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German-Iranian business falters

Hardy Graupner
June 27, 2019

Business ties between Germany and Iran have suffered a major setback in recent months. US sanctions against Tehran are ratcheting up pressure on German companies, which have found it hard to stand their ground in Iran.

Iranian oil worker in a refinery south of Tehran
Image: picture-alliance/AP Photo/V. Salemi

The United States' clampdown on Iran has had a major impact on trade relations between Germany and the Middle East country.

According to the Association of German Chambers of Industry and Commerce (DIHK), German exports to Iran plummeted by 50% in the first quarter of this year, compared with the same period in 2018. Shipments to Iran amounted to €339 million ($385 million) in the first three months of this year.

In 2018, the main German export items were machinery, mechanical devices as well as pharmaceutical and electrical products, but trade flows have been crippled.

Things aren't any rosier when it comes to German imports from Iran as DIHK statistics bear out. In the January-to-March period, Iranian exports to Germany dropped by almost 42% year on year, reaching a mere €60 million and focusing on pistachios, carpets and a limited amount of steel and fuels.

Facing a full-fledged embargo

The DIHK's Volker Treier concluded "the US sanctions are impacting bilateral trade relations between Germany and Iran like a full-fledged trade embargo, especially because the financial sector is being targeted."

The German-Iranian Chamber of Commerce and Industry (AHK) expects Iran's gross domestic product (GDP) to shrink by 5% this year, and by a staggering 10% in 2020.

The trade body's managing director, Dagmar von Bohnstein, told DW "the US sanctions are hitting Iran directly with regard to inflation, currency devaluation and unemployment."

Iranian shoppers
Vendors in Iran also feel the pinch of US sanctions as people's purchasing power declinesImage: DW/Judit Neurink

"German companies still willing to be in this market, to do trade and make investments in Iran are facing really big problems," she explained, adding that "among them is the fear to lose the US market."

German firms operating in Iran have no doubt heard US President Donald Trump's stern warning that "anyone doing business with Iran will not be doing business with the United States," as he wrote on Twitter last year.

Weighing the options

Brussels has told EU firms not to bow to US pressure and sanctions as the bloc did not approve of the United States' walking out of the Iran nuclear treaty with the West. But for many, if not most German players, the US market is too important to risk any disruptions by remaining engaged in Iran.

Big companies such as Daimler, Volkswagen, Siemens and Bayer were the first to halt their operations in Iran. But many others, including small and medium-sized enterprises, have meanwhile turned their back on the Middle East nation.

In point of fact, only 60 of the 120 German firms once active in Iran remain in the country, according to the DIHK. And those still on the ground "are having problems with costly money transfers — if you find a bank to transfer money at all," said Dagmar von Bohnstein.

There has been an initiative by France, Britain and Germany to set up Instex, a company that would allow EU firms to trade with Iran without the involvement of direct financial flows targeted by the US, but right now the mechanism isn't fully operational yet.

EU leaders have indicated, though, that Instex would soon get a proper credit line to get transactions off the ground. This, however, may prove to be too little too late.

Iran now only ranks 62nd among Germany's most important trading partners. That's a far cry from the 1970s, when the nation was Germany's second-most important trade partner outside of Europe, only trailing the United States.

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