“Facing [competition with emerging regional [...]]]> Because U.S.-led sanctions freeze Iran out of many markets, the Islamic Republic is always trying to find new places to dip its fingers. At Foreign Policy, Haley Sweetland Edwards gives an interesting breakdown of Iran’s attempts to woo the countries of the Southern Caucusus — Georgia, Azerbaijan, and Armenia.

“Facing [competition with emerging regional powers and a decline in Iran's own] regional importance — in addition to a fresh round of EU, U.S., and Kremlin-backed U.N. sanctions, internal unrest and an array of external military threats — Tehran has chosen to fight back with vigorous diplomatic campaigns in its near abroad,” Edwards writes from Tbilisi.

Iran’s outreach, as well as some Caucasian reciprocity, has been robust: They exchange envoys, President Mahmoud Ahmadinejad has traveled to Georgia, rail roads and pipelines have been proposed, Azeris and Georgians no longer need visas to travel to Iran, and trade deals, especially for energy, are always in the works.

Much of the effort is directed at keeping the countries on Iran’s northern border from “getting too chummy” with hostile nations, particularly the U.S. One Georgian executive, speaking anonymously, tells Edwards that the Iranians are clear that they don’t want any U.S. bases to their north.

But what’s going to come of all of it? Taking a rather great leap that Iran’s central fall back strategy might simply be a nuclear bomb, Edwards concludes:

The real economic and geopolitical dividends of all this Iranian diplomacy in the South Caucasus are mostly theoretical at this point. For example, an Iranian business community that has developed a taste for the lucrative transit market might act a moderating force on the Iranian government. For another, Iran’s willingness to behave diplomatically and encourage stability in the Caucasus could produce a potential backchannel through which Tehran is able to begin to soften its 30-year history of isolation from the West.

Realistically, though, that’s not likely to happen any time soon. Iran-watchers caution that Tehran’s ambition may exceed its true reach. Another east-west pipeline from Azerbaijan, through Georgia, to Turkey — from which Iran was deliberately excluded — is already in the works. Neither Moscow, which currently has a chokehold on the European gas supply, nor Washington, with its policy of containment of Iran, are likely to allow Iranian pipelines to reach Europe. Politics aside, the gas industry hardly sees Iran as a reliable supplier. And despite big talk, real economic partnerships between Iran, Armenia, and Azerbaijan are still small. In 2008, for instance, only about 1 percent of Georgian imports were Iranian.

Even if everything goes Iran’s way in the South Caucuses, it doesn’t amount to a long-term strategy for the Islamic Republic. Rapprochement with the West doesn’t seem to be in the cards, and it’s unclear how increased regional trade will counter the effects of international sanctions. If Tehran has a grand strategy, it seems to be oriented toward the acquisition of nuclear weapons. At some point, one imagines, that’s also going to have to be the subject of discussion between Iran and its neighbors.

Remez, who posted last month on Israel’s booming marble trade (via Turkey) with Iran, now points us [...]]]> Didi Remez has posted another translation of Israeli news reports on Iran’s foreign trade partners — and the example is again instructive when looking at the scope and effectiveness of the U.S.-led efforts to sanction Iran.

Remez, who posted last month on Israel’s booming marble trade (via Turkey) with Iran, now points us to an article by Menahem Ganz in the September 14 issue of Yediot Ahronoth, Israel’s largest daily newspaper, which discusses Italy’s support of the Iranian economy.

Remez’s translation reads:

Half a year after returning from a visit to Israel, in the course of which Italian Prime Minister Silvio Berlusconi promised to act to reduce the volume of trade between Italy and Iran, it has now become evident that Rome has remained an enthusiastic supporter of the Iranian economy this year too.

While Italian Prime Minister Berlusconi and Foreign Minister Franco Frattini have both declared in the past that they understood the need to undermine Tehran’s ability to develop nuclear weapons, which threaten the State of Israel’s security and very existence, in practice the policies that have been pursued by their government have promoted trade with Tehran, which has helped the regime in Tehran to maintain its stability.

An examination of trade statistics found that in the first half of 2010, Italy imported €2 billion worth of goods from Iran, more than twice the amount imported in the equivalent period of 2009.

