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Foreign trade and its importance in the economy of Iran in the international sanctions context: focus on the unilateral United States sanctions
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Foreign trade and its importance in the economy of Iran in the international sanctions context: focus on the unilateral United States sanctions

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Iran is one of the world’s most closely watched nations as a historical entity, about 2.500 years ago, of the Achaemenids Dynasty (559 to 330 BC) period. …

Iran is one of the world’s most closely watched nations as a historical entity, about 2.500 years ago, of the Achaemenids Dynasty (559 to 330 BC) period.

The Islamic Republic of Iran (denomination after the revolution in 1979), also know as Persia territory, as historical entity and despite political, religious, and historic dimensions of the society, Iranians maintain a deep connection to their past.

The Iran’s economy is a mirror of the International Community nowadays. Economic policies and decision-making process in economic terms are guests from the international sanctions, particularly the unilateral sanctions from United States of America, which accuse Iran of supporting international terrorism and maintain the nuclear programme as global weapons.

Kinzer et al. (2005: 61) wrote about the impact of sanctions against countries, he said “this isolation has hampered the short and long term growth of its markets, restricted the country´s access to high technology, and impeded foreign investment”.

A form of foreign pressure, sanctions are typically meant to alter the policies of other countries. There is much pessimism on whether they ever work.

The main question, related with this working paper, and we should do is how Iran can trade in the economic global arena, in the contemporary global markets in the sanctions context? Can we found true economic policies in this context and with the contemporary conservative politicians, with the leadership of Mahmoud Ahmadinejad, since 2005? Can the economic sanctions destabilize the Iran government, the target of the International Community? Understand the political economy, especially the foreign trade and the impact of the international sanctions in the economy of Iran is the purpose of this paper, with special focus on the United States sanctions, in the line of Marinov (2005).

We using the electronic database of The World Factbook published by Central Intelligence Agency (CIA), The Statistical Centre of Iran, World Trade Organization, United Nations and European Union, and a qualitative research based in published academic work until 2003.

Key-words: International community; International sanctions; Impacts; Foreign trade; Iran;

