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EXCERPTS ON IRAN

Anchor 1
IRAN : SECURITY CHALLENGE OR ECONOMIC WAR ?

May 26, 2018

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Founder and CEO of Makassar Partners, a strategic consulting firm that advises French and international clients on frontier markets of the New Silk Road, from July 2009 to July 2011 Sébastien Thiam was Senior Adviser for international affairs and private sector investments to General McChrystal and to General Petraeus, then Commander of Allied forces in Afghanistan.

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As I first set foot in Iran in May 2012, the country had been imposed months earlier by a European Union led vigorously by France, Germany and the United Kingdom, an unprecedented embargo on its oil, and its private banks were cut from the SWIFT payment system, because of its nuclear program. According to Eurostat, from 2011 to 2014 trade between the EU and Iran shrank by 76%, attesting to the high price for European economies. In this context of toughening of the relationship with Iran, the Monegasque organization that I represented carried out sports diplomacy throughout 2012 in partnership with the Ahmadinejad government. Actions were aimed at stimulating dialogue through sport, which is neutral by its very essence. Albeit of symbolic significance, the most visible in Iran was a sports competition gathering 58 countries, including all future signatories of the JCPoA, the July 2015 nuclear deal.

The JCPoA, an unacceptable agreement for Donald Trump

Precisely six years later in Tehran on May 8, 2018, I listened to President Trump’s announcement of the withdrawal of the United States from the JCPoA, which he called "the worst deal ever" and an "embarrassment" for America. It is worth mentioning that since the January 2016 sanctions easing, most US companies witnessed from afar their European competitors’ robust come-back in this largely untapped market of more than 80 million people, thanks to the strong political support of their respective governments.

Hence, referring to the JCPoA’s shortcomings on Iran’s nuclear activity beyond 2025, its ballistic program and its growing regional influence, the leading world power surprised its partners by abruptly pulling out. On May 21, Secretary of State Pompeo laid out the US’s New Iran Strategy, in twelve points. In reaction, on May 23, Ayatollah Ali Khamenei, Iran’s Supreme Leader and the country’s strongman, listed seven conditions to save the deal which he sent to France, Germany and the United Kingdom. Upon initial talks between Iran and the E3, Russia and China in Vienna on May 25, the Islamic Republic required to be given assurances by May 31.

America First

Looking beyond the major geopolitical and security issue of Iran’s return to the international stage and its reintegration into the world economy, it is worthwhile to explore possible reasons for this move by the author of "The Art of the Deal" and promoter of the "America First" policy, who champions unpredictability as a political strategy.

 

Transatlantic relations appear to be a peripheral concern – at least in the short term – to restoring US leadership globally and the country’s trade balance, which were two founding promises of his campaign. Indeed, since the NATO-led International Security Assistance Force in Afghanistan was completed in 2014, which counted 130,000 troops and civilians from 51 NATO and partner nations at its peak, the United States has not been in an urgent need of allied support to form large military coalitions.

The world's second largest producer of natural gas, ranked fourth in terms of proven oil reserves, Iran is the only country in the Middle East to have sustainably pushed back US oil companies. Declassified CIA documents revealed in 2013 a most tragic consequence, with the overthrow in 1953 of Mohammad Mossadegh, Prime Minister of the Shah of Iran, who headed the country’s first democratically elected government.

President Trump's decision comes at a time when the US is fully committed to solving several sensitive issues, first and foremost relating to North Korea, and trade negotiations with China. The latter could benefit greatly from a little death of the JCPoA, once European blue-chip companies have exited the market ... Indeed, should Total leave Iran, for being denied an exemption from the Office of Foreign Assets Control (OFAC), the US Government's powerful arm, its majority stake in the South Pars gas megaproject would fall to CNPC, its Chinese partner, under the $ 4.8 billion deal signed in July 2017 with Tehran.

 

The Peugeot case study
 
Significant financial losses resulting from the US foreign policy in the Middle East are nothing new to European companies. As Iran sanctions tightened in January 2012, French car-maker Peugeot, which counted General Motors as a new strategic partner against 7% of its capital, stopped providing complete knock-down-kits of its models to Iran, thus complying with OFAC regulations. Indeed, the US Government had 32% of GM’s capital, because of the 2008 financial crisis. Despite this most significant effort, the Detroit-based car-maker attempted a swift return to Iran’s profitable market, where Peugeot had a 30% market share until end 2011.

