Iran's economic relations with its neighbors

In recent years, the economic relationships between Iran and its neighboring countries have grown in both complexity and significance. This economic integration is crucial for the development of Iran’s non-oil sector and its broader economic strategy, especially considering the geopolitical challenges that the country faces.

In this article, an effort has been made to explore the current state and future prospects of Iran’s trade with its neighbors, examine key sectors, trade volumes, and strategic partnerships.

As of late 2024, Iran’s non-oil trade with its neighbors has seen a notable increase. Non-oil trade volumes reached US$55.3 billion in the first 11 months of the year, with exports constituting 67 million tons of goods valued at US$25.8 billion and imports amounting to 21.4 million tons valued at US$29.4 billion.

This represents a significant increase in trade flows, driven by an increase in exports of petrochemical products, minerals, and agricultural goods.

Iran’s primary trading partners in the region include Iraq, the UAE, Turkey, Pakistan, and Afghanistan. The UAE and Iraq are Iran’s two largest trade partners, especially in terms of exports.

For example, in the first seven months of 2024, Iran’s trade with Iraq was valued at US$7.6 billion, making it one of the most crucial destinations for Iranian goods. The major exports to Iraq include petrochemicals, cement, and agricultural products, while imports primarily consist of machinery and food items.

Turkey has also maintained its position as a key trading partner, with trade between the two countries amounting to US$9.9 billion in the same period. Iranian exports to Turkey largely consist of natural gas and petroleum products, while imports from Turkey are diverse, including electrical machinery and textiles.

Iran’s geopolitical location, bordered by 15 countries, gives it a strategic advantage in the trade of goods and services. This advantageous position allows Iran to serve as a key transit hub for goods moving between Central Asia, the Caucasus, and West Asia.

In particular, the development of international transport corridors, such as the North-South Transport Corridor (INSTC), which links Iran with Russia, India, and Central Asia, is expected to enhance Iran’s role in regional trade.

Furthermore, the expansion of special economic zones, such as the Lamerd Free Trade Zone, has created new opportunities for businesses to engage in regional trade. This diversification of trade routes and infrastructure investment is expected to foster deeper economic ties with countries in the Persian Gulf and beyond.

Despite challenges, such as global sanctions and regional instability, Iran’s government has focused on expanding its non-oil exports, particularly to its neighbors. This strategy is part of a broader effort to reduce Iran’s dependency on oil revenues and diversify its economy.

The Iranian government’s push for stronger trade relations with Central Asia, Russia, and even countries like Oman and Turkmenistan, is driven by the need for economic diversification and the potential to access new markets. Iran’s trade with Russia, for example, has grown steadily, with recent figures showing a trade volume of US$1.5 billion in 2024.

The economic outlook for Iran’s trade with neighboring countries is promising. The country’s strategic location, combined with increased infrastructure investment and a strong focus on non-oil exports, positions Iran as a key player in the regional economy.

However, the ongoing challenges of sanctions and geopolitical tensions remain factors to consider as Iran continues to navigate its path toward economic diversification.

If these trade relationships continue to strengthen, Iran could significantly enhance its role as a regional economic hub, ensuring long-term stability and growth for its economy.