Surrounded by fifteen neighboring countries through land and sea, Iran enjoys a very strategic geopolitical and economic position in the Middle East

and considering the U.S. recent actions for increasing pressure on the country’s oil industry, many economy experts and scholars believe that Iran should retaliate by focusing more on improving domestic production and increasing non-oil trade especially with its neighboring countries.

Earlier this month, the U.S. president Donald Trump announced that Washington is not going to extend the sanction waivers which allowed the Iran’s trade partners to buy oil from the country.

The U.S. expects the limitations on Iran’s oil trade to have a huge impact on the country’s economy and in fact they could be right if Iran doesn’t come up with ways to counter the situation or mitigated the impact.

One important way through which Iran can significantly reduce the negative impact of sanctions on its economy is to decrease the reliance on oil and improving other sources of income including non-oil trade.

In this regard, developing non-oil trade with the neighboring countries, not only saves the country lots of costs and shipping difficulty but also will result in stronger political and strategic ties with them and consequently benefit all the involving nations.

According to the Iranian industry, mining and trade ministry, currently only two percent of the total imports of Iran’s neighbors comes from the Islamic Republic and considering the 15 nations’ near 600 million market, one can see how unsatisfactory the level of trade is and how great of a potential is still untapped.

The neighbors
As mentioned before, Iran shares border with fifteen countries, namely the United Arab Emirates, Iraq, Turkey, Afghanistan, Pakistan, Russia, Oman, Azerbaijan, Turkmenistan, Kuwait, Qatar, Kazakhstan, Armenia, Bahrain, and Saudi Arabia.

Based on the latest data published by Iran’s Trade Promotion Organization (TPO), the value of trade with the neighboring countries stood at over $36.5 billion in the past Iranian calendar year (March 2018-March 2019), that is about 41 percent of the country’s total non-oil trade in the mentioned time span.

The country, however, doesn’t have equal trade with all the mentioned nations and Iraq, Afghanistan, Pakistan, Oman, Azerbaijan, Kuwait and Turkmenistan account for most of Iran’s trade with its neighbors.

Top trade partner
As Iran’s top trade partner in the region, Iraq is one of the most important nations that the Islamic Republic is closely interacting with on many levels and considering the two country’s great potentials for mutual trade, both sides are eager for increasing their trade turnover to a level much higher than its current amount.

The Arab neighbor supplies most of it electricity and gas needs from Iran and imports a wide range of non-oil commodities from Iran including foodstuff, home appliances, agricultural products, air conditioners and spare car parts.

Iran and Iraq’s current trade turnover stands at $12 billion which is the highest among all the neighboring countries. Earlier in March, Iranian President Hassan Rouhani announced in an Iran-Iraq business forum in Bagdad that the two countries plan to boost this number to $20 billion in the near future.

Iran’s non-oil trade data for last year, indicates that exports to Iraq accounted for more than 37 percent of Iran’s total exports to the neighboring countries and the number increased by over 36 percent compared to the preceding year. In terms of imports, however, Iraq stands at the seventh place among exporters to Iran in the region which consequently pushes the trade balance between the two countries significantly positive toward Iran.

The impact of U.S. sanctions
Aside from the oil industry, the U.S. sanctions are aimed to limit Iran’s non-oil trade through restricting the access to the global markets which are mainly dollar-driven.

Countering this situation, Iran and Iraq reached an agreement in February 2019 to trade in national currencies and well as euro in order to facilitate trade transactions.

Despite all the U.S. pressures, Iran and Iraq are clearly determined for expansion of all-out ties and both sides are taking all the necessary measures in this regard.

President Rouhani’s high profile visit to Iraq in March, is a clear indication of how much the sides are willing to have even closer political, economic and cultural ties. The visit was described as “historic” by some analysts. 

Final thoughts
Iran’s neighbors could be considered the country’s winning card in the face of increasing economic pressures by the United States.

Beside the efforts for maintaining oil exports, the country should also focus on improving domestic production and increasing non-oil trade with its neighbors, since the problems with the shipping and transportation are also significantly less in trade in close ranges.

Among Iran’s trade partners in the region, Iraq holds a very special place in terms of both political and economic importance. Of course the relationship between the two countries is mutual and in order to reach the desired levels of cooperation, both sides need to push further and take practical action in developing ties in all areas especially in economic sectors.