At the height of sanctions in December 2012, an advertising campaign seen in upscale neighborhoods of Tehran North paved the way for GM’s market test. In the summer of 2013, Chevrolet vehicles were imported into Iran from neighboring Azerbaijan. While imports of spare parts and the delivery of services were prohibited under President Obama’s June 2013 "Executive Order Act 13645", car imports were not. The legal technicality may have cost up to 800 million euros to the French brand, in addition to compensation paid to Iran Khodro, its historical Iranian partner, as it returned to the market in 2016. For being supported by GM in a difficult phase, Peugeot temporarily lost a major market. In a final act, GM pulled-out of its strategic partnership with Peugeot no later than December 2013, thus raising legitimate questions about the true benefit of this capital transaction for the French brand.

Next step ?


As the EU seeks to salvage a multilateral agreement that is so critical to the security of the Middle East, the world's second largest economy is facing its moment of truth. In withdrawing from the Vienna Agreement, and by extraterritoriality of its sanctions law, the US sends the message that it has no problem triggering an economic war with the EU, even if it undermines transatlantic relations which are so pivotal in a more uncertain and complex world. President Trump’s election, and the unpredictability which he made his trademark right from the start, have changed nothing in this respect; on the contrary, they most certainly brought some clarification.

To make their voices heard in Washington, France and the European Union must assert more clearly their strategic priorities and defend their economic interests by strengthening their legal arsenal, to mitigate any action that may result in subordinating our companies, large, medium and small. It is paramount to protect French and European investments abroad, especially when the unilateral withdrawal from an agreement such as the JCPoA threatens so directly the health of our companies and our economy.

 

IRAN : DEFI SECURITAIRE OU GUERRE ECONOMIQUE ?

May 26, 2018

 

L’Iran que je découvre en mai 2012 s’était vu imposer quelques mois plus tôt par une Union européenne emmenée vigoureusement par la France, l’Allemagne et le Royaume Uni, un embargo pétrolier sans précédent et ses banques privées d’accès au système international de paiement SWIFT, en raison de son programme nucléaire. Selon Eurostat, de 2011 à 2014 les échanges commerciaux entre l’Union européenne et l’Iran s’étaient ainsi effondrés de 76%, attestant d’un prix élevé pour les Vingt-Huit. Dans ce contexte de durcissement avec l’Iran, des actions de diplomatie sportive menées en 2012 en partenariat avec le gouvernement Ahmadinejad par l’organisation monégasque que je représentais, visaient à susciter le dialogue par le sport, par essence neutre. Quoique de portée symbolique, la plus visible en Iran était une compétition sportive regroupant 58 pays, dont les futurs signataires du JCPoA, l’accord de juillet 2015 sur le nucléaire iranien.

 

Le JCPoA, accord inacceptable pour Donald Trump

 

Six années jour pour jour se sont écoulées lorsque j’assiste depuis Téhéran le 8 mai 2018 à l’annonce du retrait des Etats-Unis du JCPoA, que le président Trump a qualifié de « plus mauvais deal de tous les temps » et de « honte » pour l’Amérique. Il faut en outre noter que depuis la levée de sanctions de janvier 2016, une majorité d’entreprises américaines ont assisté, impuissantes, à la percée de leurs concurrents européens, revenus en force sur ce marché largement inexploité de plus de 80 millions d’individus, à la faveur d’un soutien politique fort de leurs gouvernements respectifs.

 

Dès lors, invoquant les lacunes du JCPoA sur trois volets : l’activité nucléaire au-delà de 2025, le programme balistique et l’influence régionale grandissante de l’Iran, la première puissance mondiale a abattu ses cartes à la surprise générale, et formulé par la voix du secrétaire d’Etat Pompeo le 21 mai sa nouvelle stratégie pour l’Iran, en douze points. La réaction de l’ayatollah Ali Khamenei, Guide Suprême de la révolution islamique et véritable homme fort de l’Iran, s’est concrétisée le 23 mai par la communication à la France, l’Allemagne et le Royaume Uni de sept conditions pour sauver l’accord. Au terme de premières discussions avec les Européens, la Russie et la Chine à Vienne le 25 mai, l’Iran a exigé des garanties d’ici le 31 mai.    

 

« America First »

 

Au-delà de l’enjeu géopolitique majeur, autant que sécuritaire, que constitue le retour de l’Iran sur la scène politique internationale et sa réintégration dans l’économie mondiale, il faut comprendre que pour Donald Trump, auteur de « The Art of the Deal » et promoteur de la politique « America First » qui érige l’imprévisibilité en stratégie politique, la relation transatlantique est probablement moins prioritaire - à court terme - que de rétablir le leadership et de rééquilibrer la balance commerciale des Etats-Unis, toutes deux des promesses fondatrices de sa campagne.

 

En effet, avec la fin, en 2014, de la Force internationale d'assistance à la sécurité, mission sous l’égide de l’OTAN en Afghanistan, forte à son apogée en 2011 de 51 nations otaniennes et partenaires et de plus de 130.000 militaires et civils, les Etats-Unis ne sont pas, à court terme, en quête de soutiens alliés pour former de grandes coalitions militaires.

