Iran Is Making a Comeback

Less than a month has passed since the provisions of the Iran nuclear deal were put in force and the sanctions against the country lifted. And Hassan Rouhani has wasted no time in developing Iran’s ties with the outside world, first welcoming the President of the People’s Republic of China on his official visit to Tehran and then setting off on a European tour himself. Now free from the burden of the sanctions, Iran, whose economy almost collapsed entirely in 2012, does not want to lose any more time and is determined to expand cooperation with its international partners.

Less than a month has passed since the provisions of the Iran nuclear deal were put in force and the sanctions against the country lifted. And Hassan Rouhani has wasted no time in developing Iran’s ties with the outside world, first welcoming the President of the People’s Republic of China on his official visit to Tehran and then setting off on a European tour himself. Now free from the burden of the sanctions, Iran, whose economy almost collapsed entirely in 2012, does not want to lose any more time and is determined to expand cooperation with its international partners.

January 16, 2016 will go down as a key date in the modern history of Iran – the day that the Joint Comprehensive Plan of Action (JCPOA), or the “nuclear deal”, came into force. International Atomic Energy Agency (IAEA) Director General Yukiya Amano confirmed that Iran had completed the necessary preparatory steps to start the implementation of the Joint Comprehensive Plan of Action (link in Russian). This was followed by an announcement by the European Union stating that it had lifted the sanctions against Iran in full. The United States followed suit by partially lifting sanctions against the country.

It is worth noting here that this day came far sooner than many analysts had predicted. Tehran has taken quick and active steps to satisfy all the requirements set out in the agreements. This is understandable: the Iranian economy stagnated under the sanctions. Now it can thrust itself onto the world trade, economic and financial market.

The sanctions introduced by the European Union, the United States and a handful of other countries in 2012 caused significant damage to the Iranian economy. As a result, Iran was on the verge of a serious economic crisis, fraught with social upheavals. Now the country does not want to lose a single day in restoring its economy.

Strengthening Cooperation with China

Barely a week had passed after the sanctions had been lifted that the President of the People’s Republic of China Xi Jinping made an official visit to Tehran (link in Russian). A total of 17 agreements were signed during the visit, and a plan for trade and economic cooperation between the two countries for the next 25 years was discussed (link in Russian). The plan envisions, among other projects, increased procurement of Iranian oil, the construction of small nuclear power plants (with a capacity of up to 100 megawatts), financing the reconstruction of the Tehran–Mashhad railway, and the construction of a high-speed rail link between Xinjiang and Tehran (3200 kilometres in length) that will continue on to Turkey and Bulgaria (the ultimate goal being to build an intercontinental network of railways connecting Beijing and London).

The parties plan to increase the volume of bilateral trade from $51.8 billion currently to $600 billion in 10 years (link in Russian). For comparison, Russia–Iran trade amounted to $1.68 billion in 2014 (link in Russian).

REUTERS/Charles Platiau
French President Francois Hollande welcomes
Iran's President Hassan Rouhani as he arrives
at the Elysee Palace in Paris, France,
January 28, 2016

Incidentally, China did not support the introduction of sanctions against Iran and quietly developed bilateral relations with Tehran. The European Union, however, suffered greatly as a result of severing ties with Iran. Italy, France and Germany were among Iran’s main trade partners. Now they are scrambling to restore their positions.

What is more, Iran is an extremely attractive prospect for global business. Its geographical position is very favourable, lying between North and South, East and West, at the crossroads of transport routes and with access to both the Caspian Sea and the Indian Ocean. It has a skilled population of 80 million people and a reasonably well-developed industrial and agricultural infrastructure. And most importantly, Iran is awash with hydrocarbons. It is also worth remembering that the Iranians know how to conduct business, including with their Western counterparts. What is more, Iran has the potential to make economic breakthroughs in the coming years – potential that, with the correct policy, can be realized now that the sanctions have been lifted. This includes using frozen foreign assets (worth somewhere in the region of $107 billion), as well as the partial involvement of the $2 trillion amassed by the Iranian diaspora (links in Russian). President Rouhani is hoping to see about 10 per cent of this money. And these “treasures” are concentrated in the West.

These are not the only reasons for Iran’s interest in expanding ties with the West. Iran’s attempts to restore economic cooperation with developed countries was to be expected, because now Iran and its economy needs two things: massive foreign investments in practically all sectors of the economy (around $500 billion) and hi-tech goods. Western countries can provide both of these (Western in the broadest sense of the word, including Japan, South Korea and other developed countries), as too can China.

