EU relations with Iran started to improve at the beginning of the 1990s. On the Iranian side, under the pragmatic leadership of Akbar Hashemi Rafsanjani, president since 1989, there was a willingness to rebuild the Iranian economy after the Iran-Iraq war and to normalise relations with the West. The EU wanted to reach out to Iran due to its economic and strategic importance. On the European side, these relations took the form of a ‘critical dialogue’ where sensitive issues like Iran human rights violations, support for terrorism, or opposition to the Middle East peace process could be discussed. After Mohammad Khatami, an advocate of political moderation was elected president in 1997, EU-Iran relations intensified in areas of trade, culture, academics, etc. Negotiations on a Trade and Cooperation Agreement between EU and Iran started in 2001. But suddenly, with the revelations in 2002 that Iran had not reported nuclear sites, the nuclear issue came to dominate the political debate between the two sides. Even then however, despite US opposition, the EU maintained the previous policy of dialogue with Iran. This method led to an agreement between Iran and the EU in 2004: Iran accepted to stop enriching its uranium in exchange for economic, technological and nuclear cooperation.
For decades, the European Union’s policy of engaging Tehran differed markedly from the U.S. policy of containing or isolating Iran. At the height of European engagement, EU foreign policy chief Javier Solana often acted as negotiator with Iran on behalf of the entire international community. The EU’s main function in the nuclear crisis was accomplished when the United States expressed willingness to talk directly to Iran. But the more the Iranians stalled, the more the EU followed the U.S. lead and intensified sanctions against the Islamic Republic—even when it ran counter to Europe’s own economic and strategic interests in the region.
The EU played a crucial role in the new diplomacy between Iran and the world’s six major powers precipitated by the 2013 election of President Hassan Rouhani. EU foreign policy chief Catherine Ashton led the talks that resulted in the November 2013 interim nuclear agreement. And her successor, Federica Mogherini, chaired the talks that led to the July 2015 final deal.
In 2015, the EU began exploring ways to build on the nuclear deal. Mogherini expressed interested in integrating Iran into a regional framework to solve crises in the Middle East and work cooperatively to confront the threat of the Islamic State (ISIS). Key EU member states, such as the United Kingdom, began upgrading their diplomatic relations with Tehran. And representatives from European businesses began testing the ground in Iran in anticipation of sanctions relief and the reopening of one of the Middle East’s largest markets.
On Jan. 16, 2016, the U.N. confirmed that Iran had taken the necessary steps to implement the nuclear deal. Implementation Day triggered the lifting or suspension of certain EU, U.S. and U.N. sanctions on Iran. Less than 10 days later, President Rouhani made his first visit to Europe.
Iran is in a constant battle to use its energy resources more effectively in the face of subsidization and the need for technological advances in energy exploration and production. Energy wastage in Iran amounts to six or seven billion dollars (2008). The energy consumption in the country is extraordinarily higher than international standards. Iran recycles 28 percent of its used oil and gas whereas the figure for certain countries stands at 60 percent. Iran paid $84 billion in subsidies for oil, gas and electricity in 2008. Iran is one of the most energy-intensive countries of the world, with per capita energy consumption 15 times that of Japan and 10 times that of European Union. Also due to huge energy subsidies, Iran is one of the most energy inefficient countries of the world, with the energy intensity three times higher than global average and 2.5 times the middle eastern average. Half of the country’s energy is wasted in domestic sector, 3.4 of which is wasted through single-occupancy vehicle use and 2/3 parts of power plants’ energy are also wasted.
Iran is one of the leading members of OPEC (Organization of Petroleum Exporting Countries) and the Organization of Gas Exporting Countries (GECF). Iran received $47 billion in oil export revenues, which accounts for about 50% of state revenues. Natural gas and oil consumption both account for about half of Iran’s domestic energy consumption. With its heavy dependence on oil and gas revenues Iran continues to explore for new sources of natural gas and oil. Recently Iran has focused its energy sector on the exploration of the South Pars offshore natural gas fields in the Persian Gulf.
Iran has become self-sufficient in designing, building and operating dams and power plants and it has won a good number of international bids in competition with foreign firms.
Energy generation capacity of Iranian thermal power plants reached 173 terawatt hours in 2007. Accounting for 17.9 percent of energy production in the Middle East and African region, natural gas has been the main energy in Iran in 2007, comprising over 55 percent of energy needs, while oil and hydroelectricity accounted for 42 and 2 percent respectively. The region’s energy need will increase by 26.8 percent until 2012. In 2017, the fuel consumption in Iran was equivalent to 5.5 million barrels of fuel per day (bpd), the rate of which is considered as the highest energy consumption rate in the world in terms of energy intensity.
Currently Iran possesses proven reserves of approximately 133 billion barrels of oil and 24 thousand billion cubic meters of natural gas. These constitute 11.6% and 15.6% of the world’s proven oil and gas reserves respectively. Iran has the second richest oil and gas reserves in the world.
Energy plays an important role in Iranian politics. Robert Baer in his book “The Devil We Know: Dealing with the New Iranian Superpower” argues that Iran has attained the status of an energy superpower and is on its way to become a military-political superpower. Indeed, Iran believes it is now a global power, in as much as its advanced Silkworm missiles positioned along the Persian Gulf can shut off Gulf oil exports in a matter of minutes. In its view, it is America’s equal, a statist military power capable of thwarting American power in the Gulf. And Europe interest is integrating Iran and cooperating with it.