 

Il faut aussi rappeler que l’Iran, qui se situe au deuxième rang mondial des pays producteurs de gaz naturel et au quatrième rang pour ses réserves de pétrole prouvées, est le seul pays du Moyen-Orient à avoir repoussé les compagnies pétrolières de l’Oncle Sam, dont l’une des conséquences les plus tragiques a été le renversement en 1953 de Mohammad Mossadegh, Premier ministre du Shah d’Iran, à la tête du premier gouvernement iranien élu démocratiquement.

 

La décision du président Trump intervient de surcroît alors que les Etats-Unis sont engagés sur de multiples dossiers sensibles, au premier rang desquels la Corée du Nord et les négociations commerciales avec la Chine. L’Empire du Milieu pourrait d’ailleurs être le premier grand bénéficiaire en Iran de la petite mort annoncée du JCPoA, une fois les grandes entreprises européennes reparties ... S’il était en effet confirmé que Total quitte l’Iran, faute d’avoir pu obtenir une exemption auprès du très puissant Office of Foreign Assets Control (OFAC), l’efficace bras armé juridique du gouvernement américain, sa part majoritaire dans le mégaprojet gazier South Pars reviendrait à son partenaire chinois CNPC, en vertu de l’accord de 4,8 milliards de dollars signé en juillet 2017 avec Téhéran. 

 

Retour sur le cas Peugeot

 

Les pertes financières significatives résultant de la politique étrangère américaine au Moyen Orient ne constituent pas un fait nouveau pour les entreprises européennes. Au lendemain du renforcement des sanctions sur l’Iran de janvier 2012, Peugeot, dont le nouveau partenaire stratégique à hauteur de 7% de son capital n’était autre que General Motors, avaient interrompu ses livraisons de voitures en kit vers l’Iran, se pliant ainsi aux injonctions de l’OFAC. Le gouvernement américain avait en effet 32% du capital de GM, par suite de la crise financière de 2008. Ce qui n’empêcha manifestement pas le constructeur de Detroit de tenter de revenir opportunément sur le juteux marché iranien, où Peugeot avait jusque fin 2011 30% de parts de marché.

 

Au pic des sanctions, une campagne de publicité visible dans les quartiers huppés du nord de Téhéran en décembre 2012 préparait le terrain pour un test du marché par GM. A l’été 2013, des véhicules de marque Chevrolet étaient importés en Iran depuis l’Azerbaïdjan voisin. Si l’importation de pièces détachées et la délivrance de services étaient proscrits en vertu de « l’Executive Order Act 13645 » de juin 2013, décret du gouvernement Obama, l’importation de voitures ne l’était pas. La subtilité juridique aurait coûté jusqu’à 800 millions d’euros à la marque au lion, en plus du dédommagement de Iran Khodro, son partenaire historique en Iran, lors de son retour sur le marché en 2016. Pour avoir été « sauvé » par GM dans une phase difficile, Peugeot a perdu temporairement un marché important. Acte final, la rupture du partenariat stratégique entre Peugeot et GM en décembre 2013, à l’initiative du constructeur américain, interroge sur le bénéfice réel de cette opération capitalistique pour la marque française.

 

« Next step ? »

 

Alors que l’Union européenne cherche la parade pour sauver un accord multilatéral crucial pour la sécurité du Moyen Orient, la deuxième puissance économique mondiale fait face à son moment de vérité. En décidant de se retirer de l’accord de Vienne, et sous couvert d’extraterritorialité du droit américain, les Etats-Unis assument sans complexe une guerre économique avec l’Union européenne, quitte à fragiliser une relation transatlantique si essentielle dans un monde devenu plus incertain et plus complexe. L’élection du président Trump, et l’imprévisibilité qui constitue sa marque de fabrique, n’ont rien changé à cet état de fait ; elles l’ont au contraire clarifié.

 

Pour être audibles à Washington, la France et l’Union européenne doivent affirmer plus clairement leurs priorités stratégiques et défendre leurs intérêts économiques en musclant leur arsenal juridique, pour pallier toute action revenant à subordonner nos entreprises, grandes, moyennes et petites. Il est essentiel de protéger les investissements français et européens à l’étranger, notamment lorsque la rupture unilatérale d’un accord tel que le JCPoA menace si directement la santé de nos entreprises et de notre économie.   

