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The Iranian nuclear deal: international firms look on with anticipation following diplomatic breakthrough

Decades of abrasive diplomacy and mutual suspicion about the Iranian government’s decision to engage in uranium enrichment have led to strong sanctions from the international community. Following the election of more conciliatory presidents in both the US and Iran, negotiations to temporarily lift economic sanctions in exchange for slowing in progress of uranium enrichment have been achieved.

Iran has faced economic sanctions since 2002 because of its desire to enrich uranium and intransigence in clarifying its purposes to the International Atomic Energy Agency (IAEA) about its use. The United Nations has since progressively stepped up their economic pressure, with the US and EU also imposing their own sanctions on the country with regards to oil and finance. Consequently the Iranian economy has suffered, with high unemployment, inflation, and a collapse in oil revenues, one of the country’s key exports, affecting its currency. Companies from outside Iran have also suffered as a consequence, facing fines or penalties if seeking to expand their business in Iran.

President Hassan Rouhani was elected in 2013, with a more moderate tone than his predecessor Ahmadinejad. Following the breakthrough with the “P5+1” powers (the US, UK, France, China, Russia, and Germany) to halt the enrichment, a respite has been achieved for the country, and parties both domestically and internationally are eyeing Iran’s potential. A large population of highly skilled workers, a nominally diversified economy, and large oil and gas reserves has caught the eye of many investors. Many foreign firms already in the market will be granted a tentative reprieve. The automotive, aviation and pharmaceutical markets in particular would benefit. Austrian Airlines, a subsidiary of Lufthansa, has already announced its intentions to resume flights to Iran in March 2014.

The deal has bought a reprieve for six months, but many factors must be addressed in order to make it sustainable. Both parties have elements seeking to deride the deal, and many important factors have not been addressed. Consequently investors and new entrants will be cautious to rush into the country only to find their assets frozen from a fresh round of sanctions later on. There are other issues with the Iranian economy which have yet to be addressed; a wave of policy liberalization aimed at freeing up the market didn’t quite work out as planned when governmental factions, such as the Revolutionary Guard, acquired many assets. Finally, poor intellectual property frameworks may deter some industries which rely on it, such as pharmaceuticals.

The tone of negotiations is encouraging following years of bellicose rhetoric and tense diplomacy. The current position is tenuous and far from complete, but Iran has affirmed its commitment to a nuclear deal. This should be encouraging for both the Iranian economy and the wider international community.

Related title: Iran: Hope for the economy following sanctions breakthrough?

Posted in Economy.

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