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President Trump's decision to pull out of the 2015 nuclear deal
with Iran and reimpose sanctions is likely to accelerate Tehran
nation's turn toward China, Russia and the European Union, and
exacerbate trade tensions with the EU, a traditional US ally.
The 2015 accord, negotiated by the US, UK, Russia, France, China
and Germany, reestablished normal trade ties with Iran in
exchanging for curbs on its nuclear program.
Trump pulled out of the deal on May 8, saying Iran has violated
terms, and calling it "one of the worst and most one-sided
transactions the United States has ever entered into." Trump said
the US would relaunch sanctions, and the US has said it will
penalize companies that do business in Iran.
The European Commission has responded by saying it would
reactivate a law that prohibits European firms from pulling out of
business with Iran because of US sanctions. Some companies, such as
shipping line AP Moller-Maersk, have said they'll have to withdraw
from Iran to protect their US business.
"We have the duty, the Commission and the European Union, to do
what we can to protect our European businesses," especially small
and medium-sized firms, said European Commission President
Jean-Claude Juncker.
The US threatened to sanction European companies doing business
with Iran. Europeans "will see that it's in their interest
ultimately to come along with us," said US National Security
Adviser John Bolton. It's unclear how the differences between the
US and EU over trade with Iran will be resolved.
There's a reason for Mr. Juncker's insistence. EU firms have
expanded their presence in Iran this decade, and shrinking it could
cost Europe thousands of jobs and billions in lost export
revenue.
Iran, a $1.6 trillion economy that has valuable oil resources
and is geographically close, is a natural fit for commerce with
Europe. Four of Iran's top 10 trading partners are European.
Among the world's major economies, Germany likely has the most
to lose from a disengagement with Iran, according to an analysis of
the IHS Markit Global Trade Atlas database. Berlin runs the world's
biggest trade surplus with Iran, and three of the world's top five
surpluses with Iran are European.
Iran's biggest trade deficits. 2017
Germany $2.9 billion
Brazil $2.5 billion
Russia $922.7 million
Belgium $520.3 million
Sweden $493.5 million
Germany's booming manufacturing sector ships TVs, cars, and
electric machinery to Iran, and should be able to continue if the
EU meets its goal of putting legislation in place by early August,
when sanctions are scheduled to take effect.
Germany's top exports to Iran, 2017
Electric machinery $1.1 billion
Medical, optical equipment $337.8 million
Sound, TV, electronics $260.1 million
Pharmaceuticals $259.2 million
Cars, trucks $227.2 million
Despite the EU's push, it's competing for market share with
China, India and South Korea, Iran's largest trading partners. In
particular, Tehran and Beijing have been ramping up their
commercial ties. Total trade between China and Iran rose to $37.2
billion in 2017 from $2.5 billion in 2000.
Total trade with Iran, 2017
China $37.2 billion
India $13.6 billion
South Korea $12 billion
Turkey $10.8 billion
Italy $5.8 billion
Japan $4.5 billion
France $4.3 billion
Germany $3.8 billion
Brazil $2.6 billion
Spain $2.2 billion
In return for shoes, iPhones, bicycles and other goods, Iran
sends oil to China, but it's also been developing a thriving export
industry of petroleum derivatives, such as plastics, fertilizers
and rubber. The top category of exports that is not industrial is
coffee, tea and spices, worth a mere $11.4 million in 2017.
Top Iranian exports to China, 2017
Fuel $12.2 billion
Plastics $2.3 billion
Ores, Slag, Ash $2.1 billion
Organic chemicals $1.3 billion
Salt, sulfur $297.2 million
Copper $230 million
Fertilizers $26.6 million
Aluminum $15 million
Rubber $14.9 million
Coffee, tea, spices $11.4 million
Iran runs big trade surpluses with countries that buy oil and
don't ship back much in return, such as India, Turkey and South
Korea.
Iran's biggest trade surpluses, 2017
India $8.4 billion
Turkey $4.2 billion
South Korea $4 billion
Japan $2.7 billion
Italy $1.9 billion
One part of global trade that won't be disrupted by sanctions:
trade between the US and Iran, conducted by niche businesses and
worth only around $200 million in 2017. Iran shipped carpets, art
and coffee to the US.
Top Iranian exports to US, 2017
Carpets, textiles $53.4 million
Works of art $5.4 million
Edible fruits, nuts $1.2 million
Coffee, tea, spices $688,105
Fruits, nuts $688,051
In return, the US sent oil seeds, grains and packaged food to
Iran.
Top US exports to Iran, 2017
Oil seeds, grains $36.6 million
Wood pulp $18.4 million
Edible preparations $14.6 million
Optical medical equipment $12.5 million
Organic chemicals $11.7 million
As with the Trans-Pacific Partnership agreement, the US faces
the risk that other countries will carve out their own trading
relationships, cutting out Washington, and US companies.
At the same time, the US retains the ability to impose enormous
pressure on European companies by restricting access to its market,
a $20 trillion economy that is still the world's largest.
The friction in the trans-Atlantic trade relationship will force
tough decision for major European companies like Maersk, or Airbus.
The Toulouse-based plane maker recently signed a contract to ship
around a hundred planes to Iran Air.
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with comments and questions.
The Trade Numerologist is IHS Markit's unique weekly look at
global trade by award-winning journalist John W. Miller, formerly
of the Wall Street Journal, using proprietary numbers from IHS
Markit's Global Trade Atlas database, the world's most complete and
accurate set of trade numbers.