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  • 1. my report is about one country in the world…
  • 2. … .one country with an ancient history… The Elamite Empire, 2500 - 644 Before Christ (BC) 332BC The Achaemenian Dynasty & the Great Persian Empire which was the dominant world power for over two centur.ies… 550BC Cyrus the Great established the First World Empire 525BC Persia conquers Egypt 332 BC Alexander the Great conquers Egypt and Persia 323 BC The Seleucid Dynasty was established by one of generals of Alexander the Great 247 BC The Parthians conquered the Seleucids   224 AD The Sasanian Dynasty 570 The Prophet Mohammad was born 632 The Prophet Mohammad died and his teachings were compiled into the Koran, the name of the holy book of Islam 642 The Arab Caliphate
  • 3. … history and powerful geography… Achaemenian Dynasty & the Great Persian Empire (559 - 332BC)
  • 4. one country where the history made changes… … After Christ -> The Islamic Revolution (1979) 1220 Mongol Era when Persia conquered by Gangis Khan 1271 The explorer Marco Polo journeyed through Persia en route to China 1295 Ghazan Khan becomes the first Mongol leader to convert to Islam 1501 (1501-1524) Safavid Dynasty founded by Shah Ismail I who united all of Persia under Iranian leadership   1795 Qajar Dynasty 1851 (1851-1906 )- The Qajars lost central Asian provinces to the Russians and were forced to give up all claims on Afghanistan to Great Britain   1925 1925-1940 - Pahlavi Dynasty 1979 The Shah was overthrown by the Islamic Revolution ending 2,500 years of monarchy 1980 July 29: The Islamic Revolution
  • 5. The first human habitat belonging to about 10,000 years ago has been found in the northwest of Iran in the form of tents and mud houses… The first agricultural tools including mill and also storage for grains and simple ceramics can be found…
    • Tool making techniques;
    • Gathering and storing food;
    • Production and rural settlement.
    … changes in the country and in the world Neolithic age which has started after the Meta-Paleolithic age in the Iranian Plateau Rural areas -> Urbanization Ali Tapeh – Kamarband - Ganjdareh - hills in Harsin - Tapeh Sarab…
  • 6. … geography and one rich land…
  • 7. … changes in the world, because of the strategic position…
  • 8. … change, the world saw… … Tehran
  • 9. … one country… … in 1979… … in 2005 ->
  • 10. … one country and the international relations
  • 11. … what the world can see now…
  • 12. Foreign trade and its importance in the economy of Iran in the international sanctions context Eduardo Oliveira October 2010 University of Minho School of Economics and Management
  • 13. Contents
    • Overview (from the past to the present);
    • Introduction;
      • Demography;
      • Economy;
      • Trade partners;
    • The players;
    • US and Iran sanctions;
    • Conclusion.
  • 14. Demography (brief) July 2010 the population of Iran was of 67.037.517 people (71.481.577 according with Encyclopedia Britannica).
  • 15. Main sectors and trade partners Main sectors and trade partners Iran’s economy -- Main sectors and trade partners Petroleum Natural Gas Germany Switzerland Agriculture products Manufacturing International Trade Japan China France
  • 16. Economy (brief) Table 1 - Oil production in 2009 (top 10 and Malaysia position). bbl/day 1 Russia 9,932,000 2 Saudi Arabia 9,764,000 3 United States 9,056,000 4 Iran 4,172,000 5 China 3,991,000 6 Canada 3,289,000 7 Mexico 3,001,000 8 United Arab Emirates 2,798,000 9 Brazil 2,572,000 10 Kuwait 2,494,000 27 Malaysia 693,700 Source : CIA, 2010
  • 17. Economy (brief II) Table 2 - Oil export in 2009 (top 10 and Malaysia position). bbl/day 1 Saudi Arabia 8,728,000 2 Russia 4,930,000 3 United Arab Emirates 2,700,000 4 Canada 2,421,000 5 Norway 2,383,000 6 Kuwait 2,349,000 7 Nigeria 2,327,000 8 Iran 2,210,000 9 European Union 2,196,000 10 Venezuela 2,182,000 30 Malaysia 511,900 Source : CIA, 2010
  • 18. The role of the oil industry Source of Illustration 1 : Rehaman (2008: 40). Adapted. Source of Illustration 1 : Rehaman (2008: 40). Adapted. High oil and gas income Government surpluses and private wealth Capital deployment International investment International spending Increase importance in global markets Local investment Local government spending Local consumption Stimulate local economy and promote additional private sector investment
  • 19. The trade, the sanctions and the players The economic sanctions on Iran were originally started by US President Jimmy Carter in 1979 and have been more or less in effect in various forms until the present time.
  • 20. US and Iran sanctions (Carter/Clinton/Bush)
    • 1979;
    • President Clinton used economic sanctions for dual containment of Iran and Iraq during his administration.
    • In April 1995, he tightened the sanctions by announcing comprehensive trade and investment embargoes against Iran;
    • Reasons:
    • Iran’s continued support for terrorism , pursuit of access to nuclear weapons , and supporting groups that use violence to oppose the Middle East peace process. Surprising to many observers, the US did not include the clerical regime’s abuse of human rights as one of the official reasons for imposing the embargoes.
  • 21. Now: the main reasons -> Nuclear programme
  • 22. The literature on sanctions and the impacts:
    • Sanctions policies are generally ineffective in the post-Cold War era.
    • Sanctions can be an effective foreign policy tool when targeted
    • smartly on the ruling decision makers.
    Richard D. Farmer, 2000 Cortright and Lopez, 2002
    • US sanctions have not produced the anticipated results or transformed the Islamic regime (Iran) .
    Jahangir Amuzegar, 1997
  • 23. The literature on sanctions (II):
    • Sanctions have not persuaded Iran to change its behaviour..
    Patrick Clawson, 1998
    • US can better achieve its goals through some sort of dialogue
    • with Iran.
    Kamran Dadkhah and Hamid Zangeneh, 1998
    • Claims that the net assessment of the economic impact of US sanctions on Iran is negative and believes the US should unilaterally lift the sanctions.
    Ernest Preeg, 1999
  • 24. Trade and international relations:
    • Before the Iranian revolution in 1979, the United States was one of Iran’s major trade partners .