And imports from Iran weren’t the only growth area:

Italian exports to Iran also rose significantly, from €892 million in the first half of 2009 to more than a billion euros. While specific data have not yet been published, it is clear that the surge in trade does not stem from the trade in basic foods. Central Bureau of Statistics data clearly show that industry-related goods, infrastructure work, energy, communication satellites and technological products were typical of the trade between the two countries this year.

The trend is not a new one:

This is the fourth consecutive year in which the volume of trade between Italy and Iran has risen, despite the sanctions that were imposed by the UN on Iran and despite all the promises that the Italians gave to the US administration and the warm embraces that were given by Berlusconi during his visit to Israel.

When contacted by Yediot, the Italian Foreign ministry confirmed the data and explained, “The sharp rise in imports from Iran stems from changes in the value of the currency between the euro and the dollar and the price of oil. There has been no departure from the sanctions that were imposed on Iran by the UN in exports to Iran.”

The data shows that while sanctions have undoubtedly put pressure on the Iranian economy, they have also created lucrative opportunities and powerful incentives for participating in sanctions-busting trade. Likewise, Tehran is encouraged by the sanctions to establish new trade partnerships and expand on existing trade relationships.

Journalists have reported on Italian companies providing support for the Iranian army, Ganz reported. But while large Italian companies appear to have cut their participation in trade that has military uses, “the owners of medium and small-sized businesses who feel the acceleration of the Italian economy trade with Iran while taking a risk, in the absence of government insurance for their activities.”

The editorial board attributed South Korea’s cooperation on sanctions to its “growing up as a democracy,” and Japan’s acquiescence on the issue as a much needed about-face from [...]]]> According to The Wall Street Journal Asia’s editorial board, newly announced cooperation from Japan and South Korea on enforcing UN sanctions against Iran “is worth cheering.”

The editorial board attributed South Korea’s cooperation on sanctions to its “growing up as a democracy,” and Japan’s acquiescence on the issue as a much needed about-face from its “needless tiff with the White House over a troop relocation agreement in Okinawa.”

While glossing over the complexities of both Seoul and Tokyo’s relationships with Washington — which, I think it’s fair to say, amount to a lot more than South Korea “growing up” and Japan’s mea culpa for a “needless tiff” — the seeming tightening of the sanctions regime on Tehran should be put in context.

Reports do seem to confirm that sanctions have had a measurable and noticeable effect on Iran’s trading relationships, but sanctions have also resulted in Iran expanding trading relationships in Latin America and Africa, and looking towards expanding trade with much bigger economies, such as China.

According to All Headline News:

Chinese Transport Minister Liu Zhijun is expected to visit Iran Sunday to sign a $2 billion contract to build a 360-mile-long railway linking key Iranian destinations that could later join to existing Iraq and Syrian railway networks and extending to the Mediterranean Sea.

Experts on U.S.-Iran relations Flynt and Hillary Mann Leverett responded to the little-reported news item on China’s expanding trade relationship with Iran on their blog, The Race for Iran, writing:

None of the initiatives discussed in the news report cited above violate UN sanctions against Iran. In fact, we cannot see how these efforts would even violate U.S. or other unilaterally-defined national sanctions against the Islamic Republic. Nevertheless, there have been other indications in recent weeks that China is not going to let a U.S.-led push to maximize Iran’s international economic isolation get in the way of Sino-Iranian economic ties. India has taken a similar position, see here, and may, like China, be acting to strengthen its economic and strategic ties to Iran.

Indeed, a look at Iran’s trading partners clearly shows the importance of China’s huge economy to Tehran.

According to the CIA World Fact Book, Iran’s Export economy breaks down as follows:

China 16.58%, Japan 11.9%, India 10.54%, South Korea 7.54%, Turkey 4.36% (2009)

And its import economy is also worth examining.

UAE 15.14%, China 13.48%, Germany 9.66%, South Korea 7.16%, Italy 5.27%, Russia 4.81%, India 4.12% (2009)

No doubt Japan and South Korea’s implementation of sanctions will change those statistics, but China and India’s growing regional and global clout would indicate that Tehran’s trading relationships with these regional powerhouses will become an increasingly important component of the Islamic Republic’s foreign trade. As sanctions tighten on Iran’s economy, no one should be surprised to see Tehran turn to alternative, non-western aligned economies to fill the gaps.