Ever since Western sanctions were imposed on Iran’s financial, banking and energy sectors, the country’s economy has suffered severely. The restrictive measures led to the significant depreciation of the Iranian Rial currency, and these poor exchange rates tangibly affected the day to day lives of the Iranian people and its businesses. Foreign investors – both companies and individuals - were left with the choice of closing down or significantly reducing their activities, and in some cases faced hefty fines if it was found they were financially assisting sanctioned entities. Business growth was hampered and reputations were damaged.
The Iran nuclear deal reached last year, which was followed by the lifting of economic sanctions, is a historic moment in re-engaging Iran with the international community and provides vast opportunities for the parties involved. As the holder of the world’s largest gas reserve and the fourth-biggest oil reserves, Iran hopes to attract around $30bn of foreign investment into the energy sector to realise its intention to increase its oil production capacity to pre-sanctions levels of 1m barrels a day. The opportunities present in the fledgling and untapped Iranian market go further than the energy sector to transportation, technology, tourism, foodstuff and aviation.
Many foreign investors remain hesitant to move into the Iranian market since the necessary banking channels to facilitate payments are yet to be formally put in place. The remaining US primary sanctions and restrictions prohibiting any Iranian person or entity from conducting a transaction in USD remain a strong deterring factor in this respect. Perhaps words of assurance and comfort from the relevant authorities such as HM Treasury in the UK or OFAC in the US could assist in building up the necessary level of confidence for banks and financial institutions to return to the Iranian market. To ensure clarity and effectiveness of the lifting of the sanctions, it is imperative that there is a re-establishment of these banking channels and that international corresponding relationships with Iranian banks and their foreign branches and subsidiaries are supported with words of assurance from the authorities.
In addition to the obstacle of US primary sanctions, there are other factors that first-time investors and those re-entering the Iranian market should be aware of – for example the specificities regarding investment and corporate law. In a bid to attract and support foreign investors, for example, legislation has emerged from Iran like the Foreign Investment Promotion and Protection Act. This legislation allows the possibility of registering an Iranian company with entirely foreign capital as well as removing various restrictions to the percentages of foreign shareholding permitted in Iran. Businesses and investors will need some help if they are to successfully navigate the complex politics of the Iranian economy.
Whilst the role of post-sanctions Iran in the global economy is uncertain, it is undoubted that the Middle East’s second largest economy poses a wealth of opportunity for investment and growth. The ability of Iran to harness this potential, however, will ultimately depend on whether the international community can overcome the issue of existing sanctions on US dollar transactions and show a willingness to embrace the opportunities now available to them.