 

Anchor 2
THE IRAN OPPORTUNITY: INTACT BUT CHALLENGED

May 13, 2016 - 18 pages

 

More than 100 days since Implementation Day, and the gold rush proves to be more challenging than anticipated. Frustration and doubt grow steadfastly among international and Iranian businesses and investors, and Iran’s political elites. Despite sanctions easing and banks being reconnected to SWIFT, Iran’s market remains largely untapped. Part of the problem lies in the centrality of the US dollar in transactions. In this ambiguous context, parliamentary election results support a scenario of economic reform and diplomatic openness. They bring hope for improvement in the investment climate. However, to outplay conservatives in social and political fields, moderates will need the support of independents, who claimed 28% of the seats. On the regional scene, Iran faces the rising power of Mohammed bin Salman, Saudi Arabia’s Deputy Crown Prince and Defense Minister. His prime role in the kingdom’s oil diplomacy, in disruptive economic reforms and assertive military campaigns indicates a bumpy and erratic road ahead for the two foes. Not surprisingly, businesses targeting GCC and Iranian markets express rising concerns over an unclear and increasingly risky situation, and whether their projects can be impacted.

 

Mega deals in civil aviation, railways … announced with great fanfare during President Rouhani’s visit to France and Italy last January fail to materialize so far given the cautiousness of large European banks, all of which are exposed to the US market. Consequently, Iran explored euro-based settlement systems to avoid the US financial system, notably with India. The International Energy Agency announced a surge in the Iranian oil output for March and April, not seen since 2011. It comes at a favorable time as the Brent Crude has now reached $48. With 49 upstream oil and gas projects tentatively offered next July, Iran will aim to attract IOCs to recover up to 28bn boe of oil and gas.

 

The Iran opportunity, while undisputed, comes with significant risk. It leaves little room for an ill-conceived approach to a market that has constantly adapted to sanctions. A web of stakeholders interact in a complex political, religious and security fabric, some of which will resist further opening to the West. Pseudo-private entities linked to the clerical regime and to its security apparatus are omnipresent in a fast-moving and ever-changing business landscape. Sound due diligence can avoid damaging, irreversible situations. However, should President Rouhani deliver on his economic promises, and Iran manage to play a critical role in the Syrian crisis, the wild card would lie in Washington. Central to Iran’s future is how President Obama’s successor will play a rebalancing of diplomatic and economic power between Tehran and Riyadh. Thus, Nov. 2016 emerges as a key milestone in the evolution of Iran’s investment climate.

 

GEOPOLITICAL OUTLOOK – Post-sanctions Iran: managing expectations while navigating foggy waters

  • While the EU Commission “turned the page” in Europe’s relationship with Iran, US officials engaged with wary European banks to clarify confusion around the nuclear deal. What is the level playing field for European players?   

  • Discord about the country’s future emerged among Iran’s religious establishment after Nowruz, the Persian New Year. At stake, the Supreme Leader’s legacy. Which factions are at play, and how can this battle unfold?

  • Quarrel between Riyadh and Tehran culminated at the OIC summit, Istanbul, at the Doha meeting of oil producers and in talks for the pilgrimage to Mecca. If history is any guide, what should businesses and investors closely watch?   

 

ECONOMIC OUTLOOK – Despite the geopolitical snag, the onus is on Iran to reform its economy to lure investors

  • Deprived from access to the US financial system under the “U-turn” authorization, Iran’s government obtained that India pays its $6.5bn oil debt and future oil sales in Euros. Are euro-based settlement systems on the rise?

  • Ahead of forecasts, Iran’s oil output reached pre-sanctions levels at 3.56m b/d in April and new oil contracts (IPC) are expected in July. Can the 60% surge in oil prices (since Jan) help the upstream sector drive Iran’s economic recovery?

 

POLITICAL & REPUTATIONAL RISK – Building the right entry strategy: avoiding pitfalls while adapting to changes

  • Panama Papers shed light on Iranian entities that are part of a network of front companies established to manage commercial holdings of Politically Exposed Persons. Why knowing whom the Ultimate Beneficial Owner is matters.

  • The Obama legacy in the face of US presidential candidates’ stance toward Iran: from entrenched distrust to declared enmity. What are some possible outcomes of this election and why should businesses and investors follow-up?

 

Anchor 3
IS IRAN THE NEW "EL DORADO" FOR 2016?

Feb. 12, 2016 - 20 pages

 

Implementation Day - the swift lifting of UN, US and EU sanctions on Jan. 16, 2016, ahead of key elections in Iran, is a game changer for the Islamic Republic … and for the greater region, from Middle East to South and Central Asia. Iran has every reason to comply with the terms of the nuclear deal – or JCPOA, thus avoiding sanctions “snap back”. Logical assessment, but conservatives may choose to thwart the implementation process, however without fully derailing it. Results of Feb. 26 elections will give a hint as to President Rouhani’s real latitude to reform the economy and reach an ambitious 8% GDP growth per year over five years, as set forth by the Supreme Leader. Of concern to global powers - and to international businesses, the growing antagonism between Shia and Sunni regional powers, namely Iran and Saudi Arabia. It impedes crisis resolution in Syria in an already highly volatile and unstable region. 