The Rapid “Pivot towards the West”

What has come as somewhat of a surprise is the speed with which Iran has “pivoted towards the West”. President Rouhani was in Europe less than 10 days after the landmark event of the sanctions being lifted, visiting Italy and then France. The official Iranian government delegation comprised six ministers and around 120 heads of state corporations and representatives of the business community.

Hassan Rouhani’s agenda mainly included economic issues, with the President achieving great results in this area. This can be seen as a serious attempt on Tehran’s part to foster future cooperation with the European Union, as it was with Italy and France – and also Germany – that Iran primarily enjoyed large-scale trade and economic ties before the sanctions were imposed.

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President Rouhani’s visit to Italy resulted in the signing of 17 cooperation agreements on healthcare, transport, agriculture and energy worth a total of $18.4 billion (link in Russian). Among the documents signed is an agreement between the Italian company Saipem, a global leader in oil and gas services, and the Iranian National Gas Company and Persian Oil & Gas Company on the creation of a 1800-km gas pipeline worth more than $5 billion, as well as on the modernization of the Tabriz and Shiraz refineries (link in Russian).

The Italian Danieli Group, one of the three largest suppliers of equipment to the metal industry in the world, signed an agreement with the Iranian side on the establishment of the $6.1 billion Persian Metallics joint enterprise with a capacity of 6 million tonnes of iron-ore pellets per year and the supply of equipment for the Iranian steel and aluminium industries.

The Italian company Condotte d’Acqua, which develops infrastructure projects, signed contracts with the Iranian side worth $4.4 billion.

In addition, a protocol of intentions was signed that would make Ferrovie dello Stato Italiane (Italian State Railways) the main partner in developing railways in Iran.

Rome has insisted that these steps are just the beginning. In the words of one European official: “Giants such as Eni and Enel Ferrovie dello Stato and the shipbuilding companies Gavio and Fincantieri are standing in line, waiting to gain a foothold in Tehran,” (link in Russian).

President Rouhani’s visit to France was equally successful, with contracts worth a total of 15 billion euros being signed (link in Russian). One of these contracts was for the creation of a Joint Venture (JV) between the French Peugeot-Citroеn and the Iranian Khodro to manufacture 200,000 cars annually in Iran (link in Russian). The French side will invest 400 million euros in the joint venture over the course of five years. The plan is to export cars manufactured in Iran to other countries in the Middle East.

France’s largest oil and gas company, Total, signed a memorandum of understanding with National Iranian Oil Company, under which Total will purchase 150,000–200,000 barrels of crude oil from Iran. The amount of the contract was not disclosed, but experts believe that Iran may have offered Total a significant discount in order to get back onto the French market.

The agreement between Iran Air, and European aircraft manufacturer Airbus (headquartered in Paris) on the purchase of 118 civilian planes turned more than a few heads (link in Russian). Specifically, the Iranian side has placed orders for 73 wide-body and 45 narrow-body aircraft with various modifications. In addition, Iran Air ordered 12 Airbus A380 airliners, the largest that Airbus produces. These planes are capable of carrying between 525 and 853 passengers, depending on the individual configuration, up to 15,400 kilometres. Deliveries will begin this year and will continue until 2023. The deal is worth $25 billion.

Airbus will help Iran train its own pilots and engineers as part of the agreement. A separate cooperation agreement was signed between Iran and Airbus on modernizing the civil aviation infrastructure in the country: developing airports and air navigation services. The contract also concerns industrial cooperation with Airbus.

It is worth noting here that the Iranian side has thus far expressed no real interest in purchasing Russian planes, despite the fact that aircraft engineering has been explicitly stated as a promising area of Russia–Iran cooperation. Right now, the Russian side is prepared to offer their Iranian colleagues the chance to purchase Sukhoi Superjet 100 and Tupolev Tu-204SM passenger liners. However, the contract with Airbus, as well as the plans to purchase a fleet of Boeing passenger aircraft from the United States (Deputy Minister of Transport of Iran Asghar Fakhri Kashan has stated that his country is interested in purchasing at least 100 U.S.-made aircraft) makes a hypothetical deal with Russia a distant prospect at best. This probably applies to most areas of Russia–Iran trade and economic cooperation, which are relatively few considering Russia’s limited material and financial ability to compete on an equal footing on the Iranian market with more powerful countries. And even in those areas where Moscow can compete, Tehran prefers to sign deals with China, Italy and France. This applies to energy, rail transport and oil and gas. Thus, Russia is facing a serious battle for the Iranian market. Business is business. This has become a popular slogan in Iran as well.

