Who’s Getting into Iran’s Markets Today?

Who’s Getting into Iran’s Markets Today?

Contrary to the popular view that almost every leading economy around the world has now entered the fray for various segments of the Iranian market (now freed from sanctions), many countries are still in no hurry to resurrect their trade with Iran. There are many reasons for this, such as the technical difficulties of reviving canceled or unfulfilled contracts, and also Iranian potential solvency problems, given the drop in oil prices, etc. In addition, not everyone in the West likes the independent foreign policy conducted by the Islamic Republic of Iran.

The fact is that the nuclear deal with Iran has not worked out for the US – Tehran did not trade its independence for a release from sanctions. The nuclear program agreement lifted the sanctions on the Iranians, which was their goal, but Iran’s religious leaders have no intention of taking their relationship with America any further. Iran remains one of America’s biggest adversaries. And Washington returns the compliment: it gives the go-ahead to revoke the «nuclear» sanctions but immediately approves «missile» sanctions against Tehran. The White House continues to accuse Tehran of «supporting terrorism» and refusing to protect human rights. There is still a good chance that the US will renew full-blown sanctions against Iran, and America’s allies in Europe continue to take a cautious view of the idea of resuming long-term economic cooperation with Tehran. The results of Iranian President Rouhani’s visit to Italy and France attest to this.

That issue topped the agenda at the Iranian government’s Feb. 1 meeting. The tone of President Rouhani’s speech gave no hint of the euphoria that could be heard on the eve of his visit to Europe. At that time the plans for his trip looked more like a massive incursion by Iranian business interests. The president’s delegation consisted of 120 people, including members of the government and prominent business leaders. Summing up the results of his trip, Rouhani noted the restoration of a respectful relationship toward the Iranians and the importance of consultations associated with settling banking and insurance issues, the transfer of technology to Iran, and the development of joint ventures, but Europe still has discriminatory restrictions in place against Tehran in regard to all these issues.

Even after sanctions against Iran were lifted, the US Treasury Department issued a directive prohibiting American citizens and companies from entering into agreements or transactions with Iran. For European firms, this means that when trading with their Iranian partners, in most cases it will be impossible to rely on US payment services such as credit cards and other online systems. For this reason, there can be no major steps forward in the near future in economic cooperation between Iran and the EU.

There is talk of a revival of the trade in goods with Italy, which totaled 7.2 billion euros in 2011, before the introduction of sanctions. But by 2014, sanctions had caused a decline in commerce between Iran and Italy of over 75%, down to 1.6 billion euros. In the four years of sanctions, Iranian-Italian trade lost a total of more than $20 billion. During the visit, seventeen agreements (seven official and ten commercial) worth more than 17 billion euros were signed, but with allowance for memorandums of understanding that do not stipulate specific contractual obligations. This includes, for example, the construction of an oil pipeline, 2,000 km in length and at a total cost of $4-5 billion.

Meanwhile, the Italian government is opening a $7 billion line of credit for its own businesses that are pursuing investment projects in Iran. And don’t forget that the Russian government has provided Tehran with a $5 billion export credit to finance Russian companies’ projects in Iran. The Russian line of credit is scheduled to be opened in early 2016. Deputy Finance Minister Sergey Storchak has stated that Russia will no longer offer loans to other countries, with the exception of Iran.

President Rouhani’s visit to France culminated in the signing of a series of deals valued at approximately 15 billion euros. The PSA Peugeot Citroën automotive group is investing 400 million euros to set up a joint venture with the Iranian car manufacturer Khodro. This is not a new project – it had been approved before the sanctions were levied, but in 2012 cooperation with the French company came to a halt.

Iran has long been public about its plans to upgrade its civil aviation fleet. Sanctions prohibited sales of even used aircraft to Iranian air carriers. Today, Iran’s air fleet has only 50% of the number of planes necessary to fully meet its country’s air-transportation needs. At the moment, Iran urgently needs about 300 more aircraft. In France, the Iranians agreed to purchase 118 Airbus passenger airplanes. The first contract was signed on Feb. 1 in Tehran by the Iranian national carrier Iran Air and the Franco-Italian company ATR. The agreement promises to provide Iran with 20 ATR 72-600 airliners (with an option for another 20) for 1 billion euros. This is currently the only contract. As with Italy, there are only intentions in place – such as Total S.A. purchasing 150,000-200,000 barrels per day of Iranian crude oil, for example. At current oil prices, that sale will bring in approximately $1.5 billion for Iran. Consequently, the announced 15 billion euros of trade in goods in the coming years with France is unlikely to yield more than 3 billion euros per year.

In this context, it looks like Russia holds the more favorable position in the Iranian market. Over the past year Moscow and Tehran have come to an agreement on a list of projects worth approximately $40 billion. The construction of the second phase of the Bushehr nuclear power plant will cost almost $11 billion. Several oil projects worth approximately $6 billion are under consideration. Detailed plans have been drawn up for projects with a price tag of approximately $5 billion to modernize and construct thermoelectric power plants. Steps are being taken to increase imports from Iran. There are prospects that Iranian food could be sold on the Russian market.

It is also important that Russia and Iran are looking for ways to remove obstacles that hinder the settling of accounts and insurance issues. And finally, their political affinity on issues of regional and international security is also helping to expand the trade and economic cooperation between Moscow and Tehran.