Member Article

Iran open for business, if you’re brave enough

In January of this year, sanctions began to be lifted on economic trading with Iran, ending restrictions on Iranian trade, shipping and insurance, alongside the purchase of Iranian crude oil.

Michael Tockuss, managing director of the German – Iranian chamber of commerce said:

“This is a day we were awaiting for years. There will be big changes,

“We will also get some 300 Iranian individuals and companies off the (EU) sanctions list. Up to now, we couldn’t do a single business transaction with them, not even selling bread or biscuits.“

As well as removing sanctions for sectors including banking and insurance, there has also been a lifting of sanctions on entities or individuals blacklisted due to their alleged nuclear related activities. Those on the terror sanctions list will still be excluded.

While the removal of a majority of sanctions has been welcomed by the EU, the lifting hasn’t been quite as popular in the US, with a majority of firms still excluded from doing business with Iran.

What this means for Iran

• Revenue from oil exports could increase $10bn (£6.9bn) by next year
• A lifting of banking sanctions could release $30bn of foreign reserves currently frozen in accounts around the world. (A figure the US treasury believes to be closer to $50bn)
• Iran could boost its GDP growth to over 5% in 2016/17. It currently sits at zero according to the International Monetary Fund
• According to Iran’s first Vice-President, Eshaq Jahangiri, the lifting of sanctions will save them nearly £15bn a year in cheaper trade due to the removal of a 15% trading fee

Oil price crash

The removal of crude oil sanctions will allow Iran to export as much oil as it can find demand for. Tehran estimated that an additional 500,000 barrels per day could be sold, rising to 2.5 million within the next year.

As the market is already flooded with cheap oil, such an influx would only drive down the price as supply exceeds demand. This could result in a price war with Saudi Arabia, who are already selling under the market price in order to maintain market share.

Big banks, little trust

The biggest uncertainty in the lifting of the sanctions is whether big banks will be ready to do business. While the US has lifted “secondary sanctions“ – ones that allow non-US companies or individuals to do business with Iran, it still has “primary sanctions” which still ban US nationals and companies from dealing with Iran.

In the past the US financial and judicial authorities have fined two dozen banks for bypassing US sanctions on Iran, Cuba and Sudan.

Justine Walker, director of financial crime at the British Bankers’ Association said:

“A number of UK banks have given commitments to US regulators not to increase their Iran exposure.“

Speaking of the complications with the US, Tockuss, whose chamber members managed to stay in business with Iran due to their links with small German banks which have no ties to the US, said:

“If we can’t convince any big banks to provide us with big amounts, we have to look for a large number of smaller banks.“

Micro-financing, such as this would prove unsuitable for large scale projects including the overhaul of the railway system by engineering firm, Siemens and the purchase of a large passenger aircraft from Airbus.

Legal complications

Banks aren’t the only stumbling block when it comes to business with Iran. Legal technicalities can arise when exporting to Iran, as highlighted by a prominent member of the Iranian conservative party, Ahmad Tavakoli, who described an epidemic of corruption in the country.

Tavakoli described the need for “extra payments“ being required to secure import permits, something the British Bribery Act is observing closely.

Is it worth the risk?

For those well versed in business, Iran could be a great marketplace if precautions are taken. Gov.uk highlights the following challenges of doing business in Iran:

• Risk of bribery and corruption. Iran scores high on the Corruption Perception Index
• Influence, direct or indirect control by the Iranian security services of many Iranian companies
• Inflation, price control and subsidies reduce the potential for private sector growth
• Iran ranks low on the World Bank Ease of Doing Business report ranking 118th in 2015-16 report
• Lack of investment in infrastructure
• Risk of bureaucratic delays
• Some sanctions on Iran remain in place

To ensure you are taking the necessary compliance steps, consult the UK Bribery Act

Trading with any country outside of the EU has its risks. If you do your homework, and meet the essential compliance requirements there is no reason that you couldn’t benefit from Iran’s new sense of trade freedom.

So, are you brave enough for this new era?

This was posted in Bdaily's Members' News section by Kyle Daniels .