Trade

Following the removal of sanctions, two large business delegations from Turkey visited Tehran in a bid to boost economic and trade ties. The visits came in a critical period of time, right after Turkey strategically partnered-up with Saudi Arabia, which has cut its diplomatic ties with Iran and is concerned about Tehran’s growing clout in Lebanon, Syria and Yemen. Having accessed to over $100 Bln worth of frozen assets in foreign banks, Iran will invest in large infrastructure projects that have long been ignored due to international sanctions. Despite the tough global competition to harvest Iranian cash on the table, Turkish private sector may have the chance to get their fair share from the deal, should they take careful steps in Iran’s tricky operating environment.

Background

On 16 January 2016, the International Atomic Energy Agency (IAEA) judged that Iran was fully compliant with its internationally agreed nuclear obligations, a ruling that in effect restored the Islamic Republic to the global community of nations and removed a mass of international sanctions that had been