Domestic Economy

How Sanctions’ Removal Impacts Economic Sectors

How Sanctions’ Removal Impacts Economic SectorsHow Sanctions’ Removal Impacts Economic Sectors

As the Joint Comprehensive Plan of Action reached between Iran and P5+1, namely China, France, Russia, the United Kingdom and the United States plus Germany, to ease anti-Iran sanctions in exchange for curbs on the country's nuclear program moves closer to its implementation, experts in Iran focus on the deal's implications for domestic economic sectors.

A recent report by Majlis Research Center studies the impact of lifting sanctions on the industrial, mining and petrochemical sectors, stressing the need for adopting the right set of economic policies and strategies to take full advantage of post-sanctions environment.

> Industrial Sector

According to the report, the removal of restrictions on opening lines of credit by banks and increasing the import of capital goods would boost industrial investments.

Reduction in operational costs arising from the involvement of intermediaries in monetary transactions during the sanctions period is another important outcome. It is estimated that industrial units were burdened with a 30% increase in foreign currency outlay as a result of sanctions severing the Iranian banks' access to the SWIFT, the financial messaging system that transmits and tracks international transactions.

Petrochemicals, automotive and banking sectors are expected to be among the first beneficiaries of the sanctions' removal, achieving higher profitability and competitiveness from lower transaction costs.

The imposition of sanctions severely affected Iran's industrial trade. Industrial exports were experiencing steady growth prior to 2011, from $21 billion in the Iranian year 2010-11 to $28 billion in 2011-12. But the tightening of both US and European Union sanctions in late 2011 and early 2012 resulted in a decline in industrial exports to $25 billion in 2012-13.

The report predicts industrial exports to exceed $50 billion in the coming years following the implementation of JCPOA.

> Petrochemical Sector

The report also predicts growth in petrochemical production and export resulting from higher profitability due to the removal of limitations on financial transactions.

Moreover, access to foreign financing and joint ventures would help complete petrochemical projects and provide easy and cheap access to key technologies and equipment.

Iran exported 15.9 million tons of petrochemical products during the last Iranian year (ended March 20, 2015). While the figure indicated an increase of 3 million tons over the previous year, it was still more than 5 million tons short of the 18.2 million tons of petrochemicals exported in 2011-12.

Moreover, the sanctions led to a decline in import of capital goods from $17 billion in 2011-12 to $12 billion in 2012-13. Import of intermediate and raw material followed the same declining pattern.

The report predicts the share of Iran's petrochemical industry in the European markets to grow by at least 10-15% following the implementation of JCPOA. It also envisions growth in the import of capital goods and industrial investments by at least $5 billion.

> Mining Sector

The report envisions more profitability for the mining industry, particularly the copper sector, as a result of restoration of access to the latest mining equipment and technology for mineral extraction and processing.

The lifting of EU and US sanctions on the purchase of gold and precious metals will also positively affect the sector.

The US sanctions that are to be waived will, among others, lift restrictions on financial and banking transactions with Iranian banks and financial institutions; financial messaging services (such as SWIFT); insurance and reinsurance services; investment in Iran’s oil, gas and petrochemical sectors; purchase, acquisition, sale, transportation and marketing of petroleum, petrochemical products and natural gas from Iran; transactions with Iran’s energy sector; transactions with Iran’s shipping and shipbuilding sectors and sale, supply or transfer of goods and services used in Iran’s automotive sector.

Also, the suspension of EU sanctions will facilitate the purchase, import and transport of crude oil, petroleum and petrochemical products; sale, supply, transfer, export, purchase, import or transport of gold and precious metals, and fund transfers between EU banks and Iranian banks and financial institutions.