MAKE IT EVEN RISKIER:

TRADING WITH THE MULLAHS: German companies have enjoyed booming trade with Iran in recent years. But with tension over Tehran's nuclear ambitions rising, the export party may be over. Deals with the mullah state are becoming an increasingly risky business. (Beat Balzli and Sebastian Ramspeck, 5/03/06, Der Spiegel)

Between 2000 and 2005, German exports to Iran more than doubled. Last year they reached a new record of €4.4 billion, or 0.6 percent of Germany's total export volume. Manufacturers of machinery and equipment are the main beneficiaries because Iran is using German know-how to develop its economy.

Frankfurt-based Lurgi AG for example is currently leading four large Iranian petrochemical projects worth around €500 billion. The company's business activities there have accounted for up to 20 percent of its total sales in recent years. Despite the ongoing tension surrounding Tehran's controversial nuclear ambitions the company is "relaxed," according to a spokesman, who said that Lurgi has had a very good working relationship with Iran for years and views the country as a reliable business partner.

Until a few days ago, Lurgi's Wiesbaden-based competitor Linde AG was also waxing lyrical about the excellent business ties and about an Iranian order intake which in 2005 rose almost five-fold from the previous year But last Monday the company announced that Iran was abandoning a deal that would have yielded €400 million for Linde. The country has handed the contract for a petrochemical plant to domestic companies rather than to an international consortium which Linde would have headed.

The abandoned deal highlights the risks involved in dealing with Iran, risks which could soon start spoiling the party for German exporters. The leadership in Tehran isn't confining its policy of confrontation and isolation to the nuclear dispute with the West. It has started to lessen its dependence on the West in economic relations as well.

German firms are also worried about a possible embargo on the mullah regime, or even a war. And they are starting to feel the heat from the United States as well. Many companies are worried that they will be punished in the US market if they remain active in Iran. "The pressure is strong and is often exerted in a very subtle way," said the employee of one company that exports to Tehran. "You have to weigh your interests very carefully."

This is why a lynchpin of our foreign policy has to be treating any and all business arrangements entered into by enemy regimes as odious and unenforceable upon their fall.

Posted by Orrin Judd at May 3, 2006 8:55 AM