Domestic Economy

What Next for Iran’s Post-Sanctions Economy

What Next for Iran’s Post-Sanctions Economy What Next for Iran’s Post-Sanctions Economy

Speculations about the future of Iran's economy after western sanctions (imposed against Iran over its nuclear energy program) are lifted have intensified after a landmark understanding was reached between Iran and the six major world powers on Thursday. The understanding was arrived at following eight days of talks held between Iran and the P5+1 (the five permanent members of UN Security Council, namely Britain, China, France, Russia, the US plus Germany) in the Swiss city of Lausanne to work out the basic framework of a final nuclear accord, the details of which are to be finalized by the June 30 deadline.

Head of Tehran’s chamber of commerce, industry, mines and agriculture, Yahya Al-Es’haq in an interview with Mehr news agency on Friday referred to the outcome of the nuclear negotiations as a "turning point for Iran's economic prosperity" and expressed hope that the opening of international trade will turn Iran into a regional economic hub.

While noting that the long-run disputes over Tehran's nuclear program and the economic sanctions have failed to cripple Iran financially or hamper its growth, he acknowledged that an eventual accord and a possible lifting of sanctions could play an important role in the country's development and removing the existing barriers to economic prosperity.

He pointed to 'Iranophobia' as a side effect of the nuclear disputes between Iran and the western powers which has caused many countries – other than the UN-mandated countries – to impose ban on trade relations with Iran for various reasons including difficulties in banking transactions.

> Not Affected by Sanctions

While Al-Es'haq believes the tough economic restrictions have failed to drive Iran into bankruptcy, noting that Iran recorded an average annual international trade of $100 billion despite the sanctions, he acknowledged that the cost of trade increased by 15 to 30 percent due to imposition of sanctions and that the Iranian people bore heavy burdens in terms of limited access to resources and technologies.

He expressed hope that the consensus reached on Thursday will lead to a final agreement, which he said could "open a new chapter in Iran's trade relations with the world and the region and help boost Iran's interactions with other countries to achieve its domestic and foreign economic policies."

> Future of Trade Relations With the World

Al-Es'haq anticipated that a final nuclear agreement would lead to better economic atmosphere for the Iranian traders and boost Iran's interaction with other countries. He also predicted "extensive reforms" in areas such as imports, exports, transfer of technology and services, transportation, banking transactions, insurance and other regulations which would eventually lead to a reduction in the overall costs of trade for Iran.

He also predicted easier access to raw material, parts, production lines and modern technology for the domestic manufacturing units, adding that an open economic environment in the country would benefit not only Iranians but also other parties that have for long been deprived of the lucrative opportunities offered in the Iranian market.

> Four Major Trade Reforms

Meanwhile, deputy minister of industry, mine and trade, Mojtaba Khosrotaj in an interview with Mehr news agency anticipated four major reforms ahead of Iran's foreign trade following an eventual lifting of the economic sanctions.

According to Khosrotaj, once the current restrictions are removed, Iranian manufacturers will have easier access to international markets, enabling them to purchase good quality raw materials at more competitive costs, leading to considerable reduction in production costs for domestic manufacturers.

Secondly, Khosrotaj pointed out that Iran would gain access to new export markets including the European countries which had mostly stopped trade activities with Iran in light of the sanctions and issues related with banking transactions. "This would give way to expansion of exports and a positive trade balance for the country," he said.

High transaction cost was mentioned by the official as another major issue which would be resolved once the sanctions against Iran were to be lifted. "In light of the banking sanctions, Iran is currently forced to resort to costly methods to transfer money to other countries which leads to 3-5% increase in cost of foreign trade for Iranian businessmen," the official noted.

Moreover, Khosrotaj pointed that many international ports are currently reluctant to allow access to the vessels owned by the Islamic Republic of Iran Shipping Lines (IRISL Group) as the vessels lack the necessary insurance cover due to restrictions imposed by the sanctions. Thus, he noted that a potential relaxation of restrictions would enable Iran to utilize its transportation capacity to a greater extent, thereby reducing transportation and import/export costs.

Meanwhile, noting that as per official statistics Iran recorded $48.5 billion imports and $46.5 billion exports in the first 11 months of the past Iranian year (ended March 20), he said even though the official statistics for the entire year have not yet been announced, the total international trade is expected to have reached about $105 billion in the past Iranian year, including about $55 billion in imports and $50 billion in export of gas condensates and other non-oil commodities.

Khosrotaj also noted that the total trade is estimated at about $120 billion considering export of both non-oil goods and services, and exceeding $150 billion adding the value of oil exports. "Iran's non-oil exports is expected to grow by 20%, lifting Iran's total exports to $60 billion in the current Iranian year, even if current sanctions remain in place," he predicted.

The deputy industry minister also predicted that Iran can achieve a balance of trade through only non-oil exports in the current Iranian year (started March 21, 2015) even if the situation remains unchanged, while acknowledging that a considerable boost in the level of exports can be achieved if the sanctions are removed.