    Torbat, 2005 1978 US : 16% share of Iran’s imports; Germany : 19% share of Iran’s imports; After the revolution Group of students on 4 November, 1979, detained 52 American hostages in the US Embassy’s compound 1979 US Allies The US expected its allies to support the sanctions by boycotting purchase of Iranian oil, but none of them did. They did not want to change their commercial relations with Iran as the US wished… US sanctions
  • 25. Trade and international relations:
    • Their trade volume with Iran was substantially higher compared to the US .
    • Germany exported four times more to Iran than the US;
    • Japan twice as much;
    • Italy twice as much;
    • France slightly more than the US.
    • Moreover, they did not believe the sanctions could have that much political impact on Iran’s behaviour; .
    • In 1992, the EU had adopted the so-called ‘critical dialogue’ policy , which meant criticising the Islamic regime’s behaviour on some issues of concern while having diplomatic and economic relations with it;
    • : Struwe, 1998.
    Torbat, 2005 US Allies reaction sanctions in 79’ Trade
  • 26. Sanctions:
    • US Export Sanctions;
    • US Non-oil Import Sanctions;
    • US Oil Import Sanctions;
    • Financial system;
    • Foreign Borrowing ;
    • Financing Oil Projects
    • The Cost of Financial Sanctions
    Torbat, 2005 Impact
    • Economic Effect:
      • Short-term AND long-term;
    • Political Effect ;
      • Terrorism;
      • Human rights;
      • Nuclear Technology;
      • The Middle East Peace Process;
    Effects US - Iran
  • 27. Sanctions impact: US - Iran
  • 28. Torbat, 2005 Iran’s Oil Buyback
  • 29. Torbat, 2005 Adverse Impact
  • 30. Torbat, 2005
    • The trade sanctions’ effects:
      • Iran’s non-oil exports and capital goods imports have been significant as compared to their effect on Iran’s oil exports.
    • The financial sanctions’ impact :
      • Has been greater than those due to the trade sanctions. The financial sanctions have curtailed Iran’s ability to borrow funds and to finance its oil development projects . Because of the sanctions, Iran has paid higher rates of interest on its loans and has guaranteed excessively high rates of return on investment on its oil buyback projects.
      • On the whole, the trade and financial sanctions’ cost to Iran was estimated to be about 1.1% of Iran’s GDP ; this is a significant hindrance to Iran’s economic growth, which has been at a rate of 4.7% per year on average over the last five years.
    • The political impact:
      • Has not been quite so notable. However, recently some progress has emerged on the targeted issues about which both the US and the EU have common concerns.
    US sanctions have had some economic success by causing damage to the Iranian economy: Sanctions Impact: Conclusion
  • 31. References
    • Vorgelegt von, Diplom-Kaufmann, Naser Hekmat, Assessment of the Economy of Iran and Statistical Analysis of the most important Indicators especially during the Past Three Decades with special focus on Foreign Trade along with short term Forecast of some Economic Indexes (2005).
    • Ali Gheissari, Contemporary Iran, Economy, Society, Politics (Oxford, 2009).
    • Steven Kinzer et al., Iran - The Essential Guide to a Country on the Brink (Encyclopedia Britannica 2005).
    • Rehaman, Aamir A., Dubai & Co.: Global strategies for doing business in the Gulf states (Mc Graw-Hill 2008)
    • Henderson, Joan C., “Tourism in Dubai: overcoming barriers to destination development” International Journal of Tourism Research. 8 (2) (2006): 87–99.
    • Sedigheh Atrkar Roshan (2007), “Export linkage to economic growth: evidence from Iran”, International Journal of Development , Vol. 6 (1): 38-49.
    • Jalali-Naini, Ahmad R. (2006), “ Economic Growth and Economic Policy in Iran: 1950–2003”, Contributions to Economic Analysis , Vol. 278, Chapter 9:267-305
    • Moghadam, Fatemeh Etemad (2001), “Iran’s new islamic home economics: an exploratory attempt to conceptualize women’s work in the islamic republic”, The Economics of Women and Work in the Middle East and North Africa , Vol. 4 (s/n): 339–360.
    • Torbat, Akbar E. (2005), Impacts of the US Trade and Financial Sanctions on Iran .Blackwell Publishing Ltd 2005, USA.
    • Kronstadt, K. Alan (Coord.) and Katzman, Kenneth (2006), “India-Iran Relations and U.S. Interests”, Congressional Research Service - The Library of Congress.
    • Katzman, Kenneth (2006), “The Iran-Libya Sanctions Act (ILSA)”, Congressional Research Service - The Library of Congress .
    • Valadkhani, Abbas (2004), “What determines private investment in Iran?”, International Journal of Social Economics , Vol. 31 (5/6): 457-468.
    • Doessel, D.P. and Valadkhani, Abbas (1998), “Economic development and institutional factors affecting income distribution: the case of Iran, 1967-1993”, International Journal of Social Economics , Vol. 25 (2/3/49: 410-423.
    • Guillaume, Dominique and Zytek, Roman (2010), International Monetary Fund - Islamic Republic of Iran, Selected Issues, Middle East and Central Asia Department.
    • Bahmani-Oskooee, Mohsen (1999),“The long-run relation between a black market exchange rate and the trade balance Evidence from Iran”, Journal of Economic Studies , Vol. 26 (2): 121-129.
    • Akhavan, Peyman and Jafari, Mostafa (2008), “Towards learning in SMEs: an empirical study in Iran”, Development and Learning in Organizations - Emerald group publishing limited Vol. 22 (1):17-19.
  • 32. Credits I am Eduardo Oliveira, from Portugal. I’m doing a MSc. in Marketing and Strategic Management, in the School of Economics and Management, University of Minho, final year. My dissertation is about “Networks and Place Branding: Minho as International Brand”. Until December, I will stay in Malaysia as exchange student in University Sains Malaysia (USM) with a scholarship from the European Union. In USM, I attend courses in International Political Economy and Political and Decision Making in European Union and also courses in Marketing. I reserved my free time to do some research in destination marketing and place branding, my favorite topics and improve my skills in global issues, like climate change, sustainable development and explore the most controversial topics in the international political economy context. My main goal is to understand the economic and local markets, the consumers’ needs in the global economy and search for new ways to achieve a sustainable world. Email address : [email_address] URL: http://www.eduardoo.pt.vu In Malaysia: +601 25 792 867 In Portugal: +351 91 70 60 153