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Iran elections could see business confidence plummet

Key issues, such as oil and the success of the nuclear agreement, hinge on the outcome of the election

Gulf News

DUBAI

With Iran’s presidential elections set to be held in less than a month’s time, several major issues loom large over the proceedings of this pivotal event.

For businesses hoping to capitalise on the opportunity presented in the wake of the nuclear deal agreed in January 2016, the approach now must be one of extreme due diligence and a focus on compliance, Iranian legal expert Hamid Mojtahedi, Head of Iran Group — Corporate Structuring, Al Tamimi & Company, told Gulf News in an interview.

The election of hardliner Ebrahim Raisi, or the return of Mahmoud Ahmadinejad, are both “disastrous scenarios for business, both in Iran and the wider region. There are balances of power in Iran, but as the dice rolls, both of these potential outcomes are very worrying,” Mojtahedi said.

Deals, such as the $16.6 billion agreement between Boeing and Iran Air, may be in jeopardy depending on who is elected on May 19.

The 2016 agreement which saw the lifting of sanctions on Iran “is holding up in the most technocratic sense,” Mojtahedi added.

Iran has not violated the agreement thus far by pursuing its nuclear programme, but its meddling in Yemen and its interference in Iraq and Syria hasn’t ceased, and that continues to aggravate the United States, who accused Iran again on Thursday of “alarming ongoing provocations” aimed at destabilising the Middle East.

“The trend has changed since the signing of the agreement, when there was a lot of excitement about the opening of Iran for business,” Mojtahedi said.

He added that his advice to clients remains that whilst Iran is now technically open, the importance of proper due diligence and compliance with international law is now more important than ever.

“The nexus you may have with US companies must be closely inspected,” he said, whilst noting that “full financial transactions with Iran remains difficult.”

Domestically, too, business in Iran is facing headwinds.

The country has so far been exempt from making the heavy cuts agreed to by Saudi Arabia and other GCC oil exporters, as its oil production recovers from what Tehran sees as years of unfair international sanctions.

“However, Iran is now approaching pre-sanctions production volumes and will be under increased pressure from other Opec members to share the burden of reduced output. Riyadh will not want to give its regional rival a free ride as it loses export revenues,” Mark Watts, oil and gas editor at MEED, a business intelligence service, said in an email.

Whether Iran will agree to this remains to be seen.

The upcoming presidential elections look set to undermine confidence in the country even more. “Business confidence is going to be shaken, particularly if Raisi or Ahmadinejad win,” said Mojtahedi.

Powerful conservative cleric Raisi surprised observers when he declared his intention to run for president back in January 2017.

Another character that has emerged in recent years is the fearsome Major general Qasem Soleimani, a senior military commander in Iran’s army, and the leader of its Quds Force, an elite special forces unit responsible primarily for covert operations in foreign countries.

Whilst Soleimani has not declared his intentions to run for president, many political commentators anticipate his foray into politics at some point in the near future.

This, according to Mojtahedi, would have a potentially damaging impact on business between Iran and other Gulf countries. “Iran’s relationship with the Gulf states is going to be completely devastated if Soleimani enters politics. His meddling in Syria, Iraq, and Yemen has really annoyed our southern neighbours,” he said.

The outcome of the presidential election in May is crucial to shaping the future of Iran’s oil and gas sector and the wider economy, according to Watts.

“If Hassan Rouhani wins a second term, it will give him a mandate to push through the Iran Petroleum Contract model to attract overseas investment and technology to the sector. If he is replaced by a hardline conservative candidate, there is a danger that any recent progress on oil sector reform will be ripped up, and long-term capacity expansion plans will stall,” Watts said.

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