 

Iran is transitioning from a planned to a market economy. Its unique human, hydrocarbon and mineral resources combine with its strategic position on the New Silk Road to position the country as a future economic giant, notwithstanding factors undermining private-sector growth (ref. ROI, Edition n°3). Europe is already benefiting from its significant contribution to the JCPOA. One should indeed remember that EU trade with Iran collapsed 76% from 2011 to 2014. Mega-deals have, thus, been announced in the wake of President Rouhani’s landmark visit to Italy and France. In the short to mid-term, the commercial fight will be between the EU and China. The Middle Kingdom shows no intention to slow the pace at which it penetrated the market since sanctions peaked. As sanctions eased, pioneer investors were bullish on Iranian stocks, with good reason. A once in a lifetime opportunity is in the making.        

 

With this fresh, new perspective, the country is poised to become the modern land of opportunity … and risk. Large and small players, alike, will face a number of complex issues while prospecting, as they design a market entry strategy, operate locally, until they exit. Various international stakeholders will challenge their plans, while poor due diligence and lack of understanding of the local culture could significantly raise the cost of doing business in Iran.   

 

GEOPOLITICAL OUTLOOK – Implementation Day is one of many steps on the road to Iran’s global reintegration.       p.4

  • Nuclear-related sanctions were lifted, ahead of forecasts, on Jan. 16 signaling Iran is open for business, but the US imposed new sanctions on Jan. 17 for missile tests. What are possible scenarios of the implementation of the JCPOA?   

  • President Rouhani will face a first vote of confidence on Feb 26. Conservatives are gearing up to prevent moderates from reaping the benefits of the landmark deal. What is the state of the play, and why do results matter?

  • Troubled waters: the Saudi Arabia - Iran row hinders Iran’s reemergence as a regional diplomatic power, as one could anticipate. To what extent should businesses targeting the Iranian market be concerned by these developments?  

 

ECONOMIC OUTLOOK – Iran just gained a status of quasi “El Dorado”. The real question is for who ?                            p.8

  • The lifting of sanctions paves the way for unprecedented growth. The once-ostracized state could become one of 2016’s most attractive business and investment destinations. Iran’s economy at a glance across key economic sectors.

  • President Rouhani resurrected the ancient Silk Road with China’s President before making Italy and France the West’s first beneficiaries of 40bn€ of state-backed deals. How can European SMEs benefit from this momentum?

  • Iranian banks’ reconnection to the SWIFT system, effective January, and the return of major European export credit agencies will facilitate trade and investments. What will trigger the much-awaited boost?  

  • Sanctions easing was a quick win for Iranian stocks in January: Iran-focused funds were announced and 500 trading codes issued to foreigners; the TEDPIX Index reached a 52-week high. Overview of catalysts and prospects.    

 

POLITICAL & REPUTATIONAL RISK – Iran’s investment climate, while attractive, will be shaky for some time.             p.16

  • Hard-line student protests against new Oil contracts and the cancellation of the Feb. 22 Oil conference in London rightly raise questions about foreign investments in Iran’s state-owned assets. Lessons learned from the past.     

  • Despite their omnipresence in Iran’s economy, Iran’s elite Guards pragmatically supported the nuclear deal, thus opening the market to foreigners. What triggered this move, and what specific risks can you possibly be exposed to?   

  • Political strife between the Obama administration and Congress in relation to Iran is perhaps the single most important risk to watch throughout 2016. Overview of some issues non-US businesses should closely monitor.    

 

Anchor 4
IRAN - ON THE ROAD TO THE LIFTING OF SANCTIONS

 Dec. 16, 2015 - 17 pages

 

Whereas Iran dismantles its centrifuges at a fast pace to meet its nuclear-related commitments under the July 14, 2015 Joint Comprehensive Plan of Action, the UN watchdog ended a 12-year “weapons” probe on Dec. 15, marking the international community’s will to look forward. Iran is possibly weeks from benefiting from a historic lifting of UN, US and EU sanctions, notably on banking and oil. The hard part will actually begin with the implementation phase as domestic and regional issues will continue to reverberate on the process to the extent they can possibly affect it. Whether opportunities will outweigh risks over the years is a difficult calculus in an unpredictable environment.   

