Economy, Business And Markets

Europe Preparing for Post-Sanction Iran

Europe Preparing for Post-Sanction Iran
Europe Preparing for Post-Sanction Iran

At a politically sensitive moment when world powers and Iran try to reach a comprehensive deal over Tehran’s nuclear energy program before a November 24 deadline, London hosted an unprecedented Europe-Iran Forum on October 15-16, an event introduced as a move to prepare post-sanction investment and trade in Iran.

The conference brought together more than 200 senior executives from different industries, as well as European and Iranian policymakers to evaluate “the opportunities and challenges represented by Iran’s valuable and largely untapped marketplace,” as organizers from Brussels-based European Voice said.

Just 40 days ahead of the deadline of world powers and Iran to reach a permanent agreement, the conference in Europe’s leading business city can obviously strengthen the position of Western proponents of a rapprochement with Iran. A rational economic decision maker in Europe would probably keep fingers crossed for politicians to successfully end the nuclear dispute, lift the sanctions imposed on Iranian banking system and oil industry, among others, and allow European businesses to make profitable investments in a country with rich oil and gas reserves and a population of nearly 80 million.

There are several areas where Iranians seek to attract European capital like the oil and gas industry as well as automotive industry – the two areas of Iranian economy with vast European engagement before tough sanctions came into effect one after another, starting from 2010.

After sanctions started to be intensified, major European oil giants began leaving Iran or drastically limiting their activities there, leaving several oil and gas field development, discovery and extraction projects for their Chinese and Indian rivals, who didn’t succeed much in the end. The country’s income, greatly depending on oil, started to fall since then. To compensate the loss, the new government’s Oil Minister Bijan Zangeneh adopted plans to bring back European oil giants right after he took office in August 2013.

The veteran politician believed that old models of oil buyback contracts are no longer attractive for foreign companies. He subsequently formed a committee to launch a set of ‘revised’ contracts to let foreign contractors enjoy further privileges over the extracted oil and gas products in exchange for providing financial support, production equipment and technology. European giants such as France’s Total, Holland’s Shell, Italy’s ENI and UK’s BP have already declared their readiness to return to Iranian fields once sanctions are lifted.

Iranian automotive industry, which has long had extensive ties with Peugeot and Renault, has also been damaged by the sanctions. The two main car manufacturers, Iran Khodro and Saipa, escaped bankruptcy by relying on state aid. But things were not so good at the European side either. Peugeot, having possession of almost one third of Iranian market, sold around half a million cars in the country in 2010, making Iran its second biggest market after France itself. However, in 2013, it lost 120 million euros in operational profit in the Iranian market following the implementation of sanctions.

Both Peugeot and Renault have moved to resume their production activities in Iran right after the Geneva interim agreement between Iran and the six world powers, known as P5+1, was announced last November. However, eleven months on since the interim deal, both Iranian and European investors are still awaiting a final agreement that would totally remove sanctions, allowing them to resume an all-out business.

Mohammad Saleh Farazi, is a PhD researcher at Universidad Pablo de Olavide, Spain.