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talkpolitics"Iran is a wonderful country with a fantastic resource base", the Shell CEO Ben van Beurden said last month at the Vienna negotiations. "As soon as there is legitimate opportunity, we will be looking at Iran". Another oil CEO, Patrick Pouyanne of Total was even shorter: "We love Iran".
And how wouldn't they? Iran's oil reserves are estimated at 158 bn barrels of crude, or 1/10 of the world's total reserves. The normalisation that Van Beurden speaks of is an agreement between Iran and the six global powers about Tehran's nuclear program. It's bound to act like a turn-on not just to the top oil management but also to businessfolk from all around the world. Because it'll lead to the gradual lifting of a full array of sanctions that the US, EU and UN imposed 30 years ago. This would open the road to one of the last remaining inaccessible markets that's consistently been ranked in the top 20 in the world, and which many are describing in terms of a 1001 Nights tale: frightening and enticing at the same time.
Some commentators aren't even shying away from further hyping up the rhetoric and comparing the possible lifting of the sanctions to a "second Iranian revolution". Maybe because just like the original, it'd come suddenly and would have a major impact on the rest of the world. And that's normal thing to expect. Last year the World Bank ranked Iran around the top of the list of countries in terms of average income. Although the 2010 sanctions caused a shrinking of the GDP by 1/4 in the following years, the per capita average income (PPP based) in 2013 was still well over $13K. Even today the Iranian economy remains the second largest in the region after Saudi Arabia, and last year the Iranian GDP was $406.3 billion, i.e. 32nd in the world. Iran ranks 9th in terms of copper ore deposits, and 11th in iron ore. It produces more cars than Italy, the country with the 15 largest car producers in the world.
All of this looks like a prerequisite for this purported new Iranian revolution to shuffle the geopolitical balance in the region big time. So it's understandable that the countdown to the lifting of the sanctions had started way ahead of the actual deadline. The gold rush warmed up with a preliminary agreement between Iran and the big six (the 5 permanent UNSC members plus Germany). After nearly a year and a half of negotiations, the two sides finally reached an agreement this spring. It was a moment the Iranians had long been preparing for.
Of course, cutting a deal of this magnitude still doesn't mean the 40 million barrels of Iranian oil currently sitting in tankers at the north-eastern side of the Gulf would instantly rush to Europe and North America the very next day. Neither that the Western investments would shower onto Iran in a heartbeat. There's actually a complex of sanctions on Iran, and it'll take time to remove them all. First there's the EU sanctions, then the UN and US sanctions, and there are even sanctions by separate US states. Some of them require Congress approval to be lifted, others only a signature from the White House. The former are mainly about the nuclear program, and were discussed at the Vienna conference; the latter are about Iran being in the "sponsors of terrorism" list, which is still under discussion.
The sanctions directly concerning big business (and which are believed to have ultimately brought Iran to the table) are about the energy, banking and financial sector - these were gradually imposed by the EU after 2010, and partially by the US. After the signing of the preliminary agreement in March, some of them were lifted as a sign of good will - primarily the ones about gold mining and metallurgy. The second wave should return the Iranian banks back to the global SWIFT payment system, and gradually open up the European markets to Iranian oil. This sounds good for some traditional Iranian clients like Greece, 60% of whose oil imports used to come from Iran until a few years ago.
Still, the probability of Iranian energy resources flooding Europe looks more like a long-term prospect for the time being. The main reason is the dire situation of the Iranian energy infrastructure. For instance, although Iran has the world's largest resources of natural gas, it's got just 1% market share in the global gas trade. Iran recently announced they need $100 billion for developing their infrastructure, including the construction of terminals for exporting liquid gas. So, despite the big excitement around the world about the prospect of Iranian gas and oil pouring into the global markets, still a lot of questions remain.
Another obstacle for the Western clients could be Iran's orientation to other markets. China now looks like Iran's most promising new partner, and the Chinese are showing this pretty clearly by investing billions into the Peace Pipeline between Iran and Pakistan. It's meant to deliver Gulf resources to the Chinese North-West by bypassing the India-dominated sea route. If we add the ever energy-hungry Turkey to the equation, this promises good times for the Iranian energy industry, which will need years before it reaches its pre-revolution peak of 7 million barrels of crude oil per day (compared to 1.1 billion today).