 

Supported by a proactive private sector which is eager to integrate the global economy to unleash its potential, reformist President Rouhani’s government embarked on an ambitious foreign investment roadmap with the aim to better meet international standards and develop an export-oriented economy. On November 28-29, Iran started to unveil its new “Iran Petroleum Contract” to 152 international companies, a negotiable framework which intends to offer more attractive conditions and prospects to investors. Contracts could be signed in the first or second quarter of 2016, albeit in a globally shaky market environment. With a market capitalization of $85 billion, the Tehran Stock Exchange is gearing up to welcome international investors, but more needs to be done by Iran’s Securities and Exchange Organization to provide all the guarantees needed. A thriving perspective is shaping. If it was part of the MSCI Frontier Markets Index, Iran would be the second market behind Kuwait.       

          

Decades of distrust between Iran and the US might possibly survive the nuclear deal given that some sanctions on the IRGC will remain in place during the implementation phase. Conservatives’ rhetoric and politically-motivated measures from both sides will likely continue to haunt relations; a fact that should not be underestimated by international businesses. Adding to that complexity is the ongoing rivalry between hard-liners and the Rouhani government in a fierce struggle for power on Iran’s economy. Pragmatism could level the playing field but businesses need to be mindful of the role played by non-governmental, non-private players in the economy, and prepared.       

 

GEOPOLITICAL OUTLOOK – Iran could leverage its diplomatic gains; that is not to say all problems are solved.           p.4

  • The IAEA closed its investigation into the so-called PMD of Iran’s activities despite ambiguities, paving the way for the lifting of sanctions. How fast can a pressed Iran deliver, and are there remaining hurdles?

  • The Supreme Leader’s warning of “infiltration” by Iran’s enemies prompted a crackdown by the IRGC and the judiciary. It may weaken an already fragile political process. Can it also affect the implementation of the deal?    

  • Firmly supportive of Bashar al-Assad, Iran won its seat at the Syria talks, though, without taking center stage. Can Iran’s political, economic and military ties with stakeholders make the new regional power a kingmaker?    

 

ECONOMIC OUTLOOK – To realize its full potential over the years, Iran needs to address a broad range of issues.     p.8

  • With less sanctions, Iran’s investment climate may improve, bolstering growth. Structural problems remain: inflation, forex, legal framework, intellectual property, privatizations, nepotism, corruption... Overview. 

  • In a context of cheap oil and oversupply, Iran showcased $30 billion worth of post-sanctions Oil & Gas projects. From old buy-back contracts to the new IPC, what are the prospects for foreign investors and the challenges?  

  • Iran’s equity markets present an investable scenario in a post-sanctions era: market capitalization, valuations, dividend yields, sector diversification. But what needs to be done to really attract international investors?         

 

POLITICAL RISK – Resilient, resistant, hard-liners strive to stay at the helm of the economy. They may succeed.        p.14

  • US Congress accelerates debates and measures to counter the upcoming lifting of sanctions by the Obama administration. Risk-averse investors should closely monitor the evolution of the situation and identify pitfalls.

  • The surprise decision to boycott 227 US-made goods following the Supreme Leader’s alert on the irregularity of certain imports finds its roots in politics rather than in trade policies. What does it mean for your business?    

  • Tensions escalate between hard-liners and reformists ahead of February 2016 elections. Revolutionary Guards send an unambiguous message: the nuclear deal won’t lead to a dramatic rebalancing of economic powers.    

 

Source : EIA (Dec. 2015).

Ancre 5
IRAN'S LITMUS TEST

Oct. 30, 2015 - 15 pages

 

The Iran deal was adopted, without surprise, on October 18 despite rhetoric from Iran’s elite pertaining to the US – Iran relationship, and the Revolutionary Guards’ show of force. However, the implementation phase will be, to a great extent, conditioned by upcoming elections – Islamic Consultative Assembly and Assembly of Experts in Iran, President - Vice-President and Congress in the US. Sanctions will be partially terminated or suspended once the UN watchdog agency has verified the implementation, by Iran, of its nuclear-related commitments. A lifeline for an economy in dire need. But Iran has a short time-frame to deliver.

 

Simultaneously, another chapter in global affairs is opening which will test Iran’s real capacity to consolidate peace and engage with the world in a constructive way, as advocated by President Rouhani at the UN General Assembly. Among the 19 stakeholders present at the Vienna talks on the Syrian crisis, old foes - namely Iran and Saudi Arabia - are finally debating options for a political resolution. Stakes are uniquely high. An alternative to peace is unimaginable given the nature of the military forces in the air and on the ground...  

      

Back to Iran’s economy, recent signs of stagnation and an increasing pressure on banks have given little choice to President Rouhani but to temporarily halt a monetary policy which has brought inflation from 40% to 15% in 2 years. Sanctions combine with record low consumer spending as Iranians expect foreign brands to flood the market. In this tense context, an Iranian government at the crossroads is actively pursuing its race to attract investments, technology and know-how to realize the potential of capital-intensive sectors such as Oil & Gas, Petrochemicals or Mining. With a tsunami of tourists in the making and success stories in digital, there is hope though that Iran might emerge soon.

