Sanctions push Iran’s auto sector to rev up self-reliance
Iran’s automotive industry stands at a crucial crossroads, facing fresh challenges from renewed sanctions but also showing resilience and adaptability that hint at a hopeful future.
The recent reactivation of UN sanctions, known as the “snapback” mechanism, has sparked concerns about the impact on the sector, especially given its close ties with Chinese carmakers who have long been key partners.
Yet beneath the uncertainty, there are reasons to be optimistic about the industry’s ability to navigate these headwinds and continue driving growth.
The automotive industry is one of Iran’s economic backbones. With a history stretching back more than 50 years, it employs hundreds of thousands of people and supports a vast network of manufacturers, suppliers, and service providers.
Since the US tightened sanctions in 2018, the sector has increasingly relied on domestic producers of auto parts, which has helped keep factories humming despite external pressures. This growing local capability is a sign of the industry’s strength and commitment to self-reliance.
China plays a vital role in Iran’s car market. According to official figures, about 80% of the parts used in locally made or assembled vehicles come from Chinese suppliers, with some models even more dependent.
This strong partnership has been a lifeline for Iran’s auto sector, especially after many European and Asian companies withdrew following earlier sanctions.
Recently, several Chinese automakers reportedly asked their Iranian partners to reduce staff by roughly 30% and to pause sales activities indefinitely, sparking fears that they might pull out of the Iranian market.
However, insiders say the picture is more nuanced. While tighter controls and caution are natural responses to uncertainty, experts believe that the collaboration between China and Iran will continue, albeit with adjustments to navigate new realities.
One key reason for optimism is that the renewed sanctions do not directly target Iran’s automotive industry.
The UN Security Council resolutions, passed between 2006 and 2010, focused primarily on Iran’s nuclear and missile programs, not on routine industries like car manufacturing. This means that while political and economic pressures remain high, vehicle production and trade are not explicitly banned.
China’s role in Iran is broader than just cars — it involves energy, infrastructure, and wider economic cooperation. Given the billions already invested, Chinese companies have strong incentives to maintain their presence.
History also shows that Iran and China tend to deepen their partnership in times of external pressure, working together to overcome challenges rather than pulling apart.
Still, the reimposition of sanctions has raised risks. The requests for workforce cuts and sales suspensions from Chinese firms reflect a cautious approach amid uncertainty.
To counter these risks, Iran’s carmakers are rolling out a series of strategies. In the short term, they are building up stockpiles of essential components to avoid sudden interruptions in manufacturing.
Alternative import routes via countries like the United Arab Emirates, Turkey, and Russia are being explored to bypass banking and logistical hurdles.
Barter deals have also surfaced as a clever workaround. Iran can exchange oil or petrochemical products for car parts, reducing dependence on cash payments and navigating sanctions more smoothly.
Iran is also investing in local production of key components like suspension systems, body panels, and dashboards. These efforts aim to reduce reliance on foreign suppliers and build a more self-sufficient industry.
Partnerships with smaller suppliers from countries such as India, Vietnam, and Malaysia are opening new doors for diversifying the supply chain.
In the long run, industry leaders see investing in homegrown vehicle platforms, including electric and hybrid cars, as a vital step toward a sustainable and resilient future.
Developing indigenous technology can protect Iran’s auto sector from future external shocks while aligning it with global trends toward cleaner, more efficient transportation.
Industry officials remain upbeat about their ability to weather the sanctions storm. The head of Iran’s largest automaker recently highlighted that the sector no longer depends on Western countries as it once did during the first round of US sanctions in 2018.
Today’s challenges are largely internal, related to supply chain management and securing financial resources.
Talks with the central bank to secure foreign currency for imports and operations are ongoing. Encouragingly, recent production data show that output hit its highest level in nearly seven years last September, with expectations for further growth.
Supporting this positive outlook, the Central Bank of Iran reports that the automotive industry remains a priority for foreign currency allocation, receiving $33 billion in funding between early 2024 and late September.
Public concerns often stem from a misunderstanding of how sanctions work. A close look at UN resolutions shows that the snapback does not explicitly restrict carmakers or assembly companies. The real pressure comes from the broader political environment and its impact on trade and investment.
Chinese carmakers continue to see Iran as a key market and strategic partner. Exiting now would mean giving up billions of dollars in investments and influence in a region they consider vital.
Meanwhile, smaller companies in Iran’s supply chain may feel the pinch more acutely. But larger firms, with strong infrastructure, financial backing, and wide networks, are better positioned to adapt to shifting conditions and continue operations.
Though the road ahead is tough, Iran’s auto sector is determined to adapt and thrive, continuing to play a vital role in the country’s economy and supporting the livelihoods of hundreds of thousands across the supply chain.
