As Sanctions Are Relaxed, Western Businesses Look To Iran
The easing of
sanctions on Tehran that has just taken effect is sending Western
companies rushing to seek new business opportunities in Iran.
A group of senior French executives, including from the energy and automotive sectors, is heading to Tehran early next month. They follow a delegation of British lawmakers who visited this month.
At the same time, Iran's Trade Promotion Organization says business delegations from Italy, Austria, Georgia, Kazakhstan, Turkey, and many other countries have already visited since late last year, when an interim nuclear deal between six world powers and Iran was announced.
Under the sanctions that were relaxed under the deal, Iran will be allowed to spend some $4.2 billion in previously frozen funds over the next six months. However, the largest part of the international sanctions regime remains in place pending a permanent future solution to the Iranian nuclear crisis.
Back In Action
Still, even a partial easing of sanctions is enough to create huge business interest on both sides. Iran needs Western goods and technology to modernize its economy, and Western companies want to provide them.
"Iran for the better part of 20 years has been deprived of free access to the latest Western technology, which is the leading technology in many areas," Iranian-born economist Mehrdad Emadi of the U.K.-based Betamatrix International Consultancy says. "And in the last five or six years, this restriction has become much more robust and there has been a real shortage of know-how in certain sectors of the Iranian economy."
A group of senior French executives, including from the energy and automotive sectors, is heading to Tehran early next month. They follow a delegation of British lawmakers who visited this month.
At the same time, Iran's Trade Promotion Organization says business delegations from Italy, Austria, Georgia, Kazakhstan, Turkey, and many other countries have already visited since late last year, when an interim nuclear deal between six world powers and Iran was announced.
Under the sanctions that were relaxed under the deal, Iran will be allowed to spend some $4.2 billion in previously frozen funds over the next six months. However, the largest part of the international sanctions regime remains in place pending a permanent future solution to the Iranian nuclear crisis.
Back In Action
Still, even a partial easing of sanctions is enough to create huge business interest on both sides. Iran needs Western goods and technology to modernize its economy, and Western companies want to provide them.
"Iran for the better part of 20 years has been deprived of free access to the latest Western technology, which is the leading technology in many areas," Iranian-born economist Mehrdad Emadi of the U.K.-based Betamatrix International Consultancy says. "And in the last five or six years, this restriction has become much more robust and there has been a real shortage of know-how in certain sectors of the Iranian economy."
Emadi says Iran's oil and gas industry, which has long been subject to
U.S. sanctions on new technology and investment, is particularly hard
hit. He notes that production levels in many fields is today one-quarter
of that of similar fields in neighboring Qatar or Iraq.
More recently, the imposition of ever more sanctions has weakened still more sectors, including Iran's once highly successful automotive industry. The sector produced 1.5 million new vehicles in 2011 but production is down to just a little over half that -- 800,000 cars -- today.
"The automotive industry in Iran, until about 2 1/2 years ago, had a share of close to 10 percent, 9.8 percent, of the GDP, employing more than 950,000 people, the largest employer in the country outside government," Emadi says. "And this sector has really been close to collapse because they haven't been able to import the latest capital equipment."
Equally, Iran's aviation sector is in dire straits after being cut off from new Western airplanes and parts since 1979. Iran's national carrier has kept its aging fleet flying by using homemade spare parts and buying vintage Russian planes from Kazakhstan and Uzbekistan, but its safety record has plunged accordingly
There is also an urgent need for Western medicines and hospital equipment, plus market demand for imported foods and consumer goods.
'Certain Things'
For now, just what specific goods and services Western companies can provide to Iran in various sectors remains opaque. Western companies interested in returning to the Iranian market are seeking clarifications from their governments which, until now, have avoided going into details due to hot political debates in many of their own countries over the wisdom of the interim nuclear deal.
Mark Fitzpatrick, director of the Nonproliferation and Disarmament Program at the International Institute for Strategic Studies (IISS) in London, says such opposition could yet undermine the interim accord, making commercial deals with Iran a potentially risky business.
"I think that the interim deal will hold. Both sides have strong incentives to adhere to this interim deal," Fitzpatrick says. "It could be undermined, however, by political pressures in various capitals, particularly in Washington and Tehran, if, in Washington, for example, senators who are promoting a new sanctions bill are able to pass it over [U.S.] President [Barack] Obama's opposition. It could create a very negative dynamic that could persuade Iranian parliamentarians to impose some measures on their own, which they are already talking about."
But for now, it is talk of business deals with Iran that dominates the stage.
Iranian President Hassan Rohani is expected to court global business next week at the World Economic Forum in Davos, an annual meeting in Switzerland of political and economic leaders and thinkers.
