Economy, Business And Markets

What Sanctions Relief Means for Iran and Beyond?

What Sanctions Relief Means for Iran and Beyond?What Sanctions Relief Means for Iran and Beyond?

Sanctions relief will allow Iran to reconnect to international financial markets, import previously restricted goods, expand export markets and receive greater foreign direct investment.

Since signing the Joint Comprehensive Plan of Action on July 14, the Iranian government has sought immediate and maximum sanctions relief to alleviate external pressure and stabilize the economy.

The Iranian government says it will channel sanctions relief, in a targeted manner, into specific economic sectors to which it has already dedicated significant attention and resources, wrote the Washington Post.

The government’s stated top priority is attracting FDI and importing machinery and technology to expand and modernize the oil and natural gas sectors, which are by far the country’s largest.

Iran contains the world’s largest natural gas reserves and fourth-largest petroleum reserves. Oil export revenues account for a big share of the government’s budget.

Economic sanctions curbed oil and natural gas exports as well as restricted imports of machinery and technology, which in turn reduced the efficiency and productivity of upstream and downstream operations.

The government’s second priority is economic diversification. This is essential given the economy’s susceptibility and vulnerability to petroleum price shocks and foreign exchange shortages. To counter recent price drops, the government seeks to strengthen secondary industries, beginning with the automobile sector. After oil and natural gas, this sector is the country’s second-largest and contributes up to 10% of GDP.

During the administration of former president Mahmoud Ahmadinejad, automobile and tractor manufacturers opened factories in Africa to produce and export taxis, buses, tractors and other commercial vehicles. Sanctions relief will enable companies such as these to attract FDI and upgrade machinery and parts to maintain and expand operations on the continent and beyond.

Beyond improving economic diversification, these operations will also increase export revenues.

Based on preexisting priorities and policies, the Iranian government will also likely direct the funds, investment and inputs that accompany sanctions relief to agriculture, human development and civilian nuclear energy.

With sagging oil prices, Iran aimed at achieving agricultural self-sufficiency. Since 2013, the government guaranteed wheat purchases from farmers, and, for the first time in its history, the Islamic Republic ceased being a net importer of the grain.

To improve national healthcare, Minister of Health Hassan Hashemi introduced a plan that would provide affordable and quality healthcare to all Iranians, especially those from lower socioeconomic backgrounds. Sanctions relief would allow the government to further improve healthcare by alleviating shortages of medical supplies and upgrading medical research reactors.

With declining oil prices, the government may seek to attract FDI and technology to upgrade civilian nuclear reactors. This would enable the government to meet rising domestic energy demand and further cut cash transfers to citizens and fuel subsidies, which remained the highest in the region between 2014 and 2015 at 5% of GDP.

As trust between Iran and US builds, constructive engagement can materialize around common geopolitical interests, including fighting the IS militants and resolving conflict in Afghanistan, Iraq, Syria and Yemen. This precedent was already set in 2003 with Iranian-American cooperation in Afghanistan.

Engaging Iran grants the United States strategic flexibility to solve issues, stabilize the region and push for collective security between Iran and traditional allies.

More broadly, JCPOA could mark a significant step toward integrating Iran into the international community and strengthening ties with the West. The deal has already opened the door for European and American trade delegations and educational exchanges, connections that sanctions relief would accelerate and reinforce.

Since the negotiations and agreement, Iran is preparing to join the World Trade Organization and establish preferential trading with the European Union.

While Iranian and western interests and identities will continue to clash and diverge in key areas, greater economic interdependence and trade relations would increase interactions and build trust.