An End to German Business in Iran?

German economic circles are increasingly concerned that the ongoing conflict over Iran's nuclear policy, coupled with American threats of sanctions or even military intervention, could damage the close economic relations between Germany and Iran.

The economic exchange between the two countries has been a true success story: Germany is Iran's economic partner number one. And even though Iran comes only thirty-fifth on the list of Germany's economic partners abroad, it is an up-and-coming market with a significant growth potential.

Regional economic power

With its 70 million inhabitants, Iran is the largest market in the region. Additionally, Iran has a large pool of educated workforce and a relatively good infrastructure for production and commerce.

Thanks to its central position, Iran could become an important commercial hub for the entire region and an ideal starting point for German businesses in that part of the world.

Exports to Iran support German growth

The German economic engagement in Iran itself is also very promising: around twelve percent of international joint ventures in Iran are German, with a turnover of half a billion euros ($620 million). Even more importantly, German exports to Iran have doubled since 2000 to almost 3,6 billion euros. Last year alone, German exports rose by one third, and in the first months of this year, by additional 40 percent. Particularly striking was the development in mechanical engineering: here, German exports have quadrupled within a year to 1.2 billion euros.

Some German businesses have invested directly in Iran. Linde AG, for instance, has invested almost half a billion euros in the Iranian oil industry. German carmakers such as Volkswagen and Audi have made their entries onto the Iranian business market with their assembly facilities.

Turning Iran into an election issue

But Germany is also one of the three European countries that have been negotiating with Iran over its nuclear policy. These negotiations, however, reached a dead-end when recently Iran resumed uranium conversion in one of its nuclear facilities. The "E3" had previously come closer to the American position requesting broad concessions from Iran.

Yet when it comes to American threats of sanctions or even military intervention in Iran, Germany is especially hesitant. The German chancellor's clear rejection of the military option may have to do with the upcoming elections in Germany. But it is also aimed at protecting the German economic interests in Iran.