Introduction
There is a dearth of studies on the impact of sanctions on countries imposing sanctions. This lack of research also extends to the literature on sanctions against Iran. Iran has faced US and European sanctions for several decades and has managed to navigate through them. Due to its limited involvement in the international economy, Iran enjoys a certain degree of immunity from sanctions. As a result, the intended goals of the sanctions have not been achieved, and the costs have outweighed the benefits. Beyond the economic consequences, there have been significant political and human rights implications as well (Dreyer & Luengo Cabrera, 2021: 2). Within the European Union, many experts view the use of sanctions as perilous, since they harm the Union’s economic and diplomatic interests without accomplishing their ultimate objectives. It is widely accepted that sanctions have been unable to induce a change in Iran’s behavior.
Numerous factors contribute to the waning effectiveness of sanctions over time. Target countries learn to manage their trade and establish economic partnerships with third countries, thereby mitigating the impact of sanctions. This phenomenon elucidates why many experts believe that the imposition of sanctions by certain countries against others does not yield the intended results. Sanctions can only be effective if the factors influencing their success or failure are known in advance, and appropriate tools are available to address them. Moreover, a global consensus to cease cooperation with the sanctioned country is essential for the effectiveness of sanctions. However, in the case of Iran, this consensus was lacking, and the preventive measure of neutralizing Iran’s tools for evading sanctions proved to be rather ineffective.
The Division of Europe on the Issue of Sanctions
When the sanctions were implemented, European countries held varying positions on their timing and execution. Britain and France staunchly supported the sanctions, while Germany considered them a last resort. Italy, due to its extensive economic, political, and historical ties with Iran, as well as its dependence on Iranian energy, advocated for negotiations and diplomatic solutions. Greece, unable to separate its economic interests in Iran from its political stance, heavily relied on Iran as its third oil supplier, taking advantage of favorable pricing and special payment arrangements. In retrospect, the implementation of the sanctions revealed the detrimental impact on Greece’s fragile economy. Despite these differences, European countries unanimously agreed to impose sanctions. This report examines the effects of the anti-Iranian sanctions on Europe, particularly within the financial sector, including the costs incurred, the loss of Iran’s lucrative market, decreased exports, and the rise in Europe’s unemployment rate.
Costs of Sanctions for Europe
Since the sanctions increased the costs of dealing with Iran, it was detrimental to the interests of European companies working with Iran. European member states suffered twice as much as the United States as a result of the sanctions on Iran. Notably, Germany incurred the highest costs, estimated to range between $23.1 billion and $73 billion (European Parliament, 2023, https://t.ly/wCN6o). Italy and France followed suit, with estimated losses ranging from $13.6 billion to $42.8 billion and $10.9 billion to $34.2 billion, respectively. Other European countries faced costs ranging from $145 million to $458 million (Leslie, Marashi, Parsi, 2020, 3).
Impact on Oil and Gas Industries
Sanctions had a significant detrimental impact on the economy due to their effect on Europe’s access to Iran’s market and oil and gas industries. This led to a situation where Asia’s competitors took advantage of the void left by Europe. The lucrative Iranian market was no longer accessible to European companies, resulting in substantial losses for them. Furthermore, European refineries were compelled to switch to alternative oils at high costs due to the sanctions on Iran’s oil and natural gas. This added burden worsened the already dire economic conditions faced by Southern European countries. Additionally, the sanctions increased Europe’s reliance on Russian energy sources. Lastly, another consequence of the sanctions was the escalation of oil prices.
Impact on the Banking and Insurance Sector
If the sanctions are lifted, several significant developments can take place in the banking and insurance sector. These include the establishment of branches of Iranian banks, affiliated companies, or representative offices in EU member states, as well as forging new partnerships through joint investments. Furthermore, the provision of insurance services and specialized services for individuals can also be facilitated.
Moreover, the lifting of sanctions would entail European countries’ obligations to extend financial support for trade with Iran. This would involve activities such as opening letters of credit (LCs), providing export insurance, and offering loans, financial aid, and preferential loan conditions to Iranian businessmen.
