Economy, Domestic Economy

US Businesses Could Lose Big in Iran

US Businesses Could Lose Big in Iran
US Businesses Could Lose Big in Iran

In a matter of weeks, the international community is expected to lift many sanctions that have crippled the Iranian economy for decades.

But US companies won’t find Iran very open for business, wrote financial news and information website CNNMoney–a subsidiary of American broadcaster CNN.

The US is lifting its nuclear sanctions on Iran as part of the landmark deal, but many business sanctions will remain in place. It will still be almost impossible for most US businesses to set up a physical presence in Iran or partner with Iranian companies.

In contrast, Europe is opening up almost all trade with Iran. The result is likely to be: European companies win, American companies lose.

“There is not going to be a comprehensive law allowing all US companies to operate in Iran anytime soon. This will make American firms the biggest loser of the nuclear deal,” says Majid Rafizadeh, a Middle East scholar at Harvard.

The latest flareup between Iran and Saudi Arabia could make the US even more cautious about scaling back additional sanctions.

  EU Sanctions Off, US Sanctions Stay

The deal that Iran signed with the P5+1 (the US, UK, France, Russia and China, plus Germany) was built on a simple premise: Iran agreed to open up its nuclear facilities for inspection and monitoring in exchange for international sanctions being lifted. Iran wants out of the economic “time out” it’s been in since 1979.

The world now awaits “Implementation Day” when the International Atomic Energy Agency verifies that Iran has met its nuclear commitments. The date has not been set yet, but is expected to be in early 2016.

After Implementation Day, Iran will be able to sell its oil again on world markets and its banks will be able to connect to the global system. It will also be okay for the US to sell commercial passenger aircraft to Iran and import Persian rugs as well as some foods.

But the opening for the European Union will be far greater. The EU plans to make it very easy for European companies to sell everything from cars to railroads to insurance in Iran.

“As many countries rush to sign contracts with Iran, the Obama administration will have to decide to either put US firms at a disadvantage or issue them licenses,” says Rafizadeh.

US companies have to apply to the Treasury Department for special permission to do business with Iran.

As the Treasury states clearly on its website, “The US embargo will generally remain in place, even after Implementation Day, because of concerns outside of Iran’s nuclear program.”

  Big Economic Potential

Iran has a lot of economic potential and not just for oil. It’s a new market. While it’s not nearly the size of China, it’s a lot bigger than Cuba, which US businesses are also eying this year for possible expansion.

Iran has 80 million people, about 60% of which are under age 30. The population is highly educated and literate.

The problem is US executives are not supposed to do business directly with Iran and US businesses cannot set up offices or stores there.

Trade ties between the two are virtually non-existent. The only exceptions are some food, medicine and medical devices. Some limited consumer software licenses have also been granted.

  How Apple Would Have to Deal

But it remains complex. Take a company like Apple. It can apply to Treasury for a waiver to ship iPads to Iran from the US, but its US business cannot service the device or open a store in Iran. Apple could also face penalties, if the iPad landed in the wrong hands.

However, a European subsidiary of Apple could operate in Iran after Implementation Day. It just couldn’t talk to Apple HQ in California about the Iranian operations.

A lot of European businesses recognize their advantage. Within hours of the P5+1 deal being signed, Germany chartered a plane to take some of its top business leaders to Tehran.

US businesses are trying to figure out what they can do. Farhad Alavi of Akrivis Law Group helps many companies applying to the US Treasury for licenses and exemptions to do business in Iran. He has been getting a lot of inquiries since the deal was signed.

“This whole issue is going to be a big compliance headache,” says Alavi.

  2016 Politics Play a Role

Businesses are also aware that the 2016 US presidential election could change the game again.

“If I were a company, I would be concerned that the rules may change again in January 2017. The next president certainly is going to want to show that their policies are different from the current president,” says Patrick Clawson, director of research at the Washington Institute for Near East Policy.

The American Congress is already working on additional anti-Iran measures.

“In the end, it is the US which should ultimately decide whether they want to take advantage of economic relations with Iran or not,” says Seyyed Hossein Mousavian, a research scholar at Princeton and former Iranian ambassador to Germany.