End of Iran sanctions will open gates to companies keen to enlarge markets
The preliminary deal on Iran’s nuclear programme will fire a starting pistol on a stampede of western business interests into a potentially vast untapped market.
Even as the negotiations were in their latter stages, the expectation of an eventual agreement and the lifting of sanctions brought an ever-increasing influx of the world’s corporations to Tehran to make contacts and voice their interest.
“Consulting companies are reviving old contacts, lots of signs that companies are pre-positioning themselves. One sign of the degree of interest is that it’s impossible to get a hotel room these days in Tehran,” said Bijan Khajepour, an Iranian businessman, who is managing partner of the Vienna-based Atieh International consultancy.
At the head of the queue have been oil and gas companies, but there are other markets in Iran with enormous potential because the country has been behind a wall of sanctions for so long. There will, for example, be intense competition between Airbus and Boeing to supply parts and planes for Iran’s ageing fleet.
“There have already been ongoing discussions between Iranian aviation officials and the two global aerospace giants,” Amir Ali Handjani, an Iranian-American energy executive, said. “Those discussions have happened with the approval of Europeans and Americans. They recognise how important an issue this is for Iranians, who have some of the oldest passenger planes in the world.”
The market for cars and lorries used to be the 10th largest in the world, and is attracting keen attention from Peugeot, which used to be a dominant player in Iran, as well as Renault and General Motors.
Khajepour said steel and aluminium manufacturers were also likely to flood into the market, attracted by Iran’s combination of cheap gas and warm-water ports.
However, the speed at which trade and investment opportunities open up will depend on how fast banking arrangements can be restored. Even if some financial sanctions are lifted, different banks will make their own judgments about when it is safe to start doing business with their Iranian counterparts. Swiss banks are already offering themselves as fast-track alternatives to banks within the EU, which will have to wait for the formal lifting of sanctions.
BP and other oil companies were thrown out of Iran when the Tehran government announced it was nationalising the oil industry. The British company regained partial access only to be removed a second time in 1979 – although its geological data and maps apparently remain intact.
BP is keeping a low profile and declining to comment on hopes that it may soon be able to return to Iran. But industry executives admit that Iran, like neighbouring Iraq (which has also been reopened to the world) offers interesting prospects.
Bijan Namdar Zanganeh, the Iranian oil minister, has started to tout his country’s benefits for the international oil market. He met executives from BP, Shell, Total of France and Lukoil of Russia before a meeting of the Organisation of Petroleum Exporting Countries (Opec) last November.
Oilfields, such as Azadegan and Yadaravan, along the country’s border with Iraq, and the South Pars offshore gasfield in the Gulf along the maritime border with Qatar, are the focus of interest.
South Pars is one of the largest gasfields in the world but also a provider of light condensate oil in which Shell had been involved from 1999 before being subsequently forced to retreat in the face of enhanced western sanctions.
The Iranian government has boasted that it could soon bring on stream an extra 1m barrels of oil on top of current output of 2.8m barrels but oil analysts believe another million barrels could be added – but only with western cash and technology.
The prospects of new Iranian supplies coming on to the global market has already provided even more downward price pressure on a commodity that is already suffering a glut.
Crude has plunged in value from $115 a barrel last June to about $55 triggering a massive wave of cost-cutting and job losses by the oil industry. These cutbacks will not make it easy for Iran.
Oil industry executives say privately that, although Iran is highly attractive, with its potential for large discoveries and low cost of production, the government will have to offer attractive incentives.
Arash Vafadari, a PR executive based in Tehran, said the sudden inflow of western money and investment would not be an unalloyed blessing for Iranian business.
“For such long time, in almost all industries, our businesses have been operating with a minimum amount of foreign competition,” Vafadari said, “so now we have a limited time to increase business efficiency, adaptability, product quality, management capabilities, customer service and, most important of all, our brand’s loyalty and value.”