 

A drive in Tehran shows Peugeot is popular. The lessons learned from having General Motors as shareholder as sanctions tightened are not enough for the carmaker to regain market share. Rebuilding trust in Iran can be laborious.

 

GEOPOLITICAL OUTLOOK – Iran’s diplomacy rises in the wake of Russia’s as the US fixes its Middle East policy           p.4

  • With the JCPOA adopted, Iran awaits frozen funds to revive its economy, but the bulk is yet to be achieved. Overview of what has been adopted by the EU and the US and what is at stake for the deal to be implemented.

  • The 70th UN General Assembly showcased a more multipolar world, with Russia reclaiming a key role in global affairs and Iran asserting its nascent status as a regional mediator. A view on Iran's declared ambitions.

  • The evolution of the US – Iran relationship is core to the long term sustainability of foreign investments in Iran. Understanding what is at stake in respective 2016 elections is key to envision the 8-year implementation phase.    

  • Syria’s civil war revealed deep-rooted multi-layered struggles. Four years into the crisis, Iran’s participation to the Vienna talks could warrant a political resolution as world powers have entered uncharted territories.   

 

ECONOMIC OUTLOOK – Short-term challenges of Iran’s economy can be offset by the unique prospects it offers    p.10

  • With a credit crunch looming, President Rouhani adopted a 6-month, near US$ 2.2B, stimulus package ahead of sanctions relief - and elections, a move which follows the Supreme Leader’s backing of new economic policies.

  • The Iran Oil & Gas summit in London has been – again – rescheduled to February 2016. The Oil Ministry will not wait. Initial announcements are set for November 2015 in Tehran. What can oil companies expect?  

  • Iran will seek investments in France and Italy in November for 15 mining projects. The country claims to hold 7% of the world’s reserves in 68 minerals worth US$ 700B. Overview of the attractiveness of the mining sector.

  • Consistent with Iran’s target of attracting 20 million tourists by 2025, visas have been extended for 58 countries. AccorHotels pioneered with 2 new hotels in Tehran airport. Can the Tourism industry drive Iran’s growth?    

  • Iran’s digital sector benefited from years of isolation. Protected from Western competition, start-ups have emerged in a market of highly literate millennials. A dive into “Silicon Iran” in the making.  

 

POLITICAL RISK – Doing business in Iran when subject to US oversight can result in a foggy and rocky ride.              p.15

  • The Peugeot case study or how a former European market leader with near 30% market share in 2010 with 467,000 units sold bears the legacy of a short-lived global strategic alliance with General Motors in 2012/13.

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US REVIEW OF THE JCPOA VS. EU GOLD RUSH

Sept. 17, 2015 - 13 pages

 

Despite a Congress at loggerheads with the US President over the nuclear deal, Barack Obama did not have to veto a vote of disapproval. The JCPOA emerges as his unequivocal foreign policy success, an accord which, if sustainable and fully implemented on the rocky road that lies ahead, could spur an aggiornamento in the Middle East and beyond.     

 

In the short term, notwithstanding anticipated posturing from the two lead characters at play in this modern deep-rooted geopolitical drama - namely the United States and Iran, hordes of businesses – particularly European – are trying to grasp the diamond in the rough. A Congress vote has never been the issue given the US President’s resolve.

 

Success in a market as promising as Iran’s comes with agility and patience. Serious investors should resort to all means to swiftly build strong and reliable commercial networks, and market knowledge. But for a European – or an American investor, realizing the full potential of this untapped market once at the heart of the ancient Silk Road, confronts their Western mindset with a complex, almost elusive reality on the ground. Sanctions, Iranian officials like to remind, have empowered Iran. Anyone who has traveled to Iran in the past months can measure its veracity.

 

A form of modern “Great Game” seems to be shaping, with many new players lining up. Western know-how and technology will have a price for Iran, without doubt. Sanctions could have a cost, ultimately for unprepared international businesses. In a quest to foster “fair cooperation” with the West and climb the value chain, Iran has time and leeway to choose new partners. Sanctions relief means fresh money and Iran already has running partnerships.   

 

In examining short-term consequences of the JCPOA for businesses, we find that they cannot be reduced to catching a plane to Tehran, sharing a PowerPoint presentation and collecting business cards. Implementation of the deal and the diligent work businesses must conduct to prepare market entry are key. Understanding the practicalities and limitations of sanctions relief is a prerequisite, mapping Iran’s unique market environment imperative, meshing with the local culture highly recommended. Scenario and contingency planning can save a business in the long run.

