Economic implications for Europe of a potential reintegration of Iran into the world economy

Gabriel Felbermayr, Mahdi Ghodsi, Heider Kariem, Robert Stehrer and Yoto V. Yotov

No 481, wiiw Research Reports from The Vienna Institute for International Economic Studies, wiiw

Abstract: How would fundamental political change in Iran, leading to a democratic system with a free and rules-based economic order, affect Germany and the EU economically? In the event of change, sanctions could be scaled back, allowing Iran to rejoin the global economy. This study quantifies the economic effects of such a transformation. It neither advocates for nor legitimises the lifting or easing of sanctions under the current regime or without far-reaching and credible reforms that fully address the concerns underlying the sanctions currently in place. Using the newest available data and quantitative methods, the results indicate that lifting EU sanctions alone could raise Iran’s real GDP by more than 80% in the long run while generating moderate but economically meaningful gains for Germany and the EU of around 0.3-0.4% of GDP. These gains are driven by expanded trade, lower energy and input prices, and improved allocative efficiency. When sanctions removal is combined with plausible scenarios of productivity catch-up with Turkey or South Korea, Iran’s GDP would increase by 240-388% and the gains for Europe would increase further, underscoring the strong complementarity between trade integration and productivity growth. Moreover, Iran’s reintegration would reduce energy price volatility, improve the security of maritime trade routes, and lower migration pressures. Overall, the findings suggest that a negotiated transition and rules-based reintegration of Iran would generate substantial mutual economic benefits while contributing to regional and global stability.

Keywords: Iran; economic sanctions; regime transition; trade integration; energy markets; oil and gas prices; foreign direct investment; European Union; inflation; political economy (search for similar items in EconPapers)
JEL-codes: F13 F15 F51 O53 Q41 Q48 (search for similar items in EconPapers)
Pages: 72 pages including 7 Tables and 20 Figures
Date: 2026-02
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