Iran was a huge USD42 billion trading partner of the EU prior to the imposition of international sanctions. Most imports coming from Iran were energy related, while exports were mainly machinery, transport equipment, and chemicals. During the sanctions, the European bloc, once Iran’s top trading partner and its second-biggest oil customer, saw imports decrease by 86% and exports decrease by 26%, with the oil trade coming to a complete halt.
Since the beginning of negotiations, European countries took the diplomatic lead and played a critical role in the efforts to reach an agreement. France, Germany, and the UK, along with China, Russia, and the US, formed the P5+1 group, which joined the EU in its intention of restoring ties with Iran. After almost two years of arduous negotiations, the signing of the JCPOA carries the promotion of EU-Iran relations in order to step back to the pre-sanctions era.
To capitalize on the historic nuclear deal, President Hassan Rouhani paid a visit to Italy, the Vatican, and France in an important bid to rebuild relations with Europe. Deals worth nearly USD45 billion were struck during the Iranian president’s four-day visit after the lifting of sanctions. Italy, which was Iran’s largest European trade partner, agreed to cooperate in various sectors, ranging from steel to shipbuilding. Italian metal industry firm Danieli signed a USD6 billion contract to supply heavy machinery and equipment to Iran, while oil and gas contractor Saipem agreed to a USD4 billion deal to revamp and upgrade the Pars Shiraz and Tabriz oil refineries. Two months later, Prime Minister Matteo Renzi visited Tehran at the head of a 250-strong political and economic delegation, making him the first major Western figure to travel to Iran since sanctions were lifted.
After Rome and Paris, Brussels is also willing to re-engage with Tehran. Last April, the EU and the Islamic Republic agreed to boost trade to USD30 billion over the next two years. High Representative of the EU for Foreign Affairs and Security Policy and Vice-President of the European Commission, Federica Mogherini, visited Iran with another seven EU commissioners. They announced a program of cooperation with a view of opening an EU delegation in the Iranian capital. The two sides have strived to strengthen bilateral collaboration to enhance trade and investment in a wide range of sectors, such as agriculture, transport, energy, science, and education. The EU will also support Iran in its attempt to become a member of the World Trade Organization (WTO).
The agreement is expected to have a significant impact on both the economy of Iran and European markets. Leveraging its power as the world’s largest trading bloc, Europe is seeking the favor of a country with nearly 10% of global oil reserves and 18% of natural gas reserves. In March, an oil tanker covered the voyage from Iran to Europe for the first time since sanctions were lifted. According to the Ministry of Petroleum of Iran, the route will carry some 2 million bpd. Oil giant Total signed a contract with the National Iranian Oil Company (NIOC) to buy as many as 200,000 barrels of crude oil per day. Technology and investment from global integrated oil companies are expected to increase capacity from Iran’s oil fields and refineries.
The economic impact of a partial lifting of sanctions extends beyond the energy sector. European consumer-oriented companies are looking for an opportunity in a country with a population of 81 million. The development of tourism and converting Tehran into a regional financial hub are other reasons why European officials are determined to clear a path toward restored commercial relations.