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Trade Partners

Before 1979 Iran had relied on the industrial West for trade. Little changed in subsequent years except rhetoric. Although the government purportedly sought to develop trade relations with other Islamic countries, figures showed that in 1985 approximately 64 percent of Iran's imports came from the West, 28 percent from developing countries, and 8 percent from Eastern Europe. These figures, although representing an absolute increase in trade with Third World countries, actually indicated only a small percentage increase in total trade. Economic necessity mandated that Iran trade with whatever country was willing, notwithstanding policy pronouncements regarding self-sufficiency and Third World communities of interest. Nearly all foreign trade occurred through government-controlled purchasing and distribution companies, which were charged with enforcing government trade policies and regulating the quantity and quality of imports.

Despite trade sanctions applied in 1980 by the United States, the European Economic Community, and Japan, Iranian imports from the West actually increased 13.5 percent from FY 1980 to FY 1981. West Germany remained Iran's primary supplier in 1985, followed by Japan, Britain, Italy, and Turkey (see table 7, Appendix).

As a result of United States trade restrictions following the Tehran embassy takeover in 1979, imports from the United States dropped dramatically. This lost market, coupled with the decline in oil revenues, forced the government to consider bartering Iranian oil for non-oil goods. It was estimated that total trade with new Islamic and Third World trade partners would increase from 20 percent in the mid-1980s to 35 percent in 1987 through barter.

Barter agreements became commonplace in 1984 to compensate for the fall in revenue from oil exports (see Balance of Payments) , this ch. These revenues were 15 percent less than expected in FY 1984 (US$17,000 billion), with barter arrangements making up the difference. About one-quarter of 1984 oil exports resulted from barter or bilateral trade agreements. Barter became a point of contention between the Ministry of Oil, which opposed it, and the Ministry of Foreign Affairs, which supported barter as a key element of foreign policy. Bartering ceased in late 1985 as a result of disagreement between the ministries but resumed in 1986 because of economic necessity occasioned by depressed oil prices. Bartering with other countries, especially in Eastern Europe, mitigated the effects of the economy's structural problems but failed to solve them.

The United States resumed trade with Iran in FY 1981, with direct sales totaling US$300 million. United States exports to Iran fell to less than half that amount, however, in FY 1982. This led to Iran's renewal of the Regional Cooperation for Development pact with Pakistan and Turkey in October 1984, which by 1985 had greatly increased trade among these partners. By early 1987, trade among the three countries was worth over US$3 billion, as compared with US$100 million before the Revolution.

In 1986 the United States imported US$612 million worth of Iranian products, principally crude oil, caviar, rugs, furs, spices, and gems. Of those imports, crude oil represented US$508.8 million, pistachios and other nuts US$15 million, carpets US$5.5 million, and caviar about US$2 million. In the first five months of 1987, the United States imported US$418.5 million in Iranian goods. The increase was probably caused by fluctuations in petroleum spot prices and in the demand for oil in general.

In 1986 Iran acknowledged the role of the Soviet Union as a major future trade partner by announcing its plans to complete the electrification of the railroad between Tabriz and the Soviet city of Jolfa. Moreover, the construction of railroad lines--to be completed by 1989--linking other points in Iran with the Soviet Union and with Pakistan indicated the growing Iranian intent to deal with both countries as trade partners (see Transportation and Telecommunications , this ch.). In August 1987, Iran and the Soviet Union agreed to large-scale joint economic projects, including oil pipelines and a railroad to the Gulf. Despite the apparent intention on both sides to do business, overall Iranian-Soviet trade in FY 1986 was one-quarter that in FY 1985.

Data as of December 1987

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