Iran: Politics creates a new emerging market
U.S. President Barack Obama makes a statement announcing an interim agreement on Iranian nuclear power in the State Dining Room at the White House on November 23, 2013 in Washington, D.C. The agreement, to last six months, was reached in negotiations between Iran and six world powers and will freeze Iran's nuclear program and provide some relief in sanctions.
Over the weekend, the United States -- along with Russia, China, France, Germany, and the United Kingdom -- inked a six-month deal with Iran. The country agreed to freeze its nuclear program temporarily in exchange for some relief from international sanctions that have hurt its economy.
The Obama administration and its allies hope this short-term agreement could pave the way for a longer-term deal, and that could present opportunities for U.S. businesses.
“It’s a populous country, it’s a highly educated country, and there are a lot of opportunities,” says Morris DeFeo, a lawyer who heads the Middle East and North Africa practice at Crowell & Moring. He said firms may take a cautious attitude: “With any new market there comes risks, but I mean, this is a pretty risky situation, I think, for most companies.”
According to DeFeo, no deal, no matter how comprehensive, can fix the broken relationship between the U.S. and Iran overnight.
“I think a lot of people are going to sit back and see if these sanctions and this accord will be something more than interim,” he says.
And that’s because that is all they can do. While this deal lifts some sanctions, most companies still won’t be allowed to do business with Iran, a country with 76 million people and a GDP of about $500 billion.
“Once the sanctions are removed, there would be, I think, many opportunities for American, international oil companies,” says Nader Habibi, the Henry J. Leir Professor of the Economics of the Middle East at Brandeis University. Iran’s oil industry depended on U.S. technologies for decades.
Djavad Salehi-Isfahani, a visiting scholar at Harvard’s Belfer Center, says this short-term agreement does open the door right away to companies in the pharmaceutical and aerospace sectors.
“Iran does have a fleet of Boeing airplanes – very old and aging that need a lot of repair,” he points out.
Sanctions have forced Iranians to buy generic drugs made in India and other countries, Salehi-Isfahani says. “And when you talk to them, they are always complaining that this is not as good as the drugs that we used to buy.”
Over the last two years, sanctions have become much more severe. They have pushed out many European companies. But the U.S. was the first Western country to break trade relations with Iran.
“They have been excluded from the Iranian market for much longer than European and East Asian firms,” Salehi-Isfahani says. That means it would take a lot longer for them to get back in.