Economy, Auto

Auto Suppliers Gear Up for End of Sanctions

Auto Suppliers Gear Up for End of SanctionsAuto Suppliers Gear Up for End of Sanctions

Iranian automotive suppliers are strongly optimistic of securing joint venture deals with western partners, as decades of pent-up energy are poised to unleash with the lifting of international sanctions against Tehran in the coming days.

Iran has the a 2-million-strong vehicle market capacity, but around half of this remains unused as economic and political censure has rained down on Tehran for the past few decades, due to western sanctions imposed over its nuclear program, Just Auto writes this week.

Years of protracted negotiations by the P5+1 negotiating group: UK, France, Russia, US, China plus the non-permanent Security Council member, Germany, with Iran have finally led to the imminent removal of sanctions.

But momentum appears to be with those brokering an agreement to be inked potentially by January end, which could ensure Iran becomes a beacon of stability in a roiling Middle East–with auto suppliers queuing up to secure a piece of the economic action.

France has been particularly active in courting Iran’s automotive sector, with its main companies PSA Peugeot Citroen and Renault having associations with domestic producers, while Scandinavian supplier body, FKG also recently led a visit to the country with several regional component makers.

“Sanctions have made a lot of limitations for us. We believe many difficulties and problems will be resolved and parts manufacturers will improve their supply [once they are lifted],” Iranian Auto Parts Manufacturers Association CEO Sasan Qorbani said, emphasizing the collaborative nature of any future business.

“Government policy is to support joint ventures and European companies have a greater chance; in my view, many cooperation agreements will be signed. Most European companies and related associations are waiting for sanctions to be lifted; with this in mind, mutual cooperation will expand.”

France and Scandinavia have been first through the auto component door, but the Iranian supplier body chief did not rule out working with British and American companies, an almost unimaginable scenario until only recently.

“We believe the UK and the US possess fine automotive and parts manufacturing industries and we can have good cooperation with these two countries, especially in technological parts,” added Qorbani.

“High-tech parts and components are our principal problems. Iran has great infrastructure, but sanctions caused us to lag behind the advanced automotive world in technological fields. But lifting sanctions can compensate for this problem.”

The official noted that more than 200,000 employees work directly in the auto parts industry and this number could increase with the rise in car manufacturers’ production volume.

Qorbani said the oil price, which some speculate could sink to as low as $15, is undoubtedly causing pressure on Iran’s coffers. He added that it can also give a potential jumpstart to supplier localization, much in the same way Russia’s component makers are taking advantage of a sinking ruble.

“Falling oil price confronted Iran’s economy with lots of problems. This reduction could also be considered a threat and an opportunity,” he said.

“We have to lean toward localization and domestic production, and cease dependency on oil revenue.”

The official added that demand for car purchases had fallen in Iran as the sanctions screw turned, but dropped a heavy hint the environment would pick up once restrictions were lifted.

“Waiting for prices to decrease is one of the most important reasons for this matter,” he said.

“According to me, this situation will sustain roughly for one year. But things will get better.”