And not least importantly, in the past the large oil companies were never quite welcome in Iran. What's left is to see if this time they'll be offered a bargain good enough for the likes of BP, Exxon Mobile and Shell, or Iran would give priority to China and Russia.
That's why the more tangible prospect for the potential Western clients and consulting companies is to first enter the Iranian market with goods and services. Iran is in a unique situation that's untypical for many other markets: about 2/3 of the 80 million people in Iran are under 35 years of age, while the literacy rate between 15-24 years is 98%. Half of the Iranians have Internet access. That makes the youth a huge target for business. What's more, the older generations still keep an affinity to Western goods, which they acquired during the time before the revolution. This is a potential gold mine for many businesses if they have the guts to jump in.
Some of them are already a few laps ahead. Iran is already full with shopping malls, stacked to the top with luxurious Western brands. A number of popular US fast-food chains are also stepping in, albeit under weird names like Pizza Hat and Mash Donald's. The likes of Apple are particularly popular, especially on the mobile market, although their Asian competitors are being sold freely all around the place, while the US brands are still being traded under the table. Due to their prestige, a lot of Western cosmetics and tobacco companies are already well established on the Iranian market, although often without official government approval.
In fact, the total US export for Iran for last year was $182.1 billion, one of the largest items being frozen bull sperm (ha!). The EU/Iran trade is almost 4 billion euros, car manufacturing being a major segment there. The Tehran-based Iran Khodro company is the world's 13th largest car producer. One of its most popular models is Peugeot 405, and the French company had a 30% market share in 2012.
Although the Peugeot managers may've made their visits to Tehran more frequent lately, alongside old and new biz partners from Iran, they could all end up being disappointed in the end if the agreement on the sanctions is not reached. Besides, even if it is, Iran definitely wouldn't be able to accommodate all that foreign capital so fast. The labour market, the banking system and the state apparatus are prepared all right - that is, for a storm of confusion. A taste of that was offered back in 2013 when Wall Street veteran Parviz Aghili opened the only private bank in the country, the Middle East Bank. The licensing process took him about two years.
Actually, in order to see a reinvigorated Iranian economy, privatisation and economic reform would be even more important than the lifting of the sanctions. After Rowhani was elected in 2013, the government started cutting subsidies and trying to stimulate the private sector. And yet, the state remains dominant in virtually every segment of the economy. Even when a company is privatised, the strict price control remains intact. Any Western companies who are not used to working in such conditions, would find it easier to find partners and local reps to work on their behalf in Iran, rather than buying entire businesses, like they did in Vietnam after the lifting of the sanctions there.
And here's where the last challenge comes in. Lots of key sectors in the Iranian economy have been taken over by facade corporations, related to the most important Iranian institution, the Republican Guard. The former front-soldiers of the revolution have become a powerful military and economic corporation for a long time. Lobbyist and foreign policy think-tank member Patrick Clawson of The Economist for example advises potential Western investors to stay away from companies like Khatam ol-Anbia, which has been building construction sites for the state worth $50 billion.
It's evident that Iran's opening up won't be like Myanmar's (after the military junta), or Libya's from the last years of Gaddafi's reign. Iran is a big, well-developed market, but also incredibly difficult for foreigners, due to the long years of isolation and propaganda. Powerful nationalistic groups could easily drive away the incautious foreign investor, and that could be a handy tool for the Revolutionary Guard to hold everything under its control. So, the so called Second Iranian Revolution would only be a good experience for those companies who'd have both the guts to start a business in the country, the brains to never underestimate the proud Persians, and the patience to win hearts and minds at the local market the hard way.
And how wouldn't they? Iran's oil reserves are estimated at 158 bn barrels of crude, or 1/10 of the world's total reserves. The normalisation that Van Beurden speaks of is an agreement between Iran and the six global powers about Tehran's nuclear program. It's bound to act like a turn-on not just to the top oil management but also to businessfolk from all around the world. Because it'll lead to the gradual lifting of a full array of sanctions that the US, EU and UN imposed 30 years ago. This would open the road to one of the last remaining inaccessible markets that's consistently been ranked in the top 20 in the world, and which many are describing in terms of a 1001 Nights tale: frightening and enticing at the same time.
