german business

Companies Tiptoe to Iran

Upcoming Iranian Presidential Elections
Will Friday mark a new beginning for Iran? Source: Picture alliance

When economic sanctions against Iran began to be lifted in 2016, German companies were rubbing their hands at the prospect of a new deals to modernize the country’s outdated factories and creaking infrastructure. Unfortunately, their euphoria did not last long as firms found themselves walking a tightrope between negotiating contracts and complying with American rules.

They remain wary because President Donald Trump, who described the nuclear agreement brokered in 2015 under then-President Barack Obama with five other world powers as the “worst deal ever,” has yet to announce a clear policy toward Iran.

Friday’s elections in Iran add a new level of uncertainty. German business leaders would rather see incumbent President Hassan Rouhani stay in office but this is far from certain. His main opponent is an ultraconservative cleric, Ebrahim Raisi, who enjoys the backing of Iran’s supreme leader, Ayatollah Ali Khamenei.

The election is seen as a referendum over whether Iran should continue to down a path of moderation and global acceptance, or return to the antagonistic, anti-Western policies of past administrations.

So German companies are cautious, unwilling to alienate customers in the US though they are also tempted by untapped markets in Iran. “A country with that much outdated equipment simply cannot be overlooked,” said Tom Blades, head of the German industrial services provider Bilfinger.

However, many financial sanctions are still in place and companies are worried that falling out of favor with Washington could harm their business in the US. “We’re still not ready to sign any long-term contracts,” Mr. Blades said.

Much depends now on Mr. Trump as well as Friday’s election. Mr. Trump’s first trip abroad as president will take him first to Saudi Arabia, a close US ally and Iran’s arch rival in the Muslim world. After he meets Saudi King Salman and other leaders from the Gulf Cooperation Council (GCC), he will travel to Israel, another of Iran’s rivals.

Chemicals conglomerate BASF also signed a hurried declaration of intent to invest in Iran, only to reverse its position. “We aren’t seeing the sanctions being lifted as rapidly as expected,” said BASF CEO Klaus Bock in explanation. Company sources said the main reason BASF hit the brakes was that managers didn’t want to endanger their US business.

Now, to stay safe, companies check whether prospective customers have been blacklisted by the Americans. Volkswagen, already in trouble over the Dieselgate emissions scandal, went so far as to approach US authorities for permission to build a truck factory in Iran. That will cost Volkswagen time as it waits for a decision but shows how cautious German companies are being.

It isn’t just companies; banks are also reluctant to provide financing for deals in Iran.

Yet many Germans remain enthusiastic about business with Iran. At a recent trade fair for the oil business, talks between German and Iranian companies took on a more concrete shape than in the past, said Klaus Friedrich of mechanical engineering association VDMA.

Whatever the outcome, Iran’s upcoming election will be an important milestone for the divided country. Some hope for change, such as Mr. Rouhani, who said on the campaign trail, “we cannot allow Iran to be isolated again. We want a constructive dialogue with the rest of the world.” Many have accused him of failing to make good on his campaign promises. Instead of the $30 million (€27 million) in direct foreign investment he said would flow into Iran once sanctions were dropped, estimates put the amount that has flowed so far between $3 million and $5.6 million.

Handelsblatt’s Mathias Brüggmann is chief international correspondent. Bert Fröndhoff covers the pharma industry for Handelsblatt and Jens Koenen writes about aviation. To contact the authors: brueggmann@handelsblatt.comfroendhoff@handelsblatt.com, koenen@handelsblatt.com

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