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View of the main entrance of the Central Bazaar in Tehran Image Credit: Supplied

Dubai: Sanctions relief was to pave the way for a global trade boom, with many believing billions of dollars of foreign investment would quickly follow Iran’s return to the international economy.

But seven months on from January’s implementation day of the historic nuclear accord, many of those trying to do business with Iran say that the United States is inhibiting the boom.

They say that sanctions that the US continues to impose have made it near impossible for international banks to process financial transactions tied to Iranian deals.

“You effectively still have a trade embargo in place,” said Henry Smith, associate director in the Dubai offices of Control Risks, a political risk consultancy.

The US did lift its nuclear related sanctions on January 16 but other sanctions, including financial ones, related to Iran’s ballistic missile programme, allegations of state sponsoring of terror groups and human rights abuse claims remain.

Major international banks are unwilling to risk losing access to the dollar market or huge fines out of fear of inadvertently falling afoul of what they say are ambiguous US regulations.

“The dollar is fundamental to the banking system and it is hard to ring fence transactions that are going to have any dollar component to them,” an executive at a major Gulf bank told Gulf News, who asked to speak on the condition anonymity due to the sensitivity of the matter.

Now, the ability — or inability — to finance Iranian deals has become for some “the hurdle” for those looking to enter the country, Smith told Gulf News by phone.

“They have done their due diligence. They have looked at their legal position. They have lined up partners. They kind of know who they want to employ and then it has just been ‘how do we execute moving money in and out of the country,” he said.

January’s historic nuclear accord reached between Iran and six world powers — China, Germany, France, Russia, the United Kingdom and the US — was supposed to mark a beginning of a new period of trade and diplomatic relations for Iran.

But the continuation of non-nuclear US sanctions and also low oil prices, Middle East geopolitics, including a breakdown in relations between Iran and Saudi Arabia, and the upcoming unpredictable US presidential elections has meant that the process has not been as quick has many had expected.

“Expectations were very high,” said Nasser Saidi, founder and president of Nasser Saidi & Associates and former chief economist at Dubai International Financial Centre.

“People have become impatient and frustrated,” Smith said. The lifting of sanctions “has not been as deep and broad as people had hoped.”

Iran has accused the US of stifling countries and companies from doing business with them with its Supreme Leader Ayatollah Ali Khamenei saying on March 20 the US had only lifted sanctions “on paper.”

The Iranian’s are “very frustrated,” Roham Alvandi, an associate professor at the London School of Economics and Political Science, told Gulf News by phone.

“What they really need is foreign investment to create jobs and some sort of sustainable growth.”

The US has rejected the accusations and even taken steps to explain what governments and countries can and cannot do in post nuclear sanction Iran. Secretary of State John Kerry said on May 10 “Banks in Europe are allowed to open accounts for Iran, banks in Europe are allowed to do business, banks in Europe can fund programmes, lend money.” And some smaller European and Asian banks have gone into Iran but the major banks are holding back.

US State Department officials, including its chief negotiator on the Iran deal, have toured Asia, Europe and the Middle East to meet with governments and executives to explain the changes. Even with the reassurances, bankers and executives still claim there is too much ambiguity. But many also believe that for Iran to truly open up it would need access to the dollar market — which is impossible under the US sanctions.

Gulf News is aware of at least one Indian industrial firm that has been trying to enter the Iranian market since January but few Indian banks are willing to process the transactions. The company did find one Indian bank who would process the transactions in rupees but the Iranian counterparts wanted dollars. So far the talks have stalled.

Dollars are likely to be needed for many of the deals Iran has signed since January. Its Airbus and Boeing jets orders, reportedly valued at $27 billion and $25 billion, respectively are priced in dollars. But financing, as well as political issues, appear to have so far held back those deals.

Alvandi, Saidi and Smith each said in separate interviews that foreign investors would gain considerable confidence in doing business in Iran if a major deal like the Airbus or Boeing transaction were to progress.

“If you (Iran) can successfully complete such a major deal with a big American company then I think that definitely opens the doors for others,” Alvandi said.

Even with the US sanctions that remain in place Iran expects to attract $8 billion of foreign investment in the 12 months to March 20, 2017, according to a Tehran Times report on June 18 quoting the semi-official Mehr news agency. And in the four months after January’s implementation, Iran attracted $3.41 billion in foreign investment, according to Iranian media reports.

Iran’s automotive, energy and pharmaceutical industries have already generated significant foreign investment or interested with Iran hoping to attract $50 million a year in foreign investment through a new oil and gas contract model it approved on August 3.

But it is not just the US sanctions that concern foreign investors. Iran’s regulation environment is seen to be out dated and immature in comparison to international standards. It does not have a public-private partnership (PPP) framework, which many outside investors believe is important because of the vast number of parastatal companies in the country. And Iran is, however, said to be bringing its out-of-date banking regulation and compliance more in line with international standards.

“Iran is getting itself ready to accept these companies,” Smith said. “It’s also a fairly complicated, bureaucratic environment. These things take time.”