THE BLOG
08/08/2015 05:35 pm ET Updated Dec 06, 2017

Doing Business With Post-Sanctions Iran: Risks and Opportunities

After the nuclear deal was reached, foreign countries and companies appear to be rushing to rekindle business with the Islamic Republic, which had been cut off from global trade. Iranian leaders have reciprocated the interest in conducting business -- in many areas including technology, arms, manufacturing, gas and oil -- with other countries.

Within hours of the nuclear deal, several international oil companies including Royal Dutch Shell Plc, BP Plc and Eni expressed their interest in returning to Iran's oil market, which will more likely ratchet up OPEC's oil production.

Among European countries, Germany and France appear to be among the first to rush to rekindle business with the Islamic Republic. Recently, Sigmar Gabriel, Germany's economic minister and vice chancellor, along with a business delegation from Siemens and Linde, and automobile manufactures Mercedes and Volkswagen, made a visit to Iran. This was the first business conference in more than a decade.

Iranian leaders are also planning to strengthen Iran's airplane fleet. After the nuclear deal was reached, Mohammad Khodakarami, the director of Iran's Civil Aviation Organization stated that "Iran will buy a total of 80 to 90 planes a year from the two aviation giants [Airbus and Boing] in the first phase of renovating its air fleet."

When it comes to Iran's economic landscape after the nuclear deal, major questions to address are: What sectors will likely witness foreign investment and flourish the most? Which countries are more likely to rekindle business and gain more? What will be the Iranian leaders invest in the most? What are the opportunities and risks?


Opportunities: What Iranian Sectors Are Appealing?

The first appealing sector in Iran is the energy sector: oil and gas. The Islamic Republic enjoys the fourth biggest proven crude oil and the second largest natural gas reserves in the world. The second appealing Iranian market is the arms industry. When the sanctions and UN arms embargo are lifted, arms deals can usher in billions of dollars for arms corporations. Russia has already lifted its arms ban on Iran.

Additional sectors are Iran's consumer and technology markets. With roughly 80 million people, the Islamic Republic has the second largest population in the Middle East, and the 17th largest in the world. What is more intriguing regarding the consumer marker is that over 60% of the 80 million are under 30 years of age.

Iran enjoys a highly educated population but suffers from a high level of brain drain. Even under economic sanctions, Iranian people spent roughly more than $75 billion on food, more than $20 billion on clothes and $18.5 billion on tourism in 2012.


Which Countries and Corporations Will Gain More?


When it comes to the oil and gas markets, countries which are currently buying oil from Iran -- including China, India Japan, Turkey, and South Korea -- are more likely to ratchet up their oil purchases. European countries and Western oil corporations will also slowly increase their presence in Iran's oil and gas market.

Ironically, the United States -- which pushed for Iran's nuclear deal and the consequent removal of economic sanctions and UN arms embargo on Iran -- will be the least beneficiary of Iran's market, economically speaking. Due to the U.S. Congress' opposition of the nuclear deal, U.S. companies will not be capable of dealing with Iran anytime soon.

With regards to the arms sale, the Russian-Chinese-Iranian axis will remain robust. Russian arms sales to Iran will increase as restrictions wash away. Russia, which pushed for the listing of arms embargo on Iran, has already announced that it will supply the S-300 missile system to Iran.

Concerning Iran's consumer market, Western companies and products have an edge over other companies from the Iranian people's perspectives. Western companies will find it much easier to reach Iranian consumers. Nevertheless, the process of doing business with Iran in full-speed is going to take time.

When it comes to the Gulf, one particular country will witness increased trade with Iran: the UAE. Dubai -- which is a traditional hub for business with Iran and a crucial gateway for articles and goods -- will witness increased trade from an economically free Iran. More than 75 percent of Iran's trade in the Gulf is conducted with the UAE. In addition, Iran is UAE's fourth largest trading and business partner after China.

In Iran, the Islamic Revolutionary Guard Corps and the Office of the Supreme Leader, who have a monopoly over the energy and main economic sectors, will be the major beneficiaries.

The Risks

One the major risks of rushing to do business with Iran is linked to the UNSC economic sanctions. In case Iran violates the terms of the nuclear agreement down the road, if political instability regarding Iran's repressive domestic policies increases, and if sanctions are re-imposed, companies will face tough decisions regarding their investments.

Secondly, since most of the economic sectors are controlled and owned by the Iranian state, doing business will be a much more daunting task due to the government's legal trade frameworks and the limited labor laws.

Third, doing business with the IRGC and some entities, which are still blacklisted, can impact the credibility of the companies. This might alienate those foreign companies from doing business with other countries in the region which are negatively impacted by IRGC activities.

Fourth, if the U.S. Congress continues its unilateral sanctions on Iran, it will be more difficult for Western companies to rekindle business with Iran without fearing repercussions from the U.S.

Finally, since the state-controlled economy creates a less competitive market and high level of bureaucracy in the country, foreign companies will find it more challenging to compete and less lucrative to do business with Iran.

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Dr. Majid Rafizadeh, an American scholar and political scientist, is the president of the International American Council on the Middle East and serves on the advisory board of Harvard International Review. He is originally from Iran and Syria. You can contact him at Dr.rafizadeh@post.harvard.edu or follow him at @majidrafizadeh

This post first appeared on Al Arabiya.