Iran is an attractive proposition to companies that are in a sector such as oil & gas, energy, automotive, airline or telecommunications. If you are considering investment or expansion in these sectors and other non-oil sectors, you need to ensure that you are aware of the history and culture in this emerging market and keep up to date with political developments.
The recent history of sanctions in Iran
Iran has been subject to various levels of sanctions in recent years. However, in around 2005 draconian sanctions were imposed over the Iranian economy by the UN, EU and the US. This crippled the economy and froze the assets of Iranian individuals and companies held outside the country.
In July 2015 the Joint Comprehensive Plan of Action (JCPOA) was signed by Iran and China, France, Russia, the UK, the US, Germany, and the EU. This agreement lifted these crippling sanctions and came into effect on 16 January 2016, Implementation Day.
Implementation Day was celebrated eagerly by both Iranians and the wider world, in anticipation of new economic horizons opening up.
European and Asian businesses have been rushing to enter the Iranian market, and also many Iranian businesses are seeing this as their opportunity to trade with the outside world as Iran’s economy unlocks.
The Iranian market – and why knowing the culture is the first step
“Yesterday is gone and its tale told. Today new seeds are growing.” – Rumi, 13th century
It is important that foreign companies and investors entering into business with Iran are informed by an understanding of Iran’s ancient history and social and cultural makeup. Potential business partners need to be aware that business is personal for Iranians. Customs such as negotiation, bargaining skills, religion, hospitality, pride, and education are very influential and should be observed.
Investment in Iran also requires an understanding of the country’s unique economy. The sanctions exposed the resilience of Iranians. During the years where outside trade was virtually impossible the economy diversified greatly, meaning that now Iran can boast far more varied industries than can be found in other oil producing economies.
Iran has the fourth-largest oil reserves in the world, and the second-largest gas reserves.1 It has been called “the most energy-rich country in the world.”2
It also produces zinc, copper, steel, cement, and petrochemicals, and has a large industrial capacity.
Sectors such as telecommunications, automotive, airline, pharmaceuticals, consumer goods, and banking and financial are booming, with consequent opportunities for investors.
However, businesses in Iran are highly regulated, much more so than in other similar jurisdictions. Even after the lifting of sanctions, the Iranian state continues to play a key role in the economy, with large public and quasi-public enterprises dominating the manufacturing and commercial sectors.
The risks and rewards in doing business in Iran
Unquestionably, Iran has a great deal of potential - with “the consumer market and human capital potential of Turkey, with the hydrocarbon riches of Saudi Arabia and Russia, and the mineral resources of Australia.”3
The roll back of economic sanctions is expected to unlock significant spending in the oil and gas industry as well as other sectors of the economy, which will benefit from foreign investment and access to new technology.
However, Iran’s potential for investors and businesses should be tempered by the possibility of a ‘snap-back’ of sanctions if Iran does not comply with its commitments under the JCPOA.
These risks can be mitigated if investors maintain a detailed knowledge of the market and keep their exposure to this market under review, especially at the early stages.
1 BP Statistical Review of World Energy 2015 https://www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2015/bp-statistical-review-of-world-energy-2015-full-report.pdf
2 The Independent, 24 January 2016, Iran is world’s biggest emerging market since collapse of Soviet Union, says Lord Lamont.
3 Huffpost Business, 4 June 2015, The Real ‘Iran Prize’: The Next Great Emerging Market.