SearchPivotal year for Iran in 2016

Pivotal year for Iran in 2016 ...
arabianbusiness.com 12/12/2015 Economy

Keywords:#2015, #Alavi, #Arabianbusiness.com, #Bush, #China, #Dubai, #European_Union, #Fahad_Alavi, #Farhad, #France, #Georgetown, #Germany, #Hong_Kong, #Implementation_Day, #Iran, #Iranian, #Islamic, #JCPOA, #Joint_Comprehensive_Plan_of_Action, #Nations, #Obama, #Obama_administration, #Persian, #Persian_Gulf, #President, #Russia, #Security_Council, #UAE, #UK, #US, #United_Nations, #United_Nations_Security_Council, #Washington


By Fahad Alavi
Saturday, 12 December 2015 1:09 AM
2016 will likely be a pivotal year for Iran as it slowly re-enters the international economy. Finally reaching an agreement on its nuclear programme in July 2015 with the “P5+1” states (the US, UK, France, Russia, China, and Germany), Iran looks to emerge from years of punishing sanctions and isolation. As a resource-rich country of roughly 80 million people, it is increasingly attracting the attention of businesses and investors around the world.
The major shift in interest I have seen in my trips to the UAE this year bears testament to this. The anticipated gold rush, however, may be ultimately more tempered than many expect.
The Joint Comprehensive Plan of Action (JCPOA) entered into with the P5+1 will upon its “Implementation Day” provide Iran with needed sanctions relief, particularly United Nations Security Council Resolutions and far deeper-reaching unilateral sanctions such as those of the European Union and to some extent those of the US.
The exact date of Implementation Day is unclear, although it is expected to be in early 2016. This could have a tremendously positive impact on the global economy, and in particular those of the Persian Gulf Cooperation Council (PGCC) states.
Under the deal, the US will lift many punishing restrictions on non-US businesses engaging Iran in key sectors such as oil and gas and banking. US companies will, under certain conditions, be able to sell Iran civilian aircraft and parts, and Americans will be able to import some Iranian luxury goods.
However, Implementation Day will not herald the end of all Iran sanctions. The US will continue to maintain comprehensive restrictions prohibiting its own nationals and companies from most commercial transactions with Iran. Indeed, US persons will remain barred from exporting most basic goods, investing there, or even “facilitating” most Iran trade on behalf of non-US entities.
The “de-risking” trend in global finance and logistics sectors renders many lawful transactions with Iran (such as the sale of most food and medicine) nearly impossible due to a fear by industry players of violating complex US laws. It will take time for even non-US entities to shed these concerns.
Numerous other challenges hinder Iran from reaching its massive economic potential. Like many of its peer states, Iran also suffers from ailments endemic to emerging and frontier markets — economic corruption, vague property rights, and red tape, just to name a few. Compounded with years of isolation, Iran is arguably not fully ready to dive headfirst into globalisation, even if it has the legal and political will.
Even assuming that all sanctions were repealed today, Iran would for the foreseeable future still need to rely heavily on the advanced banking, logistics, and supply chain infrastructure offered by its southern neighbour. Dubai will therefore certainly continue serving as one of Iran’s major windows to the world. As many suggest, China’s opening boosted Hong Kong. A far from perfect analogy, but not a meaningless one either.
Beyond readiness, Iran’s unclear future trajectory casts a shadow on what has been called the final major frontier in the global economy.
First, what will Iran’s economic posturing be vis-à-vis the world? Will it enter global markets in full force, or is it simply seeking a “quick-fix” solution enabling it to sell its oil and buy key commodities? Certain players in Iran have profited handsomely from sanctions and protectionist barriers. Naturally, they do not welcome threats to their position.
Second, will Iran and the US move towards rapprochement, or will the nuclear deal merely become a one-time engagement done out of expediency? Iran’s economic reintegration will likely depend heavily on US-Iran bilateral relations. With the increasingly international reach of US laws and regulations, Iran will find it very difficult to attain a robust, prosperous economy absent détente with what it considers its greatest adversary. Simply put, Iran arguably cannot reach its full potential operating in a parallel economic universe isolated from the US. US laws have made dealing with Iran exceptionally costly for foreign companies. Despite sanctions relief, so long as the US and Iran are at political loggerheads, this estrangement will remain a major obstacle for these businesses, at least psychologically if not legally.
While a major US-Iran diplomatic breakthrough is unlikely imminent, there is room for some optimism. Even minor improvements in ties or US sanctions relief can have significant effects. While largely following the Bush administration’s pattern of using sanctions as a key tool of foreign policy, the Obama administration has generally relaxed sanctions on many less sensitive activities, such as medical sales. This trend may become even more aggressive and significant during President Obama’s final year in office.
Iran’s market is large enough that relaxing restrictions on even very narrow categories of goods will not only potentially open sizable markets to US products, but can also “normalise” Iran in the perception of US and foreign businesses. As more activities become legally authorised and trade with Iran becomes more commonplace, companies will more likely seriously consider engaging in permissible transactions with Iran. This can naturally pull Iran closer to the global economy and help it avail itself of more, better goods at lower prices.
Iran’s changing landscape will therefore be of heightened interest to the world in 2016, and Iran’s economic reintegration, irrespective of its pace, will arguably serve to benefit its neighbours in the Persian Gulf.
*Farhad Alavi is Managing Partner of Akrivis Law Group, PLLC in Washington, DC and Adjunct Professor of Islamic Finance at Georgetown University Law Centre. His practice covers international trade, anti-corruption and tax compliance as well as commercial transactions. He travels to the UAE frequently, where he represents clients in a variety of sectors.
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