Eyeing Iran

One Thousand and One Opportunities

  • Why it matters

    Why it matters

    While Iran’s growing openness to the outside world has attracted a lot of interest and even some commitments from Western companies, there are still many uncertainties over doing business in Iran.

  • Facts

    Facts

    • Iranian President Hassan Rouhani supports foreign investment in the country, following the lifting of nuclear sanctions on Iran, but the country’s religious leader has sent mixed messages about the idea.
    • Airbus has received the approval of the Obama administration in Washington to sell jets to Iran.
    • Another complication in Iran is that groups that have profited from the country’s economic isolation, like the Revolutionary Guards, will do everything they can to obstruct foreign investment unless it benefits them.
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    Audio

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Airbus CEO, Tom Enders, meeting Iran's President Hassan Rouhani. Source: Getty Images

There is no let up in Tehran these days, as more and more international companies take advantage of the lifting of nuclear sanctions against Iran to increase their involvement in the Persian Gulf nation.

By soliciting foreign investors, reformist President Hassan Rouhani hopes to reap the rewards of the nuclear deal for his long-suffering people before next May’s presidential election – in the form of jobs and economic growth.

But the hardliners surrounding revolutionary and religious leader Ayatollah Ali Khamenei are throwing a wrench into his efforts and making things difficult for those hoping to invest in Iran.

Washington’s unclear future course in the Middle East under Donald Trump as the future U.S. president has also made people nervous.

Tom Enders, the chief executive of Airbus, is someone who is all too aware of these uncertainties. The aircraft manufacturer has just received the approval of U.S. officials in the administration of current President Barack Obama to deliver Airbus planes to the newly opening country. The deal involves Iran’s order for 118 jets at a list price of about $27 billion (€25.5 billion).

At the same time, the newly elected U.S. House of Representatives, with its Republican majority, has imposed a new ban on exports of Western aircraft to Iran. During the election campaign, Mr. Trump called the nuclear agreement with Iran a “the worst deal ever,” and said that he would terminate it. Mr. Khamenei threatened with a harsh backlash from the second-largest economy on the Gulf if Washington pulled out of the deal.

“The people expect an economic recovery, more openness to the outside world and, most of all, liberalization of the theocratic system of government.”

Bahman Nirumand, Iran expert

Which of the two sides ultimately prevails is as “uncertain” as the outcome of the power struggle between religious hardliners and modernizers in Tehran, said Iran expert Bahman Nirumand.

“Iran is at a crossroads. After the signing of the nuclear agreement and the lifting of the sanctions, the people expect an economic recovery, more openness to the outside world and, most of all, liberalization of the theocratic system of government,” said Mr. Nirumand, describing the mood in Iran. But members of the government leadership are at odds over the new course and Iran’s role in the region, he added.

It is also unclear whether or not Mr. Khamenei’s intervention, in which he told former hardliner President Mahmoud Ahmadinejad not to run for president again in the election next May, is a positive signal. Does it mean that the religious leader supports a reelection of reformer Mr. Rouhani? Or is he looking for a promising candidate to oppose him? The issue, as well as Mr. Rouhani’s prospects for reform, are the subject of scholarly disputes in Tehran.

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“Even if large parts of the population yearn for an economic boom, it also comes with uncertainty,” said author Adnan Tabatabai, who will speak at a Handelsblatt conference on Iran in Berlin on December 7. “Especially those who secured a profitable market position in the years of isolation will do everything in their power to ensure that the economic opening is not to their disadvantage.”

Mr. Tabatabai was primarily referring to the Revolutionary Guards, who were able to greatly expand their influence over the Iranian economy during the period of sanctions. The United States continues to prohibit business dealings with the Revolutionary Guards, and Washington has threatened to cancel U.S. contracts with companies that violate the ban. All of this highlights the fact that Western companies must prepare very carefully before entering the Iranian market.

Nevertheless, doing business in the country with the world’s largest oil and gas reserves, as well as many other raw materials, along with 750,000 university graduates each year, is tempting for many foreign investors.

France’s Total was just the first Western energy company to reach an agreement with offshore gas consortium South Pars 11, an investment worth more than $4.8 billion. Total and Shell are also in negotiations over exporting Iranian natural gas. Construction group Bilfinger was awarded an attractive contract in Iran, while machine builder SMS has signed two contracts for steel and pipeline plants.

Germany’s central bank, the Bundesbank, is cooperating with the Iranian central bank, Volkswagen is eying production in the country, and Siemens has just signed several major contracts.

 

Mathias Brüggmann heads Handelsblatt’s foreign desk in Berlin. To contact him: brueggmann@handelsblatt.com

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