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The Real 'Iran Prize': The Next Great Emerging Market

04/06/2015 03:55 pm ET | Updated Jun 06, 2015

"A journey of a thousand miles begins with a single step," Chinese Philosopher Lao-tzu once said. When it comes to bringing Iran -- the heir of the great Persian civilization -- out of the cold, the recently announced Joint Comprehensive Plan of Action (JCPA) framework agreement, after days of grueling 11th-hour haggling in Lausanne, Switzerland, between Tehran and the major powers, may very well count as that proverbial "single step."

A final, comprehensive agreement is yet to be drafted and signed before the June 30 deadline, but by all indications we may have finally achieved a breakthrough in the decade-and-a-half-long Iranian nuclear negotiations, paving the way for an end to the Iranian nuclear hysteria and a decisive rollback of punitive Western sanctions, which have collectively punished tens of millions of ordinary Iranian citizens.

Ending punitive Western sanctions against Iran, in exchange for substantial concessions on its nuclear program, will most likely have a dramatic impact on the global economy -- unlocking the world's hottest emerging-markets-in-waiting. Iran combines the consumer market and human capital potential of Turkey, with the hydrocarbon riches of Saudi Arabia and Russia, and the mineral resources of Australia. As the BRICS (Brazil, Russia, India, China, and South Africa) struggle with various manifestations of the notorious 'middle income trap,' Iran represents the next great destination for foreign investors. In the near future, we may end up talking about a new, cooler acronym: The "i-BRICS", with Iran, of course, as the "i."

Withstanding Stagflation

While the war-weary American people can rejoice in preventing another conflict in the Middle East, the Iranian people have wasted no chance at celebrating the promise of economic recovery and reintegration into the global community. Horns, chants and cheers have filled the air across Tehran, echoing the country's celebrations during the 2014 World Cup.

The historic Nixon-Mao opening in the early-1970s cemented the foundations of a decades-long economically symbiotic relationship between Washington and Beijing, allowing one of the world's most sophisticated civilizations to rejoin the community of nations -- and transform the global economy along the way. The Obama-Rouhani negotiations could produce a similar outcome, allowing the Persian civilization to retake its pride of place on the global stage, unleashing the talents and potentials of 75 million Iranians, who have been besieged and isolated for years under unimaginable external pressure.

The unilateral Western sanctions against Iran were particularly devastating, since they combined targeted sanctions against Iran's financial and oil sector with an intense diplomatic effort to convince/pressure Iran's major Asian trade partners -- namely, South Korea, Japan, China, Turkey and India -- to dramatically reduce their oil imports from Iran. Washington rallied the support of major Arab oil-producing countries, such as Saudi Arabia and the United Arab Emirates (UAE), to supplant any potential shortfall in oil supply when Iran's oil would be squeezed out of international markets.

Meanwhile, by pressuring Iran's Asian oil partners, the West limited Iran's pool of customers, therefore giving immense leverage to Tehran's narrowing circle of buyers to demand heavy discounts and unfavorable terms. South Korea and Japan agreed to cut their Iranian oil imports, while India and China began exploiting the situation by forcing Iran to offer discounts and settle for barter trade.

Under growing American pressure, Iran's most important regional trade partner, the UAE, progressively severed financial ties with Tehran, undermining Iran's ability to import essential primary products, especially food. To up the ante, EU also imposed sanctions on Iran's most important port operator, Tidewater Middle East Co., which has been responsible for handling much of Iran's external trade. These moves were clearly designed to strangle the Iranian economy, going well beyond the scope of the nuclear issue -- causing tremendous difficulty for ordinary Iranians.

As a result of the concerted punitive measures, Iran fell into "stagflation," with a spike in inflation coinciding with a dip in GDP growth. Its oil exports, the chief source of foreign currency earnings, halved, while sanctions on Iran's financial sector, including the Banke-e-Markazi (Central Bank), meant that Tehran struggled to collect its payments in international currency. Up to $100 billion of Iranian overseas assets were virtually frozen. Inflation reached as high as 40 percent, and Iran's currency (rial) lost 60 percent of its value. Iran suffered two years of economic contraction, in 2012 and 2013. Iran's economy would have been 15-20 percent larger today if it were not for the sanctions.

The Next Hot Destination

The expected removal of Western sanctions, particularly the targeted measures against Iran's oil and financial sector, could pave the way for a huge and much-needed inflow of foreign investors and recovery of Iran's oil sector and heavily-battered currency.

Within the region, Iran possesses the most sophisticated and expansive industrial base. It is among the world's top 15 steel producers, top 5 cement producers, and has one of world's biggest auto-manufacturing industries (ranked 13th in the world), churning out as many as 1.6 million cars annually in recent years, representing the second biggest source of employment-generation after the oil sector and accounting for 10 percent of the country's Gross Domestic Product (GDP). With the removal of sanctions, Iran can tremendously benefit from cheaper and easier access to intermediate goods and technology for its manufacturing sector.

Despite suffering from decades of Western sanctions, Iran has astonishingly managed to stand as among the world's leading countries in cutting-edge sciences such as nanotechnology and stem cell research. Its universities, particularly University of Tehran (Iran's Harvard) and Sharif University of Technology (Iran's MIT), have produced one of the best engineering, science and mathematics graduates, including Maryam Mirzakhani, who became the first woman to win the Fields Medal, the "Nobel Prize" of mathematics.

In 2012, Iran cemented its position as the leading Middle Eastern scientific power, ranking as the world's 17th biggest producer of scientific papers, outshining Turkey and Israel. In terms of human development, Iran stands among the top countries in Asia, featuring in the "high" human development index category.

The combination of market size, natural resources, and human capital has made Iran a hugely attractive market prospect. And there hasn't been a shortfall of interest from foreign investors, particularly from oil giants, which are considering huge investment in a post-sanctions Iran.

In recent years, Iran has hosted one of the biggest European business delegations in its modern history. Ending the sanctions, and reviving Iran's economy, has been the key promise of the Rouhani administration, which aims to make Iran among the world's top 10 biggest economies in the near future. With Iran's Supreme Leader Ali Khamenei, who has the final say on Iran's domestic and foreign affairs, repeatedly expressing his support for Iran's negotiators, much of the Iranian establishment has rallied behind the Rouhani administration's effort to resolve the nuclear crisis.

A final nuclear agreement will also provide Iran much-needed strategic space to diversify its external relations, allowing it to get out of the shadow of Eastern powers such as China and Russia, which have exploited Iran's isolation in recent years. In light of sanctions against Tehran, China effectively gained privileged access to Iran's vast energy and infrastructure sector. Meanwhile, Russia is yet to honor its earlier agreement to deliver advanced missile-defense-systems to Iran, which Tehran has desperately sought for years.

To protect its national economic welfare, Iran has reportedly agreed to significant concessions on its nuclear program: reduction of its installed centrifuges by two-thirds; halting uranium enrichment over 3.67 percent (only useful for power generation) for at least 15 years; reduction of its current stockpile of about 10,000 kg of low-enriched uranium (LEU) to 300 kg; and not building any new facilities for the purpose of enriching uranium for 15 years.

It has also agreed to subject itself to the history's most robust inspection regime, under the auspices of the International Atomic Energy Agency (IAEA), which will even have access to uranium mines and exercise continuous surveillance at Iran's uranium mills for 25 years. Facilities in Arak, Natanz, and Fordow will also be subject to significant inspection and reconfiguration.

As Iran open up to the world, the Obama administrations and its partners face an unprecedented opportunity to not only advance the cause of non-proliferation and avert an unnecessary and destructive conflict, but also to tap one of the world's most promising economies. The stakes couldn't be any higher.