Iran’s Economic Interdependence: The Incentive of Globalization Over Sanctions

By Gray Farris

What is Globalization?

Globalization is a catchall term for the processes by which ideas, information, people, money, goods, and services cross international borders at unprecedented speeds. However, these processes make it difficult for foreign and domestic states to have control over any single sovereign territory given the combination of human ingenuity, technological advances, and the need to expedite trade. Even with all of these gaps in state boundaries, sanctions still are a chief tool of the international community. Governments and multinational bodies impose economic sanctions in an attempt to alter the decisions of state and nonstate actors that threaten interests or violate international norms. This difficulty hinders the effectiveness of US sanctions towards Iran due to the porosity of the state’s borders.  

US Sanctions Against Iran

Financial transactions, which most US-imposed sanctions have targeted, have proven difficult to enforce given the complex financial system of the digital field. While the US still maintains significant regional influence, its ability to ‘play cop’ by imposing sanctions has proven elusive. Some measures, such as The Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA), prohibited US institutions from doing business with Iranian banks. However, other sanctions, like the Iran Threat Reduction and Syria Human Rights Act (ITRSHRA), targeted foreign firms such as The Society of Worldwide Interbank Financial Telecommunications (SWIFT). 

Sanctions imposed by the US on domestic and foreign firms highlight how far sovereignty and subjectivity can go. CISADA, for example, mandates sanctions, while ITRSHRA allows for sanctions, but does not mandate. The US’ imposed sanctions also include workarounds involving currency exchanges, most notably cryptocurrencies. Cryptocurrencies are a product of globalization, and allow Iranian government actors and citizens to evade sanctions imposed by organizations, such as the United Nations. 

Aside from sanctions on finance, the US has imposed a variety of additional sanctions ranging from energy to investment. The Joint Comprehensive Plan of Action (JCPOA) came into force in 2016 and lifted some of these sanctions. However, the initial boost has since subsided, resulting in contractions in Iran’s economy. The US announced that it would no longer adhere to the JCPOA in 2018. In order to insulate against the changes of this announcement, France, Germany, and the United Kingdom created a barter system with Iran called INSTEX. INSTEX dodged the banking sanctions imposed by the US through bartering food and medicine. This development signified another notch in the belt of globalization, allowing Iran to facilitate trade despite the imposed sanctions. Globalization via trade has allowed sanctions to not be an effective tool against Iran.

Economic Allies to Iran

Given that sanctions on Iran generally come from US-backed institutions, other actors would need to step into the fold to provide economic engagement as we have seen from states like China and Russia. Iran has reached out to its geographic East and North to engage in trade and keep its economy afloat. Iran’s engagement with states like China and Russia was a reaction to the sanctions imposed by the US. This move signifies that states have options to expand economic relationships in this ever-globalized economy. 

Organizations that are not dependent on the support of the US or its allies have also taken an interest in Iran as a trading partner. One chief Iranian trading partner is the Eurasian Economic Union (EAEU), which is made up of Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. Within the trade agreement between Iran and the EAEU, preferential tariffs are set on 862 agricultural and industrial product categories. 502 of these product categories are Iranian. While these are preferential tariffs, this agreement does signify that Iran is actively engaging in its own region. This trade deal and other initial agreements have continued to develop and grow. The EAEU also has broader markets that Iran could tap into as a reaction to the continued sanctions. Within the EAEU, Iran could also slowly build a relationship that may develop into membership. 

Economic unions like the European Union (EU) and the EAEU operate as collective organizations that protect their members against globalization. It is easier for a state to operate with a group of trading partners than to act independently. Iran is especially exposed, given sanctions imposed by the US, but through engagement with the EAEU, it is clear that a group of states can soften the blow from trade-related sanctions. 

COVID-19 and Sanctions

Given the effects of COVID-19 and continued sanctions by the US, Iran will continue to explore trade with states to their East and North. Iran’s status as a chief exporter of oil also allows it to be a valuable player on the global stage. Despite sanctions, globalization continues given Iran’s ability to provide highly desired resources and goods such as oil and cars. Furthermore, Iran is positioned to engage with states who share a common sense of mistrust in the US and its allies, but also to work with economic unions that allow trade to be facilitated amongst many states. While sanctions will continue in the near future, the nature of the geopolitical market allows globalization to be the chief driver of incentives for Iran’s government.