Mohammad Reza Kiani*

Iran and the European Union’s relations have been strained by the EU support for the UN Security Council Resolution 1929 against Iran and since the last rounds of the nuclear negotiations in January 2011 in Istanbul. The current deadlock, along with increasing pressures from the United States regarding Iran’s involvement in the alleged terror plot against the Saudi Arabia’s ambassador in Washington has undermined the relationship between Iran and Europe.

The current situation has negatively affected bilateral ties in different aspects. Given Europe’s leading market position in Iran, EU trade sanctions would have a detrimental impact on Iran’s economy and in theory therefore represents a powerful diplomatic tool.

However, economic sanctions do not necessarily produce the consequences intended. European companies, already under pressure from the Chinese competition in many places in the Middle East and Africa, are reluctant to cede this traditional European markets to their Asian rivals.

Before the imposition of the Resolution 1929 on Iran, The EU was Iran’s premier trading partner receiving almost a third of its exports, some 18 billion Euros in 2009. However, due to increasing controversy around Iran’s nuclear program, the EU has further moved toward adopting a peculiarly hard line American-style foreign policy vis-à-vis Iran.

For instance, in the area of bilateral trade, Iran’s traditional top partners in the EU, namely Germany and Italy have dramatically reduced their involvement in the Iranian economy. These countries have long been the two most important destinations of manufactured exports amongst the developed countries.

The sanctions in turn have changed the previous way in which Iran was carrying out its international financial trade. In response to economic isolation, Iran has increasingly tried to fill in the gap by providing considerable incentives to Chinese, Indian and Central Asian companies to attract their investment especially in the domestic construction industry, manufacturing and energy sector.

In fact, a chief strategy of the Iranian government to minimize the grave economic effects of sanctions has been to shift its international trade direction from the West to the East and resort to further regional ties. In other words, the government has moved to adapt itself to the pressing circumstances by adopting a trade policy of “Asianization” and “economic regionalism”.

Although the EU-Iranian bilateral ties weaken, there is the potential of strategic link in economic relations between Iran and Europe. The past economic trends in Iranian industry and economy show the prominence of Europe in Iran’s economy. Along parallel lines, considering global financial crisis, Europe should not ignore the Iranian market.

Global trends indicate increasing instability and increasing opportunity for conflict.  A  number  of  options  including  use  of  soft and  hard  power  are  available  for  countries  to  achieve  their  policy objectives and meet contemporary challenges as well as emerging  issues such as economic crises, climate change, and demography, security of energy supplies and weapon of mass destruction.  

In this regard, the European Union, as a negotiating power, has significant global interests and will therefore  wish  to  remain  a  major  player  in  the  present  state  of world order. Loss of influence in some parts would undermine EU's  crucial  role,  especially  parts  in  which  other  powers  such  as China has a considerable political and economic presence.

Moreover, shared global challenges necessitate more global cooperation and coordination. In this respect, both Iran and the EU have to find common grounds for more cooperation in order to reach agreements on determining issues such as Iran’s nuclear program.

There is also the common interest of working together to bring about political-security stability in the region. In this respect, Dr. Kayhan Barzegar,  Director of the Institute for Middle East Strategic Studies (IMESS) in a meeting last week stressed on the two sides’ "strategic needs" in establishing stability in the region. "We don't know what would exactly come out from the Arab world's recent political-security developments….hopefully they do not turn out to be like the Iraq’s crisis… but we know for sure that Iran and the EU have a great interest to establish lasting security and stability in the region and this necessitates the increased bilateral relations."

Consequently, strategic issues have to be identified and addressed through diplomacy and dialogue and political distance among states is in no one's interests. The increased gap and lack of relations, combined with more stick than carrots policy cannot lead to sustainable solutions. Moreover, growing tensions between Iran and the U.S. is against the EU interests. The EU should play a mediating role between Tehran and Washington to avoid a serious confrontation thereby further instability in the region.

He is a visiting research fellow at the Institute for Middle East Strategic Studies in Tehran.