Some commentators aren't even shying away from further hyping up the rhetoric and comparing the possible lifting of the sanctions to a "second Iranian revolution". Maybe because just like the original, it'd come suddenly and would have a major impact on the rest of the world. And that's normal thing to expect. Last year the World Bank ranked Iran around the top of the list of countries in terms of average income. Although the 2010 sanctions caused a shrinking of the GDP by 1/4 in the following years, the per capita average income (PPP based) in 2013 was still well over $13K. Even today the Iranian economy remains the second largest in the region after Saudi Arabia, and last year the Iranian GDP was $406.3 billion, i.e. 32nd in the world. Iran ranks 9th in terms of copper ore deposits, and 11th in iron ore. It produces more cars than Italy, the country with the 15 largest car producers in the world.
All of this looks like a prerequisite for this purported new Iranian revolution to shuffle the geopolitical balance in the region big time. So it's understandable that the countdown to the lifting of the sanctions had started way ahead of the actual deadline. The gold rush warmed up with a preliminary agreement between Iran and the big six (the 5 permanent UNSC members plus Germany). After nearly a year and a half of negotiations, the two sides finally reached an agreement this spring. It was a moment the Iranians had long been preparing for.
Of course, cutting a deal of this magnitude still doesn't mean the 40 million barrels of Iranian oil currently sitting in tankers at the north-eastern side of the Gulf would instantly rush to Europe and North America the very next day. Neither that the Western investments would shower onto Iran in a heartbeat. There's actually a complex of sanctions on Iran, and it'll take time to remove them all. First there's the EU sanctions, then the UN and US sanctions, and there are even sanctions by separate US states. Some of them require Congress approval to be lifted, others only a signature from the White House. The former are mainly about the nuclear program, and were discussed at the Vienna conference; the latter are about Iran being in the "sponsors of terrorism" list, which is still under discussion.
The sanctions directly concerning big business (and which are believed to have ultimately brought Iran to the table) are about the energy, banking and financial sector - these were gradually imposed by the EU after 2010, and partially by the US. After the signing of the preliminary agreement in March, some of them were lifted as a sign of good will - primarily the ones about gold mining and metallurgy. The second wave should return the Iranian banks back to the global SWIFT payment system, and gradually open up the European markets to Iranian oil. This sounds good for some traditional Iranian clients like Greece, 60% of whose oil imports used to come from Iran until a few years ago.
Still, the probability of Iranian energy resources flooding Europe looks more like a long-term prospect for the time being. The main reason is the dire situation of the Iranian energy infrastructure. For instance, although Iran has the world's largest resources of natural gas, it's got just 1% market share in the global gas trade. Iran recently announced they need $100 billion for developing their infrastructure, including the construction of terminals for exporting liquid gas. So, despite the big excitement around the world about the prospect of Iranian gas and oil pouring into the global markets, still a lot of questions remain.
Another obstacle for the Western clients could be Iran's orientation to other markets. China now looks like Iran's most promising new partner, and the Chinese are showing this pretty clearly by investing billions into the Peace Pipeline between Iran and Pakistan. It's meant to deliver Gulf resources to the Chinese North-West by bypassing the India-dominated sea route. If we add the ever energy-hungry Turkey to the equation, this promises good times for the Iranian energy industry, which will need years before it reaches its pre-revolution peak of 7 million barrels of crude oil per day (compared to 1.1 billion today).
And not least importantly, in the past the large oil companies were never quite welcome in Iran. What's left is to see if this time they'll be offered a bargain good enough for the likes of BP, Exxon Mobile and Shell, or Iran would give priority to China and Russia.
That's why the more tangible prospect for the potential Western clients and consulting companies is to first enter the Iranian market with goods and services. Iran is in a unique situation that's untypical for many other markets: about 2/3 of the 80 million people in Iran are under 35 years of age, while the literacy rate between 15-24 years is 98%. Half of the Iranians have Internet access. That makes the youth a huge target for business. What's more, the older generations still keep an affinity to Western goods, which they acquired during the time before the revolution. This is a potential gold mine for many businesses if they have the guts to jump in.
