Global Companies Circle Iran, Awaiting Break in Sanctions

   < < Go Back
from The Wall Street Journal,

As Diplomats Work on Potential Nuclear Deal, Prospect of End to Sanctions Draws Plans for Return to Iran.

A worker at the Iran Khodro Industrial Group's automobile manufacturing plant near Tehran

A year ago, the president of Iran’s chamber of commerce could go more than a month without hosting a foreign business delegation, due to their fears of violating economic sanctions. These days, Gholam Hossein Shafei greets trade missions from the Middle East, Asia and Latin America almost every day and travels to European capitals.

“We have a new environment domestically, and a new look from the outside,” the 63-year-old said from his expansive offices in central Tehran, which overlook the abandoned American Embassy. “We have good interest now in our economy.”

Firms including energy giants Total SA and Royal Dutch Shell; car maker PSA Peugeot Citroën; and financial firms Deutsche Bank AG and Russia’s Renaissance Capital Ltd. have participated in presentations about investment in Iran.

As talks between Iran and six major powers on limiting its nuclear program enter the final stages of diplomacy this week in Vienna ahead of a July 20 deadline, global companies are fact-finding, meeting with potential Iranian partners and jockeying for position should an end to sanctions open the isolated economy.

They are drawn by what could become the largest market in the Middle East, with nearly 80 million people, the majority of whom are under 30, well-educated and tech-savvy, and by the country’s energy potential—it has the fourth-largest proven oil reserves and second-largest proven gas reserves in the world.

The U.S. and Iran have held talks on trying to cooperate to quell a Sunni uprising in Iraq, but officials say big gaps remain before a nuclear agreement can be settled. Diplomats say Iran isn’t yet prepared to dismantle its nuclear infrastructure to the levels demanded for a deal, and companies say plans are on hold until sanctions are lifted. The negotiators have said they could extend the July deadline by six months if needed. For now, Iran remains at the top of the West’s blacklist for a program widely seen, despite Iran’s denials, as aimed at developing an atomic bomb.

Iran’s economy has been struggling under a web of U.S., United Nations and European Union sanctions designed to force the country to freeze its nuclear program. An interim pact signed in November resulted in the unfreezing of more than $4 billion of Tehran’s oil funds, the easing of some sanctions and the spike in investor interest seen at Mr. Shafei’s offices. A potential July agreement could lift sanctions on Tehran’s central bank and reduce restrictions on the finance, energy and technology sectors. This could free Western companies to pursue investments in potentially high-growth industries that have been closed off for nearly a decade.

Some U.S. sanctions, related to Iran’s alleged human-rights abuses and support for international terrorism, are expected to remain. U.S. companies would still face limits to entering Iran until there is a broader normalization of relations between Washington and Tehran.

Sanctions have left the country cut off from the world’s banks and its oil revenues sliced in half. Populist policies pursued by President Mahmoud Ahmadinejad, Mr. Rouhani’s predecessor, fueled hyperinflation, a steep plunge in the Iranian currency and an economic contraction of nearly 6% during the fiscal year ending March 2013, according to the International Monetary Fund.

Mr. Rouhani’s government slashed spending on public housing projects and price subsidies on gasoline; launched an anticorruption drive; and reined in the central bank’s printing of money.

Monthly inflation has been cut in half, the rial, the currency, has strengthened and the IMF is projecting economic growth to return this year. Iran’s crude oil exports have also increased to around 1.2 million barrels per day from as low as 700,000 last year, according to the Iranian government, though still well short of pre-sanctions levels of nearly three million.

Mr. Rouhani is pouring diplomats into European and Asian capitals to spread the message that Iran is open for business. Special focus is on rehabilitating Iran’s oil industry, which had a steep decline in production and exports over the past decade due to a drop in investment and a European embargo on oil exports.

Iran’s largest auto maker, Iran Khodro Industrial Group, has restarted partnership talks with international car makers including Renault and Peugeot, one of its key former joint-venture partners, which pulled out of Iran in 2012.

Sanctions on car makers were suspended by November’s interim nuclear deal with the aim of easing Iran’s ability to import parts. The penalties are expected to be permanently lifted with a July agreement.

If current discussions are mostly about getting in position to move if sanctions are lifted, U.S. companies, which are hanging back because of the political sensitivity of investing in Iran, may end up at the back of the line.

“The first losers will be the U.S. companies,” said Akbar Komijani, deputy governor of Iran’s central bank, who noted little interest so far from American firms.

More From The Wall Street Journal (subscription required):