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The return of Iran’s opaque economic power structures

Trump’s failure to recertify the nuclear deal will create instability within Iran, harming global business activities

Image Credit: Bloomberg
Employees work on the assembly of electronic circuit boards at the Maadiran Group electronics distribution and manufacturing plant in Hashtgerd, Iran. Experts say if US clamps down on the IRGC there will be a major impact on the Iranian economy.
Gulf News

In refusing to continue signing off on a landmark international nuclear deal, US President Donald Trump has impacted Iranian business activity, and potentially provoked the state in to restarting its uranium enrichment programme.

Hamid MojtahediThat is according to Iran expert Hamid Mojtahedi (right), a senior international counsel and former Head of the Iran Practice Group at Al Tamimi & Co.

In Mojtahedi’s view, Trump’s verbal attack on Iran, and his repudiation of the agreement formally known as the Joint Comprehensive Plan of Action (JCPOA), will have two key consequences: Firstly in Iran, and then also globally.

Whilst the US cannot unilaterally pull out or cancel the deal, given it is one of six international signatories, including France and the UK, “the effect is more psychological than anything else,” Mojtahedi said in a telephone interview from Tehran.

“With the US not endorsing [the deal] there is the creation of an apprehension among the business community [that the deal will fail],” he said.

Mojtahedi added that this already existed to some extent, with the international banking system not yet totally opened up to doing business with Iran, which “hampers things to some extent”.

The JCPOA, signed in 2015, is intended to halt Iran’s development on nuclear weapons, in exchange for a lifting of sanctions.

At the time, many companies viewed Iran as the last true untapped market, impenetrable for decades due to severe sanctions.

The opportunity Iran presents for these businesses is vast: The country is set to be the leading economy in the Middle East, surpassing Saudi Arabia, by 2020, with an expected GDP of $757 billion (Dh2.7 trillion), according to research firm Euromonitor International.

For Mojtahedi, however, the real impact of US actions will not be felt internationally, but domestically in Iran, where it will create instability.

“What it does … is play in to the hands of the Iranian reactionaries here in Tehran who have been saying all along that this deal was the wrong deal to make. They were waiting for an opportunity to attack it,” he said.

Robust verification

Trump’s opposition to the deal gives them the ammunition to claim that Iran should never have trusted the US in the first place, he added.

Yukiya Amano, head of the International Atomic Energy Agency (IAEA), said Iran was implementing the deal and was subject to “the world’s most robust nuclear verification regime.”

However, experts say the US president is in fact objecting to Iran’s perceived destabilising and aggressive actions in the region.

But how will this affect commercial activity in the natural resource rich country?

“What this means in terms of business is the re-emergence of various opaque economic centres, or powerhouses, in Iran — the oligarchs that were tied to government entities and the armed forces. They will come back in to play now,” Mojtahedi said.

If Trump were to sanction the Islamic Revolutionary Guard Corps (IRGC), Iran’s powerful military and security organisation, as he has promised to do, it would have a far-reaching impact on business in the country, Mojtahedi argued.

The IRGC constitute a large part of the country’s semi-state economy, stemming from the aftermath of the 1980-88 Iran-Iraq war, when the elite paramilitary group was tasked with rebuilding the country, experts say.

“For the past five or six years, the economic arm of the IRGC hasn’t been directly active in taking on large infrastructure projects, what they’ve done is run them through a consortium with foreign parties, the Chinese in particular, and some European countries,” Mojtahedi said.

He added: “If Trump includes the IRGC in the last of sanctioned entities, then these foreign partners are going to pull out of these projects, which will obviously have an impact on them.”

The lawyer argued that if this standoff continues without resolution, influential figures within Iran will say “it’s time to pull the plug on this deal.”

For example, the development of Iran’s South Pars gasfield, by far the largest in the world, is being led by a French consortium. In July 2017, French energy giant Total committed to a $4.8 billion investment in the Pars field, the Islamic republic’s first deal with a European nation in more than a decade.

Prohibit foreign partnerships

Ultimately, any move by the US to clamp down on the IRGC “will have a major impact on the Iranian economy, and internationally will prohibit foreign partnerships from forming,” he said.

The lawyer’s advice to companies wanting to operate in Iran remains the same as it has been since the deal was announced: Do your due diligence, understand who you’re going in to business with, and understand the extent to which you have exposure in, or with, the US.

In 2017, a number of multinational companies signed joint ventures with Iran, including car manufacturers Renault and Mercedes-Benz, and energy companies such as Total.

“If Iran is good for business for the large automobile players such as Peugeot and Renault, then it’s definitely good for Gulf companies like merchant families and hoteliers and so on,” Mojtahedi added.

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