Iran will soon be open for business, following the agreement reached on July 14 with the EU, US, China, and Russia on cessation of its nuclear programme.
The lifting of economic and financial sanctions offers significant opportunities for market-oriented Irish exporters and investors across a wide spectrum to supply the needs of the demand from 77m young, tech-savvy consumers.
Ireland’s exports to Iran last year were fairly minimal at €46m. The lifting of sanctions should see this rise at least ten-fold, based on the levels of Ireland’s exports to Saudi Arabia which reached €761m last year.
IT and telecommunications companies should be among the early winners in entering the market, but the dual-use licence regime which has restricted them to date will need to be removed as the key practical step in the ending of sanctions.
Ireland’s state agencies need to be alive to the opportunities, as risks will be substantial and Government support may be essential to assist the early movers and give them a level playing field with the UK, US, German, and French businesses who will be able to avail of their state-supported export guarantees.
Today, Iran’s economy is far below its potential and on exiting the embargoed regime is likely to be the fastest growing of the emerging economies as it fills the gap originating from decades of sanctions.
Its annual output was $415bn in GDP terms in 2014. This compares with Saudi’s GDP last year of $746bn based on a population one third the size.
Iran boasts the largest human capital and consumer market base in the whole of the Middle East and central Asia. Combined with its vast endowment of natural resources — the country holds the world’s fourth-largest proven crude oil reserves and the world’s second largest natural gas reserves, according to the US Energy Information Administration — Iran should be enjoying enormous economic success in future years.
Ireland’s exporters will need to plan on sizeable upfront investment in developing the market, but the returns should be high for decades to come from this major market in the making.
There is a bonanza of $160bn in frozen assets, which will have to be released back to Iran under the deal on sanctions removal.
The Iranian government is in the process of intro- ducing new oil and gas contracts to replace the old, unappealing buyback schemes, which basically required oil firms to take care of the initial development phase, and then wait to be refunded.
The new petroleum contract will allow an oil firm to engage with different phases of field development — exploration, development, production —and share the revenues generated by the sale of oil, according to the contract’s first draft, which recalls a standard production sharing agreement.
This is all good news for the global economy, as the added capacity coming on steam from Iran will keep the price of the barrel of oil down, which is good news for every non-oil producing country, including Ireland.
A deal with the West will also give Iran the chance to join that international business community from which it has essentially been banned for decades.
Currently, Iran is the only mid-sized to big economy that is not part of World Trade Organisation.
An early approach by the WTO to open membership discussions would act as another signalling factor to potential investors that it is a safe zone for them to invest, and make it easier for Irish exporters to sell to the market under the rules-based system of the WTO.
Another important step that Iran might take is to sign and ratify the Convention on the Settlement of Investment Disputes between States and Nationals of Other States.
This opens the door for investment disputes from FDI in Iran to be adjudicated at the International Centre for Settlement of Investment Disputes.
John Whelan is an international trade consultant and former chief executive of the Irish Exporters’ Association
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