Iran’s Economy Opening Slow But Sure

EghtesadOnline: The JCPOA is one of the most successful diplomatic programs in the modern world, senior economist, Mohammad Mehdi Behkish, said.

News ID: ۷۴۲۸۰۷

17 July 2017

Behkish is a leading free trade advocate in Iran and secretary-general of International Chamber of Commerce’s Iranian Committee.

Two years have passed since Tehran signed a landmark deal with the US, Britain, France, Russia, China and Germany on July 14, 2015, to resolve a longstanding dispute over its nuclear program. All nuclear sanctions were lifted in January 2016 when the pact, known by its official name Joint Comprehensive Plan of Action, was implemented. In exchange, Iran accepted to limit the scope of its nuclear program, according to Financial Tribune.

“The nuclear deal is also a significant achievement for Iran," he said. “It put an end to the progressive sanctions that limited Iran’s oil exports and financial transactions. Had the sanctions sustained, today we wouldn’t have been able to make any payments whatsoever, even through the unusual means that we used under the embargoes.”

The lifting of sanctions is a signature achievement of the administration of President Hassan Rouhani who took power in a landslide victory in 2013, built on the promise of opening up of the Iranian economy that was walled off from the outside world for years. On the back of this major achievement and many others, Rouhani was reelected in the May 19 vote.

The pact benefited Iran to a great extent. Nonetheless, these benefits came at a slower pace than expected, as Tehran still has to work hard to encourage major international banks, financial firms and companies to engage with the government and the businesses in Iran.

Despite the removal of nuclear-related sanctions, the United States maintains a set of other sanctions it has unilaterally imposed on Tehran.

Washington, which saw the rise of the hardline US President Donald Trump in November, has been imposing new sanctions on Iranian companies and individuals, while threatening to review JCPOA.

“What happened was that the negotiating parties discussed issues related to Iran’s nuclear program alone to avoid difficulties in negotiations,” Behkish said. “They kept the scope of the talks limited [to the nuclear program] to be able to make progress and perhaps they did the right thing. But the unsolved issues [with the US] have made it difficult for Iran to reap the benefits of the nuclear deal.”

There are many sectors in which Iran has been making progress in the past two years. Both production and export of oil, Iran’s main source of income, have almost been doubled and economic growth reached %12.5 in March 2016-17.

However, the country has been unable to finance many deals it has struck with international companies to expand its underdeveloped infrastructures in transportation, manufacturing and energy sectors.

Agreements worth tens of billions of dollars have been signed with international companies after the lifting of sanctions to build rails, roads and power plants, and supply equipment for industrial firms, among many other deals. However, the signatories of these deals have mostly failed to find financing solutions amid limitations that still exist on the part of many big financial institutions.

Large European banks have been refusing to deal with Iran, fearing potential US penalties that have cost them billions in fines when the sanctions were still in place. This comes amid ambiguities regarding the US political stance on Iran, which kept many businesses in limbo.

But this trend seems to be changing for the better, as the long-awaited Iran Petroleum Contract starts to attract major international players to Iran’s energy reserves.

France's Total signed a $5 billion deal with Tehran earlier this month to develop Phase 11 of Iran's South Pars, the world's largest gas field, marking the first major western energy investment in the Islamic Republic since the lifting of sanctions.

Behkish noted that the deal with Total was a turning point.

“It is a very serious contract. Total needs to finance this deal and it is not something small banks can handle,” he said.

The first stage of the South Pars development will cost around $2 billion. Total will be the operator with a 50.1% stake, alongside Chinese state-owned oil and gas company CNPC with 30%, and National Iranian Oil Company's subsidiary Petropars with 19.9%.

“This deal is a breakthrough,” he added, noting that it shows foreign companies and their governments are willing to take the risk of doing business with Iran.

Behlish predicted that the situation will start to improve for Iran as of the beginning of 2018.

“To take advantage of this, the government should focus on domestic economic reforms. It should adopt a coherent policy to fix inefficient structures, parallel to its international efforts,” he said.