Iran continues to bolster its economic ties and increase its military capability, despite United Nations sanctions implemented to force the country to abandon its nuclear program.

Iran also announced it will manufacture a new unmanned submarine designed to launch missiles and torpedoes, further enhancing its threat to regional stability.

In spite of its progress on military and nuclear fronts, the nation’s internal stability is hampered by a failing infrastructure due to mismanagement and corruption within the leading political party. With its energy demand growing at 8% per year and an existing backlog, Iran is looking to the West for partners to help with the crisis. Despite being the second-largest exporter of oil, Iran does not have sufficient refining capabilities and relies on gasoline imports for more than 50% of its usage.

Amid proposed sanction increases against Iran, trade between Germany and Iran is on the rise. In a report released by Israeli newspaper Haaretz, it is calculated that German exports to Iran have increased by 18% in the first four months of the year; it is expected that trade between the two countries will exceed $5.9 billion in 2008.

New German investments in Iran have raised concerns as to Europe’s commitment to stability in the Middle East. Germany is currently busy with a $147 billion deal in Iran to erect three gas liquefying refineries.

This news comes just weeks after German Chancellor Angela Merkel’s visit to Israel, which seemed to improve relations between the two nations.

However, with the recent Iranian trade move, Germany is accused of pandering to both sides in the region. Head of the German-Israeli parliamentary group, Jerzy Montag said, “The chancellor shouldn’t put on airs in crowd-pleasing speeches in front of the Knesset if she isn’t going to take action at the crucial moment.”

Israel’s Foreign Ministry also expressed disappointment in Germany’s approach. “The German government’s decision contravenes the spirit of sanctions handed down by members of the [UN] Security Council on Iran,” the ministry said in a statement. “The fact that Germany, a member of the leading European group EU3, which includes France, Britain and Germany, is adopting a position that harms the international effort to considerably toughen sanctions against Iran over its continued nuclear program, is worrying.”

Analysts have said that the mere fact that Germany is establishing trade relations with countries such as Russia and Iran is an indication that the European Union can change its relationship from economic to being security integrated at any time.