 

GEOPOLITICAL OUTLOOK – With the Congressional hurdle cleared, focus shifts on Iran’s regional affairs                     p.4

  • Six days after the JCPOA was announced, UNSC endorsed the Iran deal on July 20, 2015 which marked the beginning of a 10-year, condition-based process up to UNSCR Termination Day.

  • While the Iran deal survives a vote in US Congress, Iran’s Supreme Leader stands clear of praising the deal. Soothing hard-liners is de rigueur but promises a rocky implementation phase.   

  • Sanctions relief may bolster Iran’s regional influence and capabilities, security concerns in the Middle East and Israel may escalate, but narrow avenues for conflict resolution could open.   

 

ECONOMIC OUTLOOK – As Iran lures investors, time becomes their most precious commodity.                                   p.10

  • Despite the uncertainties and the risks, the prospect for a historic relief in sanctions is fueling a modern gold rush in Iran, notably from European countries.  

  • Special coverage*: key messages from Iran’s government and business leaders shared at the first Iran-EU trade and investment conference which was held days after the JCPOA was announced.

 

POLITICAL RISK – Commercial networks are crucial to quickly penetrate the market. But diligent work is key.            p.12

  • Taking advantage of business opportunities in Iran requires careful thinking and preparation prior to and after a possible sanctions relief. Implementation Day is on every investor’s radar.

  • If your company plans to do business in Iran, whatever your sector of interest, you may want to consider looking into how sanctions relief will revamp Iran’s unique business fabric. Example.    

 

Includes a detailed graph of the timeline of the JCPOA and the events that impact its implementation. 

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IRAN NUCLEAR DEAL UPDATE

July 15, 2015 - JCPOA update - 11 pages

 

A stepping-stone to solving one of the world’s most complex, outstanding geopolitical issues, the comprehensive, long-term deal reached in Vienna on July 14, 2015 between Iran and the P5+1 countries is yet to be approved by U.S. Congress, and implemented. The most significant achievement, let alone the nuclear dimension, is the rapprochement between Iran and the United States, a priority of Barack Obama’s presidency. It should open the doors, in 2016, to one of the last colossal frontier markets. Put in perspective, Iran’s GDP compares with Thailand’s.

 

 

Prospects appear to be uniquely attractive in a country with the fourth-largest proved crude oil reserves and the second-largest proved natural gas reserves. The government strives to provide foreign investors an environment that is conducive to long term operations. Iran has a well-educated, young and dynamic population of 78 million, a diversified industrial economy, and one of Middle East’s most promising stock exchanges.

 

 

Nevertheless, anti-Western ideology rooted in Iran’s leadership influences the market environment. It is reasonable to think that distrust will continue to haunt diplomatic and business relations for years to come. Companies and investors which do not carefully apprehend the complexities of Iran’s political structure and the specificities of its culture will eventually face serious challenges as they try to invest or, later, as they develop on the market.    

 

 

POLITICAL OUTLOOK – Iran’s return on the world scene, prelude to a rebalancing of powers in the Middle East         p.4

  • A 12-year process which narrowed to 20-month marathon negotiations resulted in a landmark deal to curb Iran’s nuclear program.

  • Although a positive outcome for the review is expected, the question is how much leeway President Obama will have to pass the deal.   

  • Making room for Iran on the oil market and measuring the impact of the rebalancing of powers will be high on Saudi Arabia’s agenda.   

 

ECONOMIC OUTLOOK – A resilient Iran is gearing up to eclipse a grim economic legacy                                                   p.5

  • Crippled by sanctions, Iran’s economy has also suffered greatly from years of mismanagement.

  • With a nuclear deal, Iran’s officials see a unique window of opportunity to revitalize the economy by attracting global investors.   

  • Improvements recorded since President Rouhani’s election should be reinforced by a fiscal policy that fuels productive credit. 

 

OIL & GAS – Iran’s progressive come-back could reshape global oil markets as soon as 2016                                           p.6

  • With the world’s third or fourth crude oil reserves, Iran is bound to make its way back to global markets. But there will be hurdles.  

  • With abundant gas reserves, Iran’s production is bound to serve in priority the domestic market.

  • The revised framework of the oil investment contract could provide international oil companies with a level playing field.

  • Iran’s Petroleum Ministry is building its strategic communication with the aim to generate a possible tidal wave of investment.

  • Despite positive momentum, Iran’s protectionist laws pose challenges to international investors.

 

POLITICAL RISK – Understanding Iran’s market environment is key to a sound strategy                                                     p.8

  • Custodian of the Islamic Republic, Iran’s Revolutionary Guard Corps (IRGC) is also, and most notably, an economic giant.

  • Launched to manage and sell properties abandoned after the Islamic Revolution, Setad morphed into a business empire.    

 

Appendix - Key Excerpts of the Joint Comprehensive Plan of Action (J.C.P.O.A.)                                                                    p.9

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