Swiss Firms Pushed to Put Tehran Dreams on Hold

EghtesadOnline: In early March, the Swiss Embassy in Tehran gladly announced a deal worth billions for the Swiss company Stadler Rail to deliver some 1,000 underground train carriages to Iran.

News ID: ۷۸۲۹۶۹

19 June 2018

Was this rejoicing premature? According to a report in Blick newspaper, the deal is about to be cancelled.

Since US President Donald Trump scrapped the Iran nuclear agreement in May, business with Iran is once again a risk for companies that rely on the goodwill of USA. These companies stand between two enemy fronts in world politics, according to Financial Tribune.

Stadler Rail’s head of sales, Peter Jenelten, was quoted as saying by Blick, “The Iranians can’t wait forever. The underground train order will probably be snapped up by the Chinese.”

Marina Winder, the head of press at the eastern Swiss train manufacturer, denied the newspaper report to Swissinfo.ch, without specifying what about it was “not correct”.

“Stadler signed a statement of intent in February with the Iranian Industrial Development and Renovation Organization but has so far not signed a contract,” Winder said.

“Stadler stands by this negotiated result. But it is still not clear whether a contract with the IDRO would be affected by US sanctions. Of course, Stadler will comply with sanctions and trade embargoes.”

Either Iran or USA

Philippe Welti, the former Swiss ambassador in Tehran and current president of Swiss-Iranian Chamber of Commerce, explains the dilemma facing all globally active firms that do business with the second-biggest economy in the Middle East.

“Whatever happens now in the exporting industries will just be a weighing of risks: Either give up business in Iran, or risk hefty fines and feel the long arm of US economic power,” he said.

“This calculation is usually made pretty quickly by most companies,” he adds, noting that an increasing number of European companies are leaving Iran.

“One member of our chamber of commerce said to me, ‘we can still deliver one machine that was paid in advance, but after that, it’s over’.”

Welti noted that Switzerland and the EU are powerless, even if they have loudly declared the sanctions to be invalid.

Trump has no consideration for the interests of others, not even his allies.

“The US is trying to apply American law worldwide,” he said. “Because this is not legally possible, they are achieving it with economic clout. This power grab is aimed at completely isolating Iran. And that can only succeed if the whole world applies sanctions.”

“China Jumps Into Every Vacuum”

The sanctions are even more problematic for companies that have invested in Iran and have industrial bases there that can’t be wound down in three months.

These companies are in a bind—just like the Swiss train builder, which would have liked to sell 120 trains to Iran but does not want to give up its American market.

Iran won’t be able to wait long for Swiss companies, especially as “China jumps into every vacuum that opens. The Chinese are constantly increasing the quality of their industrial products,” Welti said.

“The Chinese competitor is likely to be the Beijing-based industrial company CRRC, which employs more than 180,000,” Cui Juni, a consultant to the Chinese rail industry, told Swissinfo.ch.

She is convinced that Chinese trains will sooner or later have a dominant position in the European market.

For China, the Iranian market is of great significance in the context of its “One Belt, One Road” (new Silk Road) project aimed at building an intercontinental trading network: on the one hand, via exports to ease its own industrial overcapacity, and on the other, to secure its own energy needs from Iran’s vast oil and gas reserves.

China holds another trump card: It can offer an untrammeled payment system.

“In western monetary transactions, no one is an island anymore. Every bank is part of the global network,” Welti said.

Individual western companies try to circumvent the sanctions by working with local subsidiaries in the Middle East. Such protective walls are not impossible but they are complicated, risky, unstable and above all, expensive.

“Orderly, standardized payments can’t be established for the long term via such channels,” Welti said.

The Geneva Banque de Commerce et de Placements (BCP) has already begun its withdrawal from Iran. The bank said it has liquidated its business there and is turning down any new business contacts related to the country. BCP was named as one of the official financial intermediaries for international transactions with Iran in 2013.

And what of the companies that kept up their economic ties with Iran during the last embargo? Novartis, for example, has supplied Iran with medicine for years, and Buhler, a company based in Uzwil in the canton of St. Gallen which produces machines for wheat and food processing, has had a presence in Iran since 1976 and maintains several bases there.

According to Welti, these companies face the same strategic risk-weighing.

“If they are active globally, then they are vulnerable to American pressure outside the US, too,” he said.

Gold Fever Nipped in the Bud

After the nuclear agreement was sealed, allowing a step-by-step lifting of sanctions in return for Iran to limit the scope of its nuclear program, a kind of gold fever developed in 2015 in some branches of western industry, including in Switzerland.

Delegations of high-ranking politicians and business representatives from numerous countries travelled to Tehran to get an early foothold in some lucrative businesses.

The Swiss didn’t linger at the back of the queue. In 2016, the then-president and economic minister, Johann Schneider-Ammann, escorted by a flock of Swiss corporate executives, met with Iranian President Hassan Rouhani to strengthen bilateral economic ties.

Exports to Iran did begin to rise; in 2017, they increased 7.6% to 536 million Swiss francs ($537.69 million).

Some companies, namely commodities traders like Glencore, construction materials giants like Lafarge-Holcim, industrial conglomerates like ABB or Sulzer, elevator manufacturers such as Schindler, cable railroad builders like Bartholet, textiles machinery makers such as SSM, car-part producers, including Autoneum and train manufacturers like Stadler Rail, anticipated big business by participating in the expansion of Iranian infrastructure. Those with business interest in the US are expected to cease any Iran dealings.