Iran says it is ready for a gold rush, as trade delegations flock to Tehran to be first in line when sanctions are lifted under the landmark nuclear deal agreed in July.
And there is real hope and opportunity in a well-educated country of 80 million with massive deposits of oil and gas, one that investors see as an untapped market emerging from years of isolation.
But cashing in will not be easy and is fraught with risk, experts say. One major brake is US sanctions on terrorism and human rights that will continue – with strict enforcement and steep penalties. Another is the uncertainty inherent to Iran’s opaque political system.
That seesaw between enthusiasm and caution was evident at last week’s 2nd Europe-Iran Forum in Geneva, where Iranian officials, Western consultants, lawyers, and potential investors gathered for the first time since the nuclear deal.
Iran is a high-risk, high-reward market, but investors should guard against “excessive expectations,” said Charles Hollis, the managing director of FTI Consulting, a Washington-based advisory group. Political risk is another factor in a country where the terms of the nuclear deal – and its fruits – are already being heavily contested.
“Clearly the nuclear deal has empowered the moderates in Tehran, but the hardliners are very good at conducting trench warfare,” Mr. Hollis told the forum. “Iran will be good, but it’s not going to be brilliant, and it’s not going to be brilliant tomorrow.”
The business environment "remains a minefield,” he adds. “So the first piece of advice is: Understand sanctions, and abide by them.”
A flood of business delegation
Iranian officials say the Islamic Republic is open for business, pointing to the timetable for the lifting of key European and banking sanctions, probably early next year.
“Iran is now there for you as a partner,” said Abdulrasoul Dorri Esfahani, a senior advisor to the governor of the Central Bank of Iran, who was a member of Iran’s nuclear negotiating team. Speaking about Europeans and others being held back by years of sanctions, he said, “that fear is gone.”
More than 100 top French companies visited Iran last week, the latest of 130 groups, official and unofficial, since the nuclear deal was signed. Italy plans to send a group of 400 companies in late November, with interests from construction to railways. Italian officials hope their exports to Iran will expand from less than one billion euros ($1.12 billion) now to three billion euros ($3.35 billion) by 2018.
Iranian bankers say $800 billion in projects have already been identified as spending needs by the government, everything from gas extraction and oil refineries, to major infrastructure projects and new commercial aircraft. With the third largest economy in the Middle East behind Turkey and Saudi Arabia – Iran's GDP was more than $400 billion in 2014 – some suggest Iran could eventually become a regional economic powerhouse, the Germany or South Korea of the region.
Some US sanctions remain
But while companies are eager to be the first in, they will find a tricky business environment. While EU and United Nations sanctions are due to be terminated in early 2016, the US has only agreed to suspend nuclear-related sanctions, such as on Iran's oil and banking sectors; a permanent lifting isn’t due until 2023. Non-nuclear US sanctions on Iran will remain, and all sanctions can “snap back” in case of violations.
Barthelemy Helg, a partner with ACL, a financial advisory firm specializing in Iranian capital markets, says that, from the US point of view, “very little will change,” because the Congress-mandated sanctions on Iran mean the “entire arsenal [of sanctions] will remain in place.”
International banks are likely to be reluctant to engage unless there is “absolute clarity” from US officials, says Mr. Helg. US regulators have imposed billions of dollars in fines on European banks for sanctions and money-laundering infractions.
Companies must also ensure that their Iranian counterparts aren’t subject to Western sanctions, directly or indirectly. This includes people and entities linked to the multifaceted Revolutionary Guard, which do not always have clear lines of ownership.
'Tip of the iceberg'
As in all emerging markets, foreign investors must also beware of fraud issues, knowing who your partners are and who they associate with, and whether they have the influence they say they have.
“Sanctions are just the tip of the iceberg when it comes to risks in Iran,” says Jonathan Friedman, an assistant director with the global risk management firm Stroz Friedberg, whose clients have in the past done pharmaceutical trade with Iran.
“At the same time, you have to be part of the conversation,” says Mr. Friedman. “This is a big story, capital needs a place to go; there are not too many places for growth.”
Still, Helg says working in Iran is easier than Russia, Sudan, or Myanmar, because Iran is a developed and sophisticated market. “Iranians are very close to the Western mentality … and it is very easy to engage with them. So if you choose the right partners, you’ll have a very good experience.”
Any investor will have on their side the government of centrist President Hassan Rouhani, who promised since his 2013 election to boost the economy.
“When you compare the environment vis-a-vis international business and investment in Iran that we had three years ago, to today, it’s a 180-degree difference,” says Rouzbeh Pirouz, executive chairman of Turquoise Partners, which manages over $70 million of foreign investment funds in the Tehran Stock Exchange.
The need for a strong private sector not hampered by restrictions is a “continuing challenge” that the Rouhani government recognizes, says Mr. Pirouz. “Sanctions obviously affect the extent to which international business can engage, and Iran can operate in the global economy, but the domestic issues are there regardless."
“In Iran, come in, we welcome you,” said Ali Amiri of ACL, the advisory firm. “Be brave, be selective, and you will win."