Foreign investors have been eager to tap into Iran since the country’s nuclear agreement with the US, the UK and four other world powers in 2015 — but not investors from the US, still barred by restrictions imposed by Washington on its long-time Middle East adversary.
Foreign investors announced 59 new greenfield projects worth $12bn in 2016, more than the amount of capital expenditure announced in the previous six years put together (see chart), according to fDi Markets, an FT data service.
Iran struggled to attract any investment in recent years as international sanctions made it almost impossible for foreigners to openly invest and trade with the country, leaving much of Iran’s infrastructure and industry in disarray.
Things changed in January 2016 when the United Nations and the EU lifted sanctions after Iran and the so-called P5+1 group of the US, the UK, China, France, Germany and Russia signed a Joint Comprehensive Plan of Action (JCPOA). This established that all nuclear material in Iran be used for peaceful purposes.
Within hours of sanctions being lifted, Hassan Rouhani, Iran’s president, told parliament: “The government’s main policy after the nuclear deal is to attract foreign investment, expand non-oil exports and make optimum use of foreign exchange reserves. A stable and swift economic growth needs hefty foreign investment.”
European and Asian companies have scrambled to secure a share of the biggest market in the Middle East, with a young, educated and largely urbanised population of almost 80m, of which 60 per cent are under 30 years old.
Most of the investment announced last year went on upgrading energy infrastructure and into the manufacturing and oil and gas sectors, which have particularly suffered under sanctions. Unit International of Turkey, for example, agreed in June a $4.2bn deal to build seven natural gas power plants. In manufacturing, global carmakers including Renault of France, Daimler of Germany and Kamaz of Russia said they would set up in Iran or deepen their presence there. Total of France committed almost $3bn to the development of its concessions at the South Pars gasfield and the South Azadegan oilfield.
But Iran remains almost entirely off limits for US investors. Under the JCPOA agreement, Washington lifted secondary sanctions, generally applied to non-US individuals and entities for activities outside the US. But most US unilateral sanctions on US individuals and entities remain.
Certain categories are allowed, such as food, medicine, medical devices and certain IT equipment, and certain categories are eligible for authorisation, such as aviation, but the majority of trade is prohibited, as is investment.
One such exception allowed Boeing to strike an agreement with Iran Air to supply 80 aircraft for $16.6bn. However, beyond these few exceptions there is no sight that the US will lift its remaining sanctions, imposed since the Islamic revolution of 1979 to punish Iran’s alleged support for terrorism and its development of ballistic missiles.
“The US domestic trade embargo on Iran remains in place,” the US Treasury said in a statement in January 2016.
A war of words between President Donald Trump and the Grand Ayatollah Ali Khamenei has escalated in recent weeks as Mr Trump has tried to impose his travel ban on people from Muslim countries including Iran. Investment into Iran may be soaring but it remains a long way from normalising its business and diplomatic relations with the west.
Jacopo Dettoni is deputy editor of fDi Magazine, an FT publication.
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