Iran-South America trade suffers as relations thaw with the West

Iran-South America trade suffers as relations thaw with the West

Iran’s relations with South America under former president Ahmadinejad now face a decline in economic cooperation, as Iran mends its ties with the United States. Will improved relations between Iran and the West have economic consequences for South America? 

As attention turns to Iran’s tentative cooperation with its geopolitical rival, the United States, in efforts to combat ISIS in Iraq, an important series of meetings, and a key July 20 deadline for a nuclear deal, recede into the background.

The P5+1 talks  and meetings between the foreign ministers of the EU and Iran have yielded significant economic relief for Iran’s oil and petrochemical exports, as well as ushered in the possibility of lasting rapprochement between recent historical rivals.

This change has been felt by Iran’s economy, most notably in the improvement of economic relations with the United States, even as the political outlook of a nuclear deal remains open, and the chances of an extension of a July 20 deadline on reaching a nuclear deal loom larger.

Old allies suffer from thawing relations with the West

The gradual lifting of the sanctions regime, which caused a significant economic downturn in Iran in 2012 and helped elect political moderate Hassan Rouhani in August 2013, has also affected the Iranian regime’s view of countries that serve as traditional allies.

Indeed, while Iran improved its economic ties to several key countries in South America between 2005 and 2013, after the election of Rouhani in 2013 those relations have stagnated or declined. The most important economic partner between 2011 and 2013, Argentina’s trade with Iran grew 11.5% in 2012 to reach $1.3 billion in trade between the two countries. Meanwhile, Iran’s exports to Argentina grew by 9.4% to $16.8 million. Its two largest trading partners on the continent, Argentina and Brazil, made up for a total of $3.7 billion in trade in 2012.

Iran’s political alliances on the continent were also strengthened under the presidency of Mahmoud Ahmadinejad, and may have skewed the real economic gains of political deals, which have now stagnated. For example, Iran entertained strong relations with Venezuela under deceased president Hugo Chávez, as well as Cuba, Bolivia, Ecuador and Nicaragua.

Nonetheless, while Venezuela, after China, ranked second in terms of the number of contracts with Iran, these agreements have largely been postponed or cancelled. Iran’s exports to Venezuela were only $19.4 million in 2013, and Iran imported no goods from Venezuela in 2013. In terms of cooperation in the oil sector, the director of Iran’s national oil company, NIOC, has signalled the company had already closed its offices in Venezuela and Bolivia, and would close further offices across the continent.

1994 bombing haunt relations with Argentina

Still, not all political alliances under Ahmadinejad were purely alliances of convenience: while Iran’s exports to Argentina grew in 2012, its comparative imports declined, leading to a positive balance of trade for Iran in the period leading into the presidency of Hassan Rouhani.

The case study of Argentina is particularly significant: no leader of Iran has ever set foot in Argentina, largely in connection to the unresolved 1994 bombing of a Jewish community centre in Buenos Aires. Ahmadinejad paid over eleven visits to other countries in South America during his presidency.

While Argentina’s economy is vulnerable to political risk, a recent court decision regarding intergovernmental cooperation between Iran and Argentina on the case of the 1994 AMIA bombing, which declared such cooperation unconstitutional, was challenged by President Cristina Fernández Kirchner, presumably to avoid harming economic relations with Iran, which denies involvement in the attack.

It is unclear whether a nuclear compromise will be reached in time for July 20 of this year, but the economic effects of improved relations with the European Union and the United States are clear. Still, there is no saying whether a form of football diplomacy could come into play with another important economic partner for Iran, Brazil.

The countries’ relations stagnated even before Rouhani’s election, largely due to the weak personal relationship between the outgoing presidents, but the Islamic Republic of Iran is fielding a team at the 2014 FIFA World Cup in Brazil this year. On Saturday, it faces off against Argentina.

Categories: Economics, International

About Author

Amelie Meyer-Robinson

Amelie has worked at the German Committee on Foreign Affairs, the OSCE and the G8 Research Group at the University of Toronto. She is a graduate of the London School of Economics and the University of Toronto – Trinity College.