Our next newsletter (Issue 76) will be published shortly.
Published: November 2017
In this issue:
- Iranian investors are keeping a watchful eye on the US Congress regarding its deliberations on the future of financial sanctions. The Iranian stock market has risen steadily since October, although the Rial has lost almost 3% in value against the dollar.
- Meanwhile in Europe, businesses are studying their options. French oil major, Total, and European aircraft manufacturer, Airbus, remain engaged but sensitive to rising risks.
- The IRGC’s role in the economy is coming under increasing scrutiny. Verity Iran’s sources suggest its pervasive presence in the economy is holding investment up and putting many investors off altogether.
- More generally, Iran’s negative “image” is jeopardising the fragile trust it retains in the international business community. Failure to meet the conditions of its agreement with the Financial Action Task Force in the next two months, to combat money laundering and terrorist financing, could see Iran once again isolated from international banks.
- The escalating diplomatic crises surrounding Iran’s imprisonment of foreign and “dual-national” citizens is also bad for business. The high-profile case of the IRGC’s imprisonment of a British-Iranian mother visiting her family is one of many causing concern in the Iranian diaspora and international business community.
- Hundreds of casualties in the recent, devastating earthquake in Kermanshah Province have been linked to corruption in the construction of government social housing. The use of poor quality materials and a failure to adhere to building standards have tragically raised the death toll.
- The US President’s move to stiffen the US posture against Iran and hand the question of sanctions-“snap-back” over to the US Congress has placed the Iranian economy on an uncertain path.
- The financial sanctions now at Congress’ disposal can be a potent deterrent to firms doing business in Iran. Mr Trump’s decision to designate the Islamic Revolutionary Guards Corps (IRGC), by executive order, complicates matters even further.
- Iran’s oil exports, which recovered to around 2.3 million barrels per day after sanctions were lifted, again represent its core vulnerability. New sanctions will be particularly damaging if they throw sand in the wheels of inward foreign investments
- However, a return to the pre-2015 sanctions regime is not a done deal: the international community has loudly and clearly rejected the US position.
- The immediate reaction from President Rouhani reflected the mixture of anger and indifference in the Iranian public, aiming personal attacks at President Trump but reinstating Iran’s commitment to the JCPOA.
- For Iranian businesses and the Rouhani administration, the priority must be to capitalise on goodwill in European and Asian markets and keep non-US trade and financial channels open.
- Iran’s momentous deal with French oil major, Total, delivered an early boost to the incoming Rouhani administration’s economic prospects. The US$4.9 billion gas production deal has raised hopes of a new era of international economic engagement.
- Total’s gamble has reverberated around the international investor community, potentially blazing a trail for international investors from outside the United States to find the confidence, and the payment channels, to make business with Iran viable.
- The Total investment could be seen as a reward for the Rouhani administration’s compliance with the JCPOA. The contract is a testament to the faith the French company has in Iran’s ability to avoid sanctions “snap-back”.
- The deal irked some hard-liners, however, including IRGC leadership figures, who have been embroiled in an ongoing spat with the administration over the military body’s domineering role in the Iranian economy.
- Khatam al-Anbia insist the deal should have remained Iran-only, rejecting the premise for how foreign investment can benefit the Iranian economy with capital, jobs, technology and know-how.
- The President is correct to point out the IRGC’s role in the economy has been damaging. It is not unpatriotic to say so. In fact, replacing the IRGC with private enterprises would be good for the Iranian people: reducing corruption, encouraging competition and creating jobs.
- Destructive comments from the US President at the UN pulpit have cast doubt on the future of the JCPOA, but have found no support amongst other partners of the deal. French President Macron publicly defended the agreement, the EU High Representative Mogherini recently spoke of the European desire to “safeguard” it.
- Whether the US President perseveres with the deal or pulls out, Iranian businesses are hoping their own authorities will refrain from escalating the dispute. Iranian officials see the fracturing of the P5+1 consensus as an opportunity to maintain trading relations with the rest of the world if they can continue to prove adherence to the original terms of the deal.
- Recent deals in the energy, automotive and transport sectors betray a degree of confidence among the European and Russian business communities that Iran will indeed be able to do what it takes to avoid sanctions “snap-back”.
- But the Iranian state still acts as a severe drag on Iranian efforts to attract foreign investment. Efforts to clean up the banking system will come in direct conflict with IRGC interests, as they undermine sophisticated money laundering channels.
- Meanwhile, President Rouhani has been making quiet progress in his efforts to scale back the Guards’ business interests with a series of arrests and detentions in recent months.
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