Iran took a step closer this month to rejoining the international fold when it agreed to a deal to curb its nuclear ambitions, as an FT article explains.
According to the terms of the interim deal agreed to in November with the so-called P5+1 – the five permanent members of the UN Security Council (US, UK, France, Russia, China and Germany) – the government of Hassan Rouhani will restrict its nuclear program over the next six months in return for a partial lifting of economic sanctions.
Within this period, some $4.2 billion of blocked funds, part of larger, mostly frozen oil revenues will be released in regular installments, while sanctions will be suspended on gold and precious metals trading, on the petrochemical and auto sectors, and eased on the purchase of aircraft parts, and medical and health-related initiatives.
With inflation running at 39.3%, the economy shrinking by 5.8% last year and youth unemployment at about 24%, the FT suggests the agreement could not come too soon. Amir Cyrus Razzaghi, head of Ara Enterprise, a private consulting group, is quoted as saying the easing of sanctions could add $15 billion to the economy this year. This includes about $3 billion in automotive, aircraft parts, medicine and medical equipment and $4-$5 billion in extra petrochemical exports.
The petrochemicals sector is expected to benefit immediately from the lifting of sanctions, as it is ready to boost production and increase exports. Iran produced $15 billion in petrochemicals, most of which were exported to the six Asian nations permitted by the US to continue Iranian purchases, admittedly at a reduced rate from the previous year.
Petrochemical exports had dropped to $10 billion due to sanctions, in part due to policy decisions by China, South Korea, Japan, India, Taiwan and Turkey to reduce purchases, but also because potential carriers were frozen out of the London marine insurance market.
Iranian officials also expect the aviation sector to benefit fairly quickly, the FT says. The country’s aging fleet of 243 aircraft includes Boeings bought more than three decades ago. About 100 are grounded because of a shortage of spare parts.
Meanwhile, the French are hoping for an early return to the automotive market.
Renault and Peugeot were major suppliers to the Iranian market before sanctions were imposed, supplying about 100,000 kits and 458,000 kits for final assembly (or completed cars) a year, respectively. But according to the FT, vehicle production had plummeted almost 50% over the past two years, from 1.6 million cars in 2011, mainly because of a policy pursued by Mahmoud Ahmadinejad, the former president, that prevented companies from raising car prices despite high inflation.
As a result, automakers accumulated huge debts and were unable to pay parts-makers, forcing many into bankruptcy. Sanctions, analysts believe, accelerated the sector’s decline, but the market has potential; with a population of 74 million, the country only has about 14 million cars on the road, half of which are believed to be beyond repair. Renault was forced to leave around €200 million worth of local currency in bank accounts in the country after sanctions were imposed and the firm took a €512 million write-down on its Iranian operations in June last year. For rival Peugeot, Iran was its second-largest market after France.
Whether aircraft parts suppliers, French automakers or a host of other industry firms will benefit depends in large part on progress made in the talks going on over the next six months.
There is considerable opposition from the US Congress to a deal of any kind, so negotiators face headwinds, but if true reform can be achieved surely a verifiable end to Iran’s nuclear ambitions is a worthy prize worth working towards, never mind the trade opportunities that could result.