Decrease in Exports and Increase in the Unemployment Rate
One of the economic consequences of sanctions for Europe is the decline in exports and the subsequent rise in the unemployment rate. Iran was a significant trading partner for Europe, with substantial imports from European countries. There was even potential for further expansion of these relationships. However, the imposition of sanctions disrupted the upward trajectory of trade interactions and provided an opportunity for European competitors, such as China, to fill the void in the Iranian market. In 2011, more than 50% of Iran’s imports consisted of industrial goods, 30% were capital goods, and 20% were consumer goods (EconStor, 2023, https://t.ly/v4ROU). Iran also imported machinery and metal industries from Europe, in addition to transport equipment, chemical and plant materials. As Iran’s economy further industrialized from 2000 onwards, the import of raw materials increased. The total value of imports in the early 2000s was around $14.3 billion, which exceeded $60 billion by the end of the 2000s and reached $77 billion shortly before the commencement of the sanctions.
Following the sanctions, these numbers decreased to $52-58 billion. The total trade between Iran and Europe dropped from €27.7 billion in 2011 to €12.8 billion in 2012, with imports from Iran decreasing from €12.2 billion in 2011 to €5.5 billion in 2012. Although this reduction is significant, certain European countries were particularly affected, with southern European countries feeling the impact more profoundly (Giumelli, 2021: 26).
Among European countries, Italy experienced the greatest loss due to the inability to export to Iran, followed by Germany and France. The automotive manufacturing and construction sectors, both major contributors to the economy, were significantly affected by the sanctions.
In the early 2000s, Germany, France, Italy, and Greece were Iran’s most important trading partners in Europe, accounting for over a third of its imports and exports. However, this trade volume decreased significantly after 2005, as Iran adopted a policy of turning towards the East. In 2011, China, along with India and South Korea, emerged as Iran’s most important trading partners, while the share of Italy, Greece, and Spain in Iran’s foreign trade declined. The tightening of sanctions was the driving force behind Iran’s shift in trade direction towards China, India, Turkey, and the United Arab Emirates (World Bank, 2015, https://t.ly/34Eha).
Solution
To address the pressing issue of mistrust and the lack of progress in expanding and deepening relations between Iran and Europe, it is essential to engage in unofficial diplomacy alongside official diplomatic efforts. This form of diplomacy, commonly known as track II diplomacy, involves interactions between elites and non-state actors from both countries. In order to enhance relations between Iran and the European Union, governmental and non-governmental capacities must work together and reinforce each other. This approach, often referred to as hybrid diplomacy or one-and-a-half diplomacy (uni-wuerzburg, 2024, https://t.ly/mqmBt). Economic integration provides a huge guarantee for the implementation of the nuclear agreement.
Conclusion
The imposition of sanctions on Iran has had a complex and far-reaching impact over the past few decades, affecting not only the Islamic Republic of Iran but also the countries imposing the sanctions. These effects have made it challenging for all parties involved to return to the pre-sanctions era. Given that both Iran and Western countries, particularly Europe, are committed to resolving mutual problems, it appears that the lifting of sanctions by European countries will be a crucial step in improving relations between the parties. This article highlights the significant consequences of these sanctions on European countries as well. The costs of sanctions for Europe are substantial, particularly for southern European countries. Furthermore, the loss of Iran’s lucrative market, coupled with the rise of competitors like China, has had an adverse impact on Europe’s economic interests. This report focuses on the decline in exports and the increase in unemployment rates in European countries following the implementation of anti-Iranian sanctions. Considering that Germans view sanctions as a last resort, this tool clashes with the economic and commercial interests of European countries.
- Lana, Dreyer, Jose Luengo, Cabrera, (2021), Sanctions against Aggressors: Seven Lessons, European Union Institute for Security Studies.
- Uni-wuerzburg (2024), New Study Reveals the Costs of Sanctions, Accessible at: https://t.ly/mqmBt
- Leslie, Jonathan, Marashi, Reza, Parsi, Trita (2020), Losing Billions, Washington: NIAC.
- European Parliament (2023), The EU’s external relations, Accessible at: https://t.ly/wCN6o
- EconStor (2023), Financial Sanctions and the Imports of Intermediate and Capital Goods in Iran: DID Method, Accessible at: https://t.ly/v4ROU
- Giumelli, Francessco (2021), The Effectiveness of EU Sanctions, Brussels: EPC.
- World Bank (2015), Economic Implications of Lifting Sanctions on Iran, Accessible at: https://t.ly/34Eha