Some of them are already a few laps ahead. Iran is already full with shopping malls, stacked to the top with luxurious Western brands. A number of popular US fast-food chains are also stepping in, albeit under weird names like Pizza Hat and Mash Donald's. The likes of Apple are particularly popular, especially on the mobile market, although their Asian competitors are being sold freely all around the place, while the US brands are still being traded under the table. Due to their prestige, a lot of Western cosmetics and tobacco companies are already well established on the Iranian market, although often without official government approval.
In fact, the total US export for Iran for last year was $182.1 billion, one of the largest items being frozen bull sperm (ha!). The EU/Iran trade is almost 4 billion euros, car manufacturing being a major segment there. The Tehran-based Iran Khodro company is the world's 13th largest car producer. One of its most popular models is Peugeot 405, and the French company had a 30% market share in 2012.
Although the Peugeot managers may've made their visits to Tehran more frequent lately, alongside old and new biz partners from Iran, they could all end up being disappointed in the end if the agreement on the sanctions is not reached. Besides, even if it is, Iran definitely wouldn't be able to accommodate all that foreign capital so fast. The labour market, the banking system and the state apparatus are prepared all right - that is, for a storm of confusion. A taste of that was offered back in 2013 when Wall Street veteran Parviz Aghili opened the only private bank in the country, the Middle East Bank. The licensing process took him about two years.
Actually, in order to see a reinvigorated Iranian economy, privatisation and economic reform would be even more important than the lifting of the sanctions. After Rowhani was elected in 2013, the government started cutting subsidies and trying to stimulate the private sector. And yet, the state remains dominant in virtually every segment of the economy. Even when a company is privatised, the strict price control remains intact. Any Western companies who are not used to working in such conditions, would find it easier to find partners and local reps to work on their behalf in Iran, rather than buying entire businesses, like they did in Vietnam after the lifting of the sanctions there.
And here's where the last challenge comes in. Lots of key sectors in the Iranian economy have been taken over by facade corporations, related to the most important Iranian institution, the Republican Guard. The former front-soldiers of the revolution have become a powerful military and economic corporation for a long time. Lobbyist and foreign policy think-tank member Patrick Clawson of The Economist for example advises potential Western investors to stay away from companies like Khatam ol-Anbia, which has been building construction sites for the state worth $50 billion.
It's evident that Iran's opening up won't be like Myanmar's (after the military junta), or Libya's from the last years of Gaddafi's reign. Iran is a big, well-developed market, but also incredibly difficult for foreigners, due to the long years of isolation and propaganda. Powerful nationalistic groups could easily drive away the incautious foreign investor, and that could be a handy tool for the Revolutionary Guard to hold everything under its control. So, the so called Second Iranian Revolution would only be a good experience for those companies who'd have both the guts to start a business in the country, the brains to never underestimate the proud Persians, and the patience to win hearts and minds at the local market the hard way.
(no subject)
Date: 13/7/15 14:09 (UTC)(no subject)
Date: 14/7/15 06:57 (UTC)(no subject)
Date: 14/7/15 10:20 (UTC)But there could be a problem (http://www.cnbc.com/2015/07/13/iran-deal-would-face-tough-battle-in-congress.html) with the ratification on the US side.
(no subject)
Date: 14/7/15 19:59 (UTC)http://www.csmonitor.com/USA/Politics/2015/0403/Iran-nuclear-deal-Will-Congress-have-a-say
(no subject)
Date: 15/7/15 14:51 (UTC)(no subject)
Date: 15/7/15 20:56 (UTC)You don't know that Iran would gain dominion over the Middle East. Saudi Arabia is still leading a bloc of Gulf states.
(no subject)
Date: 16/7/15 15:04 (UTC)Edit: Deleted duplicate comment
(no subject)
Date: 18/7/15 11:45 (UTC)(no subject)
Date: 18/7/15 11:44 (UTC)