Meanwhile, Washington has cautioned that businesses should tread very carefully. U.S. Treasury Under Secretary David Cohen said on a visit to Europe last week that "Iran is not open to business." He added, "There are certain openings but they are limited."
Much At Stake
Still, there is little doubt that Western officials, as well as many officials in Tehran, want renewed commercial contacts to take place and succeed.
Political analysts say it is in both sides' interest to create an early "feel-good" factor from the easing of sanctions if they want to build momentum for the interim deal to evolve into negotiating a follow-up, permanent settlement of the nuclear crisis.
A permanent end to the Iranian nuclear crisis, and the much larger lifting of sanctions accompanying it, would set off a far larger scramble of Western businesses to Iran than is taking place today.
A U.S. official said on January 17 that the $4.2 billion of Iranian funds freed up under the interim deal is only a fraction of its total $100 billion of frozen foreign-exchange assets around the world.
That is a huge pot of money that could be spent on modernizing Iran's economy. But beyond it lies access to the Iranian market itself -- a still larger prize.
Iran has some 80 million consumers and a $500 billion economy, the third-largest in the region after Turkey and Saudi Arabia. Today, that economy is tied commercially to China and India and closed to the West -- a situation many Western companies would like to change.
More recently, the imposition of ever more sanctions has weakened still more sectors, including Iran's once highly successful automotive industry. The sector produced 1.5 million new vehicles in 2011 but production is down to just a little over half that -- 800,000 cars -- today.
"The automotive industry in Iran, until about 2 1/2 years ago, had a share of close to 10 percent, 9.8 percent, of the GDP, employing more than 950,000 people, the largest employer in the country outside government," Emadi says. "And this sector has really been close to collapse because they haven't been able to import the latest capital equipment."
Equally, Iran's aviation sector is in dire straits after being cut off from new Western airplanes and parts since 1979. Iran's national carrier has kept its aging fleet flying by using homemade spare parts and buying vintage Russian planes from Kazakhstan and Uzbekistan, but its safety record has plunged accordingly
There is also an urgent need for Western medicines and hospital equipment, plus market demand for imported foods and consumer goods.
'Certain Things'
For now, just what specific goods and services Western companies can provide to Iran in various sectors remains opaque. Western companies interested in returning to the Iranian market are seeking clarifications from their governments which, until now, have avoided going into details due to hot political debates in many of their own countries over the wisdom of the interim nuclear deal.
Mark Fitzpatrick, director of the Nonproliferation and Disarmament Program at the International Institute for Strategic Studies (IISS) in London, says such opposition could yet undermine the interim accord, making commercial deals with Iran a potentially risky business.
"I think that the interim deal will hold. Both sides have strong incentives to adhere to this interim deal," Fitzpatrick says. "It could be undermined, however, by political pressures in various capitals, particularly in Washington and Tehran, if, in Washington, for example, senators who are promoting a new sanctions bill are able to pass it over [U.S.] President [Barack] Obama's opposition. It could create a very negative dynamic that could persuade Iranian parliamentarians to impose some measures on their own, which they are already talking about."
But for now, it is talk of business deals with Iran that dominates the stage.
Iranian President Hassan Rohani is expected to court global business next week at the World Economic Forum in Davos, an annual meeting in Switzerland of political and economic leaders and thinkers.
Meanwhile, Washington has cautioned that businesses should tread very carefully. U.S. Treasury Under Secretary David Cohen said on a visit to Europe last week that "Iran is not open to business." He added, "There are certain openings but they are limited."
Much At Stake
Still, there is little doubt that Western officials, as well as many officials in Tehran, want renewed commercial contacts to take place and succeed.
Political analysts say it is in both sides' interest to create an early "feel-good" factor from the easing of sanctions if they want to build momentum for the interim deal to evolve into negotiating a follow-up, permanent settlement of the nuclear crisis.
A permanent end to the Iranian nuclear crisis, and the much larger lifting of sanctions accompanying it, would set off a far larger scramble of Western businesses to Iran than is taking place today.
A U.S. official said on January 17 that the $4.2 billion of Iranian funds freed up under the interim deal is only a fraction of its total $100 billion of frozen foreign-exchange assets around the world.
That is a huge pot of money that could be spent on modernizing Iran's economy. But beyond it lies access to the Iranian market itself -- a still larger prize.
Iran has some 80 million consumers and a $500 billion economy, the third-largest in the region after Turkey and Saudi Arabia. Today, that economy is tied commercially to China and India and closed to the West -- a situation many Western companies would like to change.
