic.
With the possibility of the US sanctions’ removal, Iran has an opportunity to improve its foreign trade and gain a better foothold in international markets.
