The Iran Nuclear Deal, One Year Later
In 2013, hopes were high among companies in a wide range of industries after the U.S unfroze $7 billion of Iran’s assets, and began negotiations over what became known as the Iran nuclear deal.
It seemed like the first step in opening a new market of 80 million people, previously cut off from the rest of the world because of strict economic sanctions.
One year has passed since the pact was ratified. Democrats continue to laud it as a positive step toward a peaceful Middle East and a non-nuclear Iran. Republicans consider it the worst deal since the Cubs sent future Hall of Famer Lou Brock to the Cardinals for pitcher Ernie Broglio.
But putting politics aside, has it been the boon to global trade so many in the private sector anticipated?
Not in Iran, certainly. The expected economic boom has largely been a bust thus far.
Part of that can be attributed to the usual suspects – bureaucracy and red tape. There were delays in lifting many of the sanctions, because of the sheer number of restrictions that had to be removed. There were also disagreements about which sanctions were to be lifted; the Iranian Supreme Leader expected all of them to be gone immediately, while the U.S. State Department asserted, “Not so fast.”
In fact, while most nuclear-related sanctions have been eased, other sanctions remain in place, a result of Iran’s consistently disastrous human rights record. How do interested parties know which is which?
That uncertainty and confusion may be keeping U.S. companies from trying to do business with Tehran, and wondering whether they will be ostracized for doing so, as Boeing has been, or perhaps even prosecuted.
Banks are stuck in the middle. They hear Secretary of State John Kerry assure European bankers that Iran is open for business as long as they make proper checks on trade partners. But banks like HSBC and Deutsche Bank still have the red ink on their ledgers from the billions in fines they have paid for Iran-related activities. One can understand their hesitancy to resume such transactions.
A few deals are getting done
France’s Peugeot-Citroen completed a $441 million joint venture with its old automotive partner, Iran Khodro. Peugeot car sales fell 68 percent after the company suspended its Iran shipments in February 2012 to abide by U.S.-led sanctions. South Korea’s LG Electronics hopes to establish a manufacturing plant in Tehran that will produce more than 1.5 million refrigerators, televisions, and washing machines annually, and Danish pharmaceutical company Novo Nordisk has doubled its Iranian staff and invested $76 million in a new factory.
Oil production is back up as well, almost to pre-sanction levels, after the country lost 60 percent of its crude sales in 2012. Iran is also sitting on considerable natural gas reserves, which have attracted the attention of nations like Turkey, India, and Pakistan.
Shipping companies that transport Iranian oil figure to be among the biggest winners from lighter sanctions, and insurance companies may see an increase in business on Iranian oil cargoes.
Almost 20 percent of oil trade currently passes through the Strait of Hormuz off Iran’s southern coast, which is the only sea route out of the Persian Gulf. It is conceivable that Iran will become a more prominent link with India, Central Asia, and Russia through the International North-South Transport Corridor. Expanded rail service between Iran and China may also boost bilateral trade.
But the country still faces an enormous demand for a wide range of manufactured goods, including the most basic staples and technology. But as much as U.S. and European companies are weighing potential profits against potential ostracism, there are Iranian institutions that are equally suspicious of expanded trade, fueled by concerns over more western influence on consumers.
The opportunity is there, but not every company will be able to make the most of it. Those with the best chance of success will start with a sound compliance strategy, alliances with local partners and distributors, and accurate market data.
Waiting For November
Perhaps the wisest strategy for the rest of the world, given the closeness of current presidential polling in the United States, is to wait until after the election in November. If Hillary Clinton wins, the Iran nuclear deal will be upheld. Donald Trump has pledged to tear it up after taking the oath of office.
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