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The Impact of Sanctions Imposed by the European Union against Iran on their Bilateral Trade: General versus Targeted Sanctions

Published online by Cambridge University Press:  05 July 2021

Mahdi Ghodsi Open the ORCID record for Mahdi Ghodsi [Opens in a new window]  and
Huseyin Karamelikli Open the ORCID record for Huseyin Karamelikli [Opens in a new window]
Mahdi Ghodsi
Affiliation:
The Vienna Institute for International Economic Studies (wiiw), Vienna University of Economics and Business (WU), Vienna, Austria
Huseyin Karamelikli*
Affiliation:
Faculty of Economics and Administrative Sciences, Department of Economics, Karabuk University, Karabuk, Turkey
*
*Corresponding author. Email: [email protected]
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Abstract

The European Union (EU) has been using economic sanctions both as a foreign policy tool and as a liberal alternative to military action. Since 2006, it has been implementing general sanctions against the whole economy of Iran, affecting their trade relations, and since 2007, following the imposition of sanctions by the UN Security Council, it has also been using smart sanctions targeting Iranian entities and natural persons associated with the country's military activities. In a nonlinear autoregressive distributed lag (NARDL) model, this paper investigates the impact of general and targeted EU sanctions against Iran on quarterly bilateral trade values between the 19 members of the euro area (EA19) and Iran between the first quarter of 1999 and the fourth quarter of 2018. In a robustness NARDL specification, trade between Iran and the 28 members of the EU is analysed. In addition, a gravity model of bilateral trade between Iran and the EU member states is run in a robustness check. The results indicate that the EU's general sanctions have strongly hampered trade flows between the two trading partners in almost all sectors, except for the primary sectors. Furthermore, our study finds that the impact of smart sanctions targeting Iranian entities and natural persons is much smaller than the impact of general sanctions on total trade values and the trade values of many sectors. Smart sanctions affect the exports of most sectors from the EA19 and the EU28 to Iran, while they are statistically insignificant for the imports of many sectors from Iran. Thus, this paper provides evidence of the motivations behind smart sanctions, which target specific individuals and entities rather than the whole economy, unlike general sanctions, which have a negative impact on ordinary people.

Keywords

F13F14F50F51Smart sanctionsIrantrade valuestime series analysisNARDLGravity
Type
Original Article
Information
World Trade Review , Volume 21 , Issue 1 , February 2022 , pp. 33 - 58
Copyright
Copyright © The Author(s), 2021. Published by Cambridge University Press

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