Business in Iran

Stephen DeAngelis

May 8, 2009

I’ve noted before that, during my travels to Iraq, Iranian businessmen have approached me about doing business. I’ve explained to them the political realities of relations between the United States and Iran, but have assured them that should conditions ever improve I’d be happy to work with them. These Iranian businessmen are eager to do business and I’ve found them very open and friendly towards America. Most articles I read about Iran indicate that the positions of the people and the positions of the government vary greatly. An article in BusinessWeek reinforces these perceptions [“In Iran, Business Awaits a Thaw,” by Stanley Reed, 4 May 2009 print issue]. It’s no secret that the United States would like to see a new president elected in Iran. Mahmoud Ahmadinejad, Iran’s current president, continues to embarrass Iran on the international stage (like he did at the UN Conference on Human Rights) and his continued presence represents a stumbling block to better relations between the U.S. and Iran. However, he still seems to have the support of the Supreme Leader Ali Khamenei and that may be enough to keep Ahmadinejad in office following presidential elections in June.

 

Ahmadinejad’s probable opponent in that election will be former Prime Minister Mir Hossein Moussavi. Reed reports that Moussavi favors negotiations with the U.S. and, if elected, may be able to pursue discussions because the Supreme Leader has also indicated a willingness to talk. Reed writes:

“Most Iranian executives seem to be rooting for Moussavi. Although he is an old-guard leftist, businesspeople hope he would lead a reform-minded administration that could ease Iran’s isolation. ‘Ahmadinejad has done serious damage to Iran’s reputation and the reputation of Iranian business,’ says Mohammad Reza Behzadian, a former head of the Tehran Chamber of Commerce who runs Tondar Middle East, a trading company in Tehran.”

A thawing of relations with the U.S. could herald great things for Iran because it is not your average developing country. Iran “has 66 million people, good schools, and a diversified industrial base—with a pent-up appetite for computers, planes, aircraft parts, and knowhow for the crucial oil and gas industry.” Reed also reports that “many Iranians like the prospect of working with U.S. companies rather than the Europeans that have been the only game in recent years.” That is certainly the impression I’ve taken away from my discussions with Iranian businessmen. As we all know, the 1979 revolution in Iran ousted a tight-fisted dictator but it also thrust Iran into the past and tore apart its social structure. Many of the gains made during the Shah’s harsh reign were overturned. Reed reports, however, that progress is again being made. “Mobile telephones from other countries finally work,” he writes, “and several private hotels have sprung up. Since the 1979 revolution, social life has never been more liberal. Boys and girls hold hands in public, women show some hair outside their scarves, and checkpoints where police once searched cars for alcohol have all but disappeared.” Fear, however, has not altogether disappeared.

 

Then, of course, there is the nuclear issue and the April 18, 2009, “sentencing of Iranian-American journalist Roxana Saberi to eight years in prison on what seem to be trumped-up charges of spying for Washington.” Reed understands that these are large challenges that must be successfully addressed before it is “business as usual” between the U.S. and Iran. “But,” he claims, “there may be openings for cooperation and confidence-building on Afghanistan, where both Tehran and Washington deplore Taliban influence, and on Iraq, where Iran’s help could ease a U.S. withdrawal.” For more about the state of things in Iran, read my posts entitled Iran and the Bomb and Iran and the Future.

 

Iranian business people know that a thaw in relations with America would brighten their futures considerably. Reed continues:

“Facing pressure from Washington, major European banks have stopped doing business in the country. So Iranians must pay exorbitant rates for trade financing from second- and third-tier banks in Europe, the Middle East, and Asia. Some Iranians work around the restrictions by setting up subsidiaries in the United Arab Emirates and playing cat-and-mouse with American inspectors. But such solutions are expensive, adding billions of dollars to Iran’s soaring import bill—$57 billion for the year that ended in March. … Sanctions also restrict the development of Iran’s vital energy reserves. Tehran wants to boost oil production capacity by 25%, to 5 million barrels a day, but with little foreign help and aging fields in rapid decline, it’s tough even to maintain current output. That’s one reason Iranian oil officials are quick to say they want American help.”

American businesses would also benefit from thawing relations. Foreign direct investments in Iran are likely to be safer and yield higher returns than in other developing countries. Reed provides an example of a European company that has managed to do business in Iran.

“Even with sanctions in place, savvy foreigners have managed to make a mark in Iran—though it takes persistence. Renault, for instance, has a $200 million joint venture to build the Logan compact. But late payments from the Iranians and difficulties training enough suppliers to meet a requirement of 60% local content have slowed progress, Renault says. The venture, Renault Pars, has cut its output target for the Logan by 25%, to 150,000 cars per year.”

Perhaps the most difficult challenge to manage once relations are (if ever) normalized between the U.S. and Iran will be rising expectations. Iranian citizens have waited three decades for things to get better and they are getting restless. They want a brighter future now and the full benefits of development simply don’t accrue as quickly as people might like. If the thaw comes and expectations can be managed, I predict that Iran has very bright future indeed. That future could start with elections in June.