It is clear that President Rouhani’s successful tour of Italy and France, as well as Xi Jinping’s visit to Tehran, is just the beginning of Iran’s return to the global economy. The fact that the delegations that conducted talks in Tehran, Rome and Paris consisted of high-ranking and skilled individuals shows that discussions also took place on future contracts and agreements. It is entirely possible that new agreements will be made in the near future.

Granted, President of France François Hollande warned his Iranian counterpart that these new relations with Iran will depend on the extent to which Tehran keeps with the promises it made when signing the “nuclear deal”. President Rouhani reassured his colleague, asserting that his country will comply with all of its obligations.

On the heels of his successful European tour, Rouhani will in the near future develop a series of concrete high-level bilateral contacts between Iran and a host of other countries – Asian as well as European – including Japan and South Korea. It was reported recently that the President of South Korea, Park Geun-hye, was considering a visit to Iran, where she hopes to discuss issues of bilateral cooperation between the two countries and the possibility of South Korean company’s gaining a presence on the Iranian market (link in Russian).

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And the United States is not too far behind. At a news conference held in Rome, President Rouhani, expressing hope that relations with the United States would be restored in full, noted that his country was prepared to set up joint production activities with U.S. companies and welcome U.S. investors.

The formal lack of diplomatic relations between Washington and Tehran should not be a major obstacle to the establishment of trade and economic, and perhaps eventually political, relations. We are reminded of Taiwan. Right now, almost no one maintains diplomatic ties with the island. However, many states do have trade representations there, which, in addition to the primary functions, also effectively act as embassies. It is entirely possible that U.S.–Iran relations could develop in a similar fashion.

Explaining Iran’s Foreign Policy Activity and Assessing the Prospects

Tehran’s increased activity on the international arena in January 2016 can be explained another way, and this relates to its domestic policy. On February 26, 2016, elections will be held in Iran for positions in two very important constitutional bodies: the Iranian Parliament (Majlis) and the Assembly of Experts. Competition for these posts is fierce. And there are reasons for this.

The Majlis plays a big role in Iranian life. The political orientation of the Iranian parliament can facilitate or hinder the activities of the government headed by the President. This is why the results of the parliamentary elections are extremely important for Hassan Rouhani. While the rahbar (“Supreme Leader”) is behind all state institutions, he is also the head of the republic, the supreme commander-in-chief of the armed forces and the country’s spiritual leader, who determines the general political course of Iran. This position is currently occupied by Ali Khamenei, a man of advanced age (76) and failing health (he has cancer). It is possible that the new Assembly of Experts (86 influential religious figures) elected for a fixed term of eight years will have to appoint a new Supreme Leader from among its members. The main function of the Assembly of Experts is to elect a new leader of the Islamic Republic of Iran (or to remove one from office if he is unable to work), along with tackling a number of other serious issues related to the country’s domestic and foreign policy.

President Rouhani represents a liberal-reformist trend in Iranian politics and, as such, faces fierce opposition from radical fundamentalists. This is why the activity of the President and his team to fulfil, in speedy fashion, the requirements necessary for the implementation of the “nuclear deal”, as well as to strengthen ties with China and two important EU powers, can be seen as a trump card in the multi-stage pre-election campaign. No less than the future of the Islamic State of Iran is at stake here.

It is telling that President Rouhani declined an offer to attend a dinner hosted by President Hollande in Paris in honour of his Iranian guest. The Iranians insisted on a halal menu and that alcohol not be present. The French side refused these requests, citing the traditions of French protocol. This, of course, had nothing to do with Hassan Rouhani’s religious beliefs. He simply could not give the opposition a chance to accuse him of turning his back on Islamic values this close to the elections.

In conclusion, we can quite rightly say that Iran jumped at the opportunity to restore its trade and economic and political positions on the international arena, which had been all but destroyed as a result of the sanctions. And it focused on two power centres, namely, China and the European Union. This process will certainly continue. The speed at which it is carried out, however, will depend on the upcoming elections to the Majlis and the Assembly of Experts.