In addition to the oil, the industrial sector is dominated by petrochemicals, steel mills, vehicle manufacturing and the aerospace and weapons industries. Almost one third of the workforce is employed in the sector. The petrochemical industry began with the production of fertilizers in the 1950s and 1960s. Today, the other industries, such as paper and textile manufacturing, supply raw materials. One goal is to become a leading exporter of plastics, fertilizers and other oil-based products. One obstacle, however, is that the country does not have enough oil refineries.
The steel industry has grown thanks to the country’s large iron ore assets. Both iron and steel are important export goods. The automotive industry is extensive and normally employs over one million people. The automotive industry was long protected from foreign competition, but several foreign manufacturers have started assembly plants in collaboration with the Iranian companies. The largest manufacturers are Iran Khodro, Saipa and Pars Khodro. However, sanctions and economic crises have a severe impact on car production. Between 2011 and 2013, production more than halved, from 1.6 million vehicles to 750,000 (see also Finance).
In other important industrial sectors, tools, building materials, textiles and food are manufactured. Iran manufactures almost all the drugs consumed, production capacity is not the industry’s problem but the fact that more than half of the raw materials have to be imported. The domestic pharmaceutical industry has also found it difficult to manufacture advanced drugs for more severe diseases.
Virtually all key industries were nationalized during the revolution. Still, inefficient state-controlled companies dominate the industry, although private interests and foreign capital gained a little more space during the 1990s. Lack of hard currency and constant shortage of raw materials hamper production. In the 2000s, increased oil revenues generated more capital to invest in the industrial sector. In addition, investment in the construction industry has increased; both state money for infrastructure and private individuals’ housing construction.
The aerospace industry has been subject to Western sanctions since the 1979 revolution.
The sharp fluctuations in oil prices on the world market and US sanctions increase uncertainty in Iran’s economy as crude oil accounts for an average of 80 percent of Iran’s export earnings. In order to reduce dependence on oil and natural gas, the government is trying to promote exports of other goods, such as petrochemicals, other industrial goods and agricultural products.
For many years, with harsh economic sanctions from the Western world, not just the United States, Iran lost its position as one of the leading oil exporting countries. When Ahmadinejad took office in 2005, the country was the world’s third largest exporter (after Saudi Arabia and Russia). In 2013, the country had slipped to eleventh place.
High oil prices during the 1990s helped Iran build up a large foreign exchange reserve. They also contributed to large current account surpluses. But the sanctions meant that the foreign exchange reserve was depleted and the trade balance negative, that is, the value of imports was greater than the value of exports.
A reversal came when the sanctions were mitigated as a result of the 2015 International Agreement on Iran’s Nuclear Energy Program, which aimed to give the outside world the opportunity to make sure that Iran would not develop nuclear weapons. A large number of countries and companies, not least Europeans, resumed their dealings with Iran. A particularly welcome effect was that Iranian airlines were given the opportunity to upgrade their aircraft fleets with new spare parts or the purchase of entirely new aircraft.
The figures turned up again, especially in the first year after the agreement and almost exclusively as a result of oil exports. For luxury goods such as caviar and oriental rugs, the difference was also big. The sanctions had reduced exports of Persian rugs to the United States, the largest market, by 30 percent, according to the BBC.
Meanwhile, China, India, South Korea and Turkey remained Iran’s largest trading partners. Large contracts were signed with both Russian and Chinese companies.
In May 2018, President Donald Trump announced that the United States would abandon the international agreement on Iran’s nuclear program. It turned upside down on the terms of trade again. Sharpened US sanctions against Iran were announced: for most industries from August 6, for the energy industry from November 4, 2018. Companies, including European ones, who have returned to Iran have been pressured to rethink the reasons for the new sanctions. For example, aircraft manufacturers have difficulty delivering newly built aircraft containing parts manufactured in the United States. Banking companies refrain from handling payments to and from Iran due to the central role of US companies in the international financial system.
Some examples of how companies have handled the new situation:
Iran is the largest bus market for Scania. The company is affected both by the fact that sanctions are directed at vehicles and by the payment system being closed. For Svenska Dagbladet, the company stated when the new sanctions came into force that “a lot” of orders from Iran were canceled.
Europe’s next largest car manufacturer PSA – with the brands Peugeot, Citroën and Opel – sold almost half a million cars to Iran in 2017. Following Trump’s decision, PSA set out to close its Iran dealings.
French energy giant Total released a contract for offshore gas extraction, which was instead taken over by Chinese CNPC. China has also since withdrawn from the project, according to data from Iran. Italian ENI has chosen to wait with a planned re-entry into the Iranian market.
British Airways and Lufthansa were faced with the requirement to forgo Iran’s recently resumed traffic in order not to lose their flights over the Atlantic.
In the first few months, the United States made exceptions for some of Iran’s largest trading partners. For example, China and Turkey were allowed (as were important allies to the United States) to continue purchasing Iranian energy without being punished by Washington. It was justified that the world market price of oil would rise steeply if all of Iran’s production was strangled. However, one year after Trump’s announcement of reinstated sanctions, the policy was further tightened. The exceptions to the sanctions were not extended, apart from sales to import-dependent Iraq, where the United States did not want to risk a wave of protests caused by electricity shortages. According to the International Cooperation Organization (IEA), which is affiliated with the OECD, Iran’s exports of crude oil had dropped to less than a third of what it was a year earlier when the US reintroduced the sanctions, and it continued to decline.
The United Kingdom, France and Germany, which were parties to the 2015 Nuclear Energy Agreement, have tried to save the deal. They have also initiated a swap mechanism called Instex to facilitate Iran’s access to medical equipment, among other things. From the US side, it has been argued that the purpose of the sanctions is not to impede trade on humanitarian grounds, but both banks and other companies have avoided all exchanges with Iran for fear of being punished by the United States. Sweden joined Instex at the end of 2019. The first delivery where the system came into use was completed in 2020 after it emerged that Iran was one of the countries where the corona pandemic was rapidly causing severe consequences.
Iran has had observer status in the World Trade Organization (WTO) since 2005 but is not a member. In 2017, Tehran announced that the goal of achieving membership had been prioritized and that the country would step in to develop the exchange with neighboring countries.
FACTS – FOREIGN TRADE
US $ 28 345 million (2000)
US $ 15,207 million (2000)
US $ 12 481 million (2000)
Commodity trade’s share of GDP
31 percent (2017)
Main export goods
oil, genuine carpets, caviar, agricultural products
Largest trading partner
Japan, China, United Arab Emirates, Italy, South Korea, Germany, France, Russia
Storayatolla’s death triggers protests
New demonstrations are being conducted in a number of cities following the announcement of the death of the Great Ayatollah Hossein Ali Montazeri. He has been a critic of the regime for many years. At least eight people were killed during the protests, which are the most violent since June.
Secret facility is condemned
The IAEA condemns Iran for keeping the new plant in Qom secret. Iran rejects the demand for construction to be suspended.
The UN offers controlled uranium enrichment
The five permanent members of the UN Security Council as well as Germany offer Iran to obtain enriched uranium in France and Russia and then use it in a research reactor.
Sunni suicide attack
31 people are killed in a suicide attack in the southeastern region of Sistan-e Baluchistan. Among the victims are at least six officers at the Revolutionary Guard. The Sunnite movement Jundullah is said to have performed the deed.
New robots test drive
Iran is conducting a series of test shoots of medium and long-range robots capable of reaching Israeli targets and US bases on the Persian Gulf.
New enrichment factory
The government announces that a new uranium enrichment plant is being built near the city of Qom south of Tehran.
Criticism against ministerial appointments
The new government receives criticism for containing several ministers without considerable competence, but who are loyal to Ahmadinejad.
Protests against reelected president
Ahmadinejad is installed as president for a second term. Protesters gather outside Parliament and are called “Death to the dictator”. Protest actions are carried out throughout the fall, especially in connection with major weekends.
New protests against election results
New protests erupt since the Guardian Council announced that the election results are fixed.
Demonstrator is shot to death
The protests continue, albeit on a smaller scale. When young woman Neda Agha-Soltan is shot to death on a street in Tehran, a film of her death is spread all over the world on the internet.
Demonstrations are prohibited
After a few more days of protests, Khamenei says the election was correct and continued demonstrations are banned.
Votes are recalculated
The Guardian Council announces that some of the votes will be recalculated, but until now the result is firm.
Electoral fraud is being investigated
Ayatolla Khamenei orders that the allegations of cheating be investigated, but Ahmadinejad claims that the election was completely correct. The Basij militia, which is close to the president, intrudes on Tehran University and abuses students.
Violent protests following presidential elections
The June 12 presidential election will have violent consequences. After President Ahmadinejad was declared victorious with 62, 6 percent of the vote, former Prime Minister Mir Hossein Mousavi, who received 33.8 percent, objected to what he claims was widespread cheating. Hundreds of thousands of people, mainly young people who have expressed their hope for increased personal freedoms, walk on the streets of the country’s larger cities, dressed in green that has been Mousavi’s campaign color. The Iranian Green Movement, in the West also called Persian Awakening, is born. Protesters also join supporters of former President Mehdi Karroubi, who also ran for election. Dozens of people are killed in the coming weeks and thousands are beaten or arrested.
US terrorist stamps Iran
The US State Department designates Iran as the world’s most active state sponsor of terrorism.
Terrorist act in Sunni area
25 people are killed in a blast attack on a Shiite mosque in the Sunni-e Baluchistan region in south-eastern Iran.