Regime Change in Iran Could Boost EU Economy

"Iran's economic isolation is enormous – and the potential gains from a rule-based reintegration are correspondingly large", says study author and WIFO Director Gabriel Felbermayr. "Europe would benefit from increased trade, lower energy prices and a more efficient international division of labour."

The lifting of EU sanctions alone would increase Iran's real gross domestic product (GDP) by more than 80 percent in the long term. At the same time, GDP in the EU and Austria could grow by 0.3 and 0.5 percent respectively. This corresponds to an additional annual income of almost 2.51 billion € for Austria and more than 54 billion € for the EU.

The effects would be particularly significant if the lifting of sanctions were accompanied by economic reconstruction and productivity gains in Iran. In scenarios in which Iran's productivity approaches that of countries such as Turkey or South Korea, Iranian GDP could rise by 240 to almost 400 percent. The benefits for Europe would also continue to grow.

In addition to trade and growth effects, the study highlights further advantages: Iran's return to the global energy markets could lower oil and gas prices, reduce volatility on the energy markets and ease inflationary pressure in Europe. Furthermore, more stable political conditions in the region could improve the security of important maritime trade routes and reduce migration pressure on Europe.

The study expressly emphasises that its findings are linked to fundamental political change in Iran. It does not advocate easing sanctions under the current regime or without far-reaching and credible reforms.

"Moral clarity and economic prudence are not mutually exclusive", says Felbermayr. "That is precisely why it is important to analyse possible scenarios soberly and prepare Europe for the economic consequences of political change."

The INSM study is a collaboration between Gabriel Felbermayr and Heider Kariem from the Austrian Institute of Economic Research (WIFO), Mahdi Ghodsi and Robert Stehrer from the Vienna Institute for International Economic Studies, and Yoto Yotov from Drexel University Philadelphia in the USA.