With US-Iranian nuclear negotiations reaching their deadline this November, business around the world are waiting in nervous anticipation to re-engage with one of the world’s largest economies.
Even with heavy sanctions, Iran was the world’s 21st largest economy two years ago. The country is rich in high-demand natural resources, has an educated workforce, and increasingly well-developed processing and manufacturing capabilities.
“As soon as we suspend our major sanctions — which will happen very early in the agreement — the world will flood into Iran,” Wendy Sherman, the US’s chief negotiator, told Voice of America last week.
“I see tremendous opportunities for American companies, but quite honestly European companies right now are stealing their lunch.”
Iran has the word’s second-largest gas reserves, third-largest oil reserves, and significant rare earth deposits. The country’s 77 million consumers have been locked out of global markets thanks to UN, EU, and US sanctions following the country’s refusal to suspend uranium enrichment.
But while international sanctions are relatively simple to lift through the UN and the European Union, American sanctions are more complex and politically sensitive, as lifting them will require cooperation from a US Congress often hostile to Iran.
“I see tremendous opportunities for American companies, but quite honestly European companies right now are stealing their lunch,” former Canadian Ambassador to the United Arab Emirates, Ken Lewis, told a group of Iranian Americans at a conference in Washington last week.
The former Canadian Ambassador compared Iran’s economic potential to Canada’s, given its mix of primary resources and human capital.
At the conference, organised by the National Iranian American Council, panelists told attendees that European businesses were already starting to build connections and solidify business relationships. NIAC is one of the few US-based organisations lobbying for general sanctions to be lifted in favour of narrow sanctions targeted at the regime’s elite.
Congress has been traditionally enthusiastic in imposing sanctions on Iran, and even with a nuclear deal, legislators may see Iran’s poor human rights record and support for designated terrorist organisations as justification for leaving some of them in place.
Bijan Khajehpour, a strategic analyst and entrepreneur, said that Iran was not merely a source or raw materials, noting that sanctions had pushed the country to further develop its internal production capacity.
“We are looking at a market that is transforming, that is industrializing, and that is looking for that connection,” Khajehpour said, “what’s missing is the connection with the West and the advanced technology that brings… the leap forward is only possible with Western technology.”
Tech entrepreneur and international business analyst Christopher Schroeder said the country also had tremendous potential for tech, internet, and e-commerce businesses.
Schroeder noted that two-thirds of the population was under 35, Iran has the best internet penetration in the region, higher per-capita GDP than India and the highest share of engineering graduates in the world — yet internet and e-commerce sectors remained under-developed.
“E-commerce is in its infancy, but it’s a huge purchasing country, and it’s one the most spectacular tourist destinations I’ve ever seen, and virtually none of it is booked online,” he said. “You know, venture capitalists start to light up a little bit.”
Iran’s government strictly blocks many American websites, including Youtube and Facebook. Reformists in the current government are advocating for controls to be loosened, while workarounds to access social media and independent news are widely used by Iranians. But the country is still listed as an “enemy of the internet” by Reporters Without Borders for its web controls and censorship.
‘Apple Stores’ abound in Tehran despite sanctions. One investor estimated there were 6.5 million iPhone users in the country.
There are still challenges for US companies looking to Iran for business opportunities. For one thing, there are no direct banking relationships between Iranian and American banks.
Sanctions lawyer Erich Ferrari says banks in America remain “over compliant” and often block legal, approved transactions. “[There is] an immense fear of the [US Department of the Treasury’s] Office of Foreign Assets Control,” Ferrari said. Changing that culture could take time.
Bijan Khajehpour noted that under President Mahmoud Ahmadinejad, commercial law and anti-corruption measures had weakened.
“Even if all the sanctions are lifted tomorrow, doing business in Iran is not going to be easy,” he said, “before Ahmadinejad we have under-the-table corruption, after Ahmadinejad we have over-the-table corruption.”
He noted that while the current president, Hassan Rouhani, was committed to economic development and ending corruption, it was going to take time. The country has a poor human rights record, with hardliners in Tehran long supporting militant groups fighting the US and its allies, as well as promoting anti-Western rhetoric.
Khajehpour said his advice to firms entering the market was to partner with domestic businesses, at least initially.
“There are a number of issues, but my statement on business risks and challenges is that all of them are manageable, if you take the right approach,” he said.
Reuters / Timothy Clary
British Prime Minister David Cameron meets Iranian President Hassan Rouhani during September’s UN General Assembly. The Iranian president also met with French President François Hollande. The EU is likely to move swiftly if negotiators succeed.
If the sanctions are lifted, former Ambassador Lewis noted, it could have significant global ramifications.
“[The] world’s largest reserves of gas suddenly become unfettered, and if I was sitting in Moscow I’d be worried about that,” he said, adding that, “the second largest reserves of rare earths could end Chinese dominance in rare earths.”
Even if a deal isn’t reached, there is reason to believe that sanctions may be weakened.
Regional players such as Turkey and the United Arab Emirates have been working around the international sanctions, and America’s strained relationship with Russia may make Security Council cooperation on Iran increasingly difficult.
Tech expert Christopher Schroeder noted that sanctions were less intrusive now than when they were initially introduced. Schroeder claimed that sanctions on smartphones only recently being loosened, according to one significant investor, there could be up to 6.5 million iPhones already in the hands of Iranian consumers.
With sanctions losing their bite and significant political capital invested by both Rouhani and Obama, there is only increased pressure on each side to strike a deal before the November 24 deadline.
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