Germany’s recent announcement that it would suspend trade promotion programs for Iran does not mean severance of commercial ties between Tehran and its longstanding trade partner in the European Union, says Hamid Hosseini, an economic expert.
“European countries have gone through special economic conditions in the past months. I hardly remember a double-digit inflation rate and months-long rises in expenses in many European countries, but the economic shocks that appeared following the war between Russia and Ukraine have affected Europe’s economy negatively. In the meantime, Germany, the largest economy in the European Union, has experienced a significant pressure, struggling with serious challenges, especially in energy. Higher government spending to support people and lower energy prices are one of the policies that can prolong the difficult situation in this country, thus it is unlikely to completely sever its ties with Iran,” he wrote for the Persian daily Ta’adol
Germany says it is suspending trade promotion programs for Iran, citing the “very serious situation” in the country, referring to recent protests in the Islamic Republic.
As Bloomberg reported, the suspension — days after the EU’s top diplomatic representative said relations with Iran were deteriorating — affects loan and investment guarantees that opened up in 2016 after Iran’s nuclear agreement (known as the Joint Comprehensive Plan of Action), but have been dormant since at least 2019, the Economy Ministry in Berlin said in a statement on Friday.
“After Angela Merkel, former chancellor, left office, the rightwing parties gained more power in Germany. Under the influence of media, the European country tried to show support for the protests in Iran and announced it would cut off ties with Iran. The move does not include the severance of commercial ties though; it is about economic guarantees,” Hosseini wrote.
Suspension of Guarantees
Investment guarantees have been suspended and loan guarantees will halt in January, with the exemption of humanitarian exchanges.
Germany’s trade promotion agency, known as Germany Trade and Invest, and Germany’s business promotion office in Iran have “reduced their activities to a minimum,” according to the statement.
According to AP, export credit guarantees protect German companies from losses when exports aren’t paid for. Investment guarantees are granted to protect direct investments by German companies from political risk in the countries where they are made.
An article in Forbes also suggested the impact on trade flows between the countries may not be too great, given no new guarantees have been granted since 2019.
Ever since JCPOA came into effect in 2016, German investment guarantees were given or extended for a small number of projects, with a total value of around €123 million.
The deal unraveled under former US president, Donald Trump, after he walked out unilaterally.
It has been a similar situation for export credit guarantees. There were €176 million in 2017 and €37 million in the following year, but none since then.
"Given that Iran cannot use LC under sanctions, a significant part of its imports from Germany are carried out through prepayment, this is in itself the main guarantee for German exporters. Therefore, in practice, we might not notice a significant change, but the German government usually considers credit lines centered on commercial insurance so that companies can do business with Iran; if the companies face a problem in financial settlements, they have the chance to use this credit line. As a result, even if we don’t see this decision by the German government as a political issue but rather an economically influential one, the impact on German companies will be greater,” he added.
Noting that Germany has been one of Iran’s main trading partners in Europe, Hosseini said Iran won’t be able to find a replacement for the country in the short run.
“Therefore, while the economic pressures on the German government in the past months and the risk of another wave of Covid-19 in the world should be taken into account, Iran needs to try to avail itself of all the opportunities, such as the Joint Comprehensive Plan of Action and the improvement of cooperation and avert a complete end of relations with Germany,” he said.
Latest data released by Eurostat, a directorate of the European Commission located in Luxembourg, show the two countries exchanged over €1.6 billion worth of goods during the first ten months of 2022, 15.44% more than in the similar period of the year before. Iran’s exports stood at €234.48 million and Germany’s at €1.36 billion.
