Former President Jimmy Carter’s announcement of economic sanctions against Iran on April 7, 1980 aroused little enthusiasm except in Tehran, where crowds roared their approval of a formal break in ties with the “great Satan.” At home, hadn’t the freeze of Iranian assets, the longshoremen’s refusal to load Iran-bound goods, and the November ban on Iranian oil imports already reduced trade between the two countries to a trickle? In Europe, foreign ministers meeting in Lisbon on April 10 declined to heed Carter’s call. The Europeans, and the Japanese, had a stake in maintaining economic ties to the new regime. Western Europe as a whole was importing 650,000 barrels of Iranian oil a day. Italy had more than 1,500 nationals working in Iran on projects worth some $3 billion. Exports were beginning to recover from the shock of the revolution, averaging $40 million a month for the British, $60 million for the French and $130 million for the Japanese. By comparison, American exports to Iran in January and February combined had been a mere $1.8 million.

Ultimately, US pressure prevailed. Led by West Germany, the nine Common Market members announced in Luxemburg on April 22 their intention to implement an embargo on exports to Iran. Britain had proposed to cut off imports of Iranian oil as well, but this suggestion was defeated by the partners less endowed with oil. A non-political embargo on Iranian oil was already emerging in any case. On April 1, Iran had declared a $2.50 per barrel surcharge on its oil, lifting the price to $35 a barrel. Oil companies refused to pay the surcharge. The National Iranian Oil Company responded by shutting off shipments to BP and Shell (which together had been importing 205,000 barrels a day) on April 8, and to seven Japanese companies on April 21. As a result of the oil price dispute, European Community (EC) imports from Iran tumbled from $829 million in January 1980 to $100 million in October — a drop far more significant than any related to the sanctions.

The EC delayed putting the sanctions into effect until May 22 in the vain hope that diplomacy would render them unnecessary. Even before that deadline arrived, though, the British government broke ranks and refused to apply the embargo retroactively to November 4 — when the American embassy was seized — as had been previously agreed. The British move was criticized but by the end of June even West Germany had relaxed its support of the retroactive provisions of the sanctions accord.

An estimated 10 percent of the EC’s trade with Iran would have been affected if the accord had been honored to the letter. With the backdating provisions effectively discarded, however, the actual reduction was even less. Two out of three European companies surveyed claimed they adhered to the sanctions. The remaining third presumably took advantage of plentiful loopholes in the hastily formulated regulations. Several companies were reported to have falsely backdated their export contracts beyond the sanctions’ reach. Others presented new contracts as mere extensions or modifications of existing — and hence legitimate — commitments. In Britain, the sanctions received an especially vague and porous formulation; British exports to Iran more than doubled in 1980 over 1979.

Another device used to skirt the sanctions was shipments via third countries. British figures show a 38 percent leap in exports to Dubai — a short trip across the Gulf from the Iranian coast — from May to June. (Interestingly American exports to the United Arab Emirates had quadrupled from $100 million in January 1980 to $400 million in February.) Goods reexported from Dubai to Iran may in fact account for a substantial portion of the reduction in monthly EC exports to Iran that the sanctions apparently induced.

The sanctions may have been riddled with loopholes, but they did have an impact on Iran’s economy and foreign trade. Routing embargoed goods through middlemen in Gulf ports like Dubai, for instance, added to the cost of Iran’s imports. President Bani-Sadr said in August that imports were costing 25 percent more than before the sanctions came into effect, and that the increase was contributing to the country’s inflation rate.

A more important and long-lasting repercussion of the sanctions has been a decided shift in Iran’s trading partners from West European to socialist bloc, Third World and non-aligned European countries (Spain, Austria, Sweden and Switzerland). Within weeks of the sanctions date, Iran signed important new trade agreements with Rumania, India, Turkey, Spain and the Soviet Union. Throughout the eight-month period, it found new customers for its oil and new suppliers willing to replace a wide range of embargoed goods and services. Steel formerly purchased from West Germany was imported from Spain; Italian textiles were replaced by South Korean products. New machinery and spare parts orders went to India and Austria, whose exports to Iran tripled in 1980 from the previous year. Cigarettes were bought from Bulgaria, newsprint from the Soviet Union, and miscellaneous industrial equipment from North Korea. Trade with Yugoslavia soared from $26 million in 1979 to $146 million in 1980, with Iran importing paper, machinery, pharmaceuticals and food. Hungary became a supplier of industrial raw materials, electrical equipment, chemicals and technical assistance. India agreed on June 10 to send technical advisers to assist newly nationalized Iranian industries, to complete some industrial projects dropped by Western firms in the wake of the revolution; Indian companies also won orders for millions of dollars worth of consumer products, industrial machinery and materials, and military equipment.

On June 20, Iran signed a trade protocol with the Soviet Union that provided for expanded trade and for Soviet technical assistance in no less than 142 projects ranging from heavy industry to coal mining. Socialist bloc goods flowing into Iran through the Caspian Sea port of Bandar Anzali, the road crossing at Astara, and the rail link at Julfa amounted to 19 percent of Iran’s total imports in 1980, three times the level of the preceding two years. The Soviet Union is said to be improving transportation links between the two countries. An article in Ekonomicheskaya Gazeta extolled the virtues of Iran’s Caspian Sea ports, which the Soviets are dredging. (It is only 25 days from Hamburg to Bandar Anzali via the Volga-Don canal system, compared to 36 days to the Gulf ports via the Suez Canal.) Soviet engineers are expanding and improving railroad facilities at Julfa, the principal port of entry on the northern border, are electrifying a 90-mile stretch of railroad from Julfa to Tabriz, and are planning a second rail crossing near Astara.

Some of the trading partnerships that took hold during the sanctions period may last, others may turn out to be temporary. Iran was reported to be unhappy with the quality of South Korean textile staples, for example, and has returned to Western suppliers. There are other products for which the quality and quantities needed can only be imported from the West, and American, European and Japanese firms retain large export orders. But the days of their near monopoly on the Iranian market seem to be over.

How to cite this article:

Philip Shehadi "Economic Sanctions and Iranian Trade," Middle East Report 98 (July/August 1981).

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