Iran to woo trade in Davos, but hurdles remain

The historic interim deal over Iran’s contested nuclear program will begin to be implemented from Jan. 20.

PARIS: Iranian President Hassan Rouhani will court global business in Davos next week after winning an easing of some economic sanctions, but any trade bonanza for his country depends on the long-term success of nuclear diplomacy.

A U.S. stranglehold on Iran’s access to the international financial system, the uncertain future of talks on its nuclear program beyond a six-month initial deal, and vested interests in the Islamic Republic suspicious of Western investment all stand in Rouhani’s way.

“I would be surprised if you saw Iran shooting quickly to the top of the list of attractive markets, although it may be attractive for certain manufactured goods companies in the short to medium term,” said a Western business consultant who works with many of the world’s biggest companies.

“The fact that Iran is making signals in the right direction is welcome but I think the bulk of business people will be cautious and will play a bit of a wait-and-see game,” he said, asking – like many involved with Iran – not to be identified due to the political sensitivities.

After a charm offensive at the United Nations in September, the pragmatic Rouhani opens Act Two of Tehran’s return to the international stage at the Swiss resort Thursday when he addresses the World Economic Forum, an event that attracts political and business leaders from around the world.

The White House Thursday released a summary of last November’s interim deal between Iran and six world powers under which Iran agreed to stop production of 20 percent enriched uranium by Jan. 20.

In return, some sanctions imposed over Tehran’s nuclear program – which Western countries suspect is aimed at developing weapons despite Iranian denials – will be relaxed from Monday.

In the short term, business opportunities are limited mostly to areas such as food and consumer goods, medicines, cars and petrochemicals under the interim accord. Iran will be able to spend $4.2 billion in unfrozen funds over six months, although most sanctions remain pending a long-term agreement.

However, the potential of a market of 76 million people in a country with some of the world’s biggest oil and gas reserves is a magnet for foreign companies seeking long-term opportunities.

Iran has said it wants seven energy companies – Shell, Total, ENI, OMV and Statoil from Europe, as well as U.S. majors ExxonMobil and ConocoPhillips – to return.

French automakers Renault and Peugeot attended an automotive conference in Iran already last November, while Iran’s ancient airline fleet may one day offer opportunities to Boeing and Airbus.

Bijan Khajehpour, a Vienna-based Iranian business consultant, said there were the beginnings of a “gold rush” mood in Tehran, with Russia and China racing to pin down oil-for-goods barter deals before Western companies arrive with the technology that Iran most wants. “We’re getting inquiries now from a lot of old clients and some new clients,” said Khajehpour, managing partner of Atieh International.

Iranian officials want to orchestrate a race between European competitors – and eventually U.S. corporations – for the best deals. However, most of these can be struck only if sanctions go altogether under a final settlement.

“American companies are very eager to enter Iran’s market, from car manufacturers to aircraft makers,” a senior official told Reuters on condition of anonymity. “They are preparing the ground for the time when the sanctions are lifted.”

Among the most promising sectors in the short term are autos, pharmaceuticals, food and consumer goods, Khajehpour said, with oil and gas production and technology and aircraft the biggest longer-term prospects.

A spokeswoman for Tehran’s Homa hotel, a center for international business, said numbers of European guests had risen 30 percent from last year. However, neither the hotel nor flights to the capital are full.

Trade delegations from Turkey, Georgia, Ireland, China, Italy, India, Austria, Tunisia, Kazakhstan and Sweden have visited Iran since early December, according to Mehrdad Jalalipour, director of Iran’s Trade Promotion Organization.

British lawmakers were there this month and a posse of senior French industrialists is off to Tehran on Feb. 2-5.

European oil majors were among the last big Western firms to abandon business with Iran in 2012 and may be among the first to return. Sanctions have cut Iran’s oil exports by more than half over the past 18 months to about 1 million barrels a day, and Oil Minister Bijan Zanganeh plans an investment conference in London later this year, Iranian officials say.

Khajehpour said Tehran understood no Western company would return on the terms imposed in the past, which complied with Iran’s ban on foreign ownership of its hydrocarbon resources.

A government commission reviewing investment terms is due to report in April, and it was bound to make conditions more attractive even if they fall short of the production sharing agreements preferred by the oil majors, he said.

Germany and Italy were Tehran’s two biggest trading partners before the sanctions, selling mostly machinery and chemicals in return for oil.

Sanctions have impoverished many Iranians. The International Monetary Fund estimates gross domestic product per capita shrank by almost half to $6,500 last year from $12,000 in 2012 on a purchasing power basis.

Iranian political analysts say Rouhani needs to create an early “feel-good factor” from the easing of sanctions in order to rally public and establishment support for a nuclear compromise.

Cars may offer a quick win. Iran was one of the world’s top 10 markets with demand of 1.5 million vehicles a year in 2011 before sanctions tightened. That has fallen to about 800,000 but could rise rapidly, a regional automotive executive said.

Renault, Peugeot, Nissan, Suzuki, KIA and Mazda used to supply kits to Iranian partners who assembled the vehicles. Now Chinese firms have partly filled the gap, raising their market share from barely 1 percent to 5-6 percent, the executive said.

European manufacturers’ share has fallen from 40 percent to around 10, the executive added, requesting anonymity. They are eager to resume supplying kits and parts but a major snag remains.

“We still have a blockage on financial flows. So nobody is motivated to send parts and produce there because you are not going to be paid,” he said.

The Iranian aviation sector is on its knees, keeping vintage planes in the air with home-made or cannibalized spare parts, due to U.S. sanctions in force since 1979.

Iranian airlines need an estimated 400 new planes, according to Khajehpour. For now, they can buy only parts but Boeing and Airbus can cash in, if and when sanctions are fully lifted.

U.S. Treasury Undersecretary David Cohen visited Europe this week in order to discuss continued enforcement of sanctions that have largely shut Iran out of the global payments system.

A senior U.S. official said Cohen had conveyed a firm message. “Iran is not open to business,” the official told reporters. “There are certain openings but they are limited.

“The message to the business community is that if you think we have removed sanctions, that is a misimpression. The sanctions regime remains in place,” he said.

A U.S. official said Friday that the $4.2 billion of Iranian funds freed up under the interim agreement was only a fraction of its total frozen foreign exchange assets around the world, which the official put at about $100 billion.

Western critics of the interim agreement say even limited trade openings will ease the pressure on Iran to abandon its suspected quest for a nuclear weapons capability, and may inadvertently feed the nuclear supply chain. Tehran insists its atomic program is purely for civilian purposes.

Emanuele Ottolenghi, senior fellow at the Washington-based Foundation for the Defense of Democracies, warned that even seemingly harmless goods such as dental implants and crowns contained titanium and beryllium, which had nuclear applications.

By increasing tenfold to 400,000 euros ($543,800) the size of banking transactions exempted from prior authorization, the European Union would make it easier to sell specialty hi-tech equipment to Tehran, he said.

“I don’t mind Italian designers selling high-end shoes and furniture, or Germans selling fancy bathroom installations, but I’m concerned about the areas chosen for easing sanctions such as automobiles and petrochemicals which lend themselves to dual [civilian/military] use,” Ottolenghi said.

As in other countries emerging from sanctions, there will be losers as well as winners, and some prospective losers may see an interest in sabotaging the nuclear negotiations.

Hard-line religious figures close to Iranian Supreme Leader Ali Khamenei, Revolutionary Guard commanders and the intelligence services have attacked the temporary concessions Rouhani has made, although Khamenei has so far backed the president.

Some have their own business interests in sanctions-busting and covert procurement chains for the military and nuclear industries, and may resist anything more than a limited trade opening to ease public exasperation with the sanctions.

“It’s not about the national interest but individual interests,” said dissident journalist Nooshabeh Amiri, who fled Iran to France in 2005.

Among the likely winners are Dubai, long a trade gateway for Iran whose rulers have reluctantly complied with the sanctions to the fury of a powerful merchant class.

“The partial relaxation of sanctions on Iran is manna for Dubai,” said Jim Krane, a research fellow at Rice University’s Baker Institute in Houston, Texas. “More than 10,000 Iran-linked businesses operate in Dubai, most of which focus on re-exporting goods and technology that Iran cannot otherwise get.”

The relaxation of sanctions may also ease gas exports from Iran, he said. Oman signed a 25-year deal to import Iranian gas but has been reluctant to follow through for fear of violating a trade deal with the United States. The interim deal might offer the political cover to start work on a pipeline.

However, some Iranian middle-men who thrived under sanctions are fretting about events since Rouhani won power in June, vowing to improve relations with the outside world.

One such is 53-year-old Mohammad, who imports goods from Europe and the Middle East, helped by his German citizenship while colleagues without foreign passports have struggled. “Two months after Rouhani’s election, I noticed that the companies I used to deal with adopted a wait-and-see policy, hoping to do business directly with the government,” he told Reuters.

“A German businessman from whom I bought second-hand textile machines told me openly he had approached the [Iranian] Embassy to visit Tehran and he prefers to sell the machines to the government directly,” he said. “This deal has ruined my position and my business. Neither side needs me anymore.”

A version of this article appeared in the print edition of The Daily Star on January 18, 2014, on page 5.




Your feedback is important to us!

We invite all our readers to share with us their views and comments about this article.

Disclaimer: Comments submitted by third parties on this site are the sole responsibility of the individual(s) whose content is submitted. The Daily Star accepts no responsibility for the content of comment(s), including, without limitation, any error, omission or inaccuracy therein. Please note that your email address will NOT appear on the site.

Alert: If you are facing problems with posting comments, please note that you must verify your email with Disqus prior to posting a comment. follow this link to make sure your account meets the requirements. (

comments powered by Disqus



Interested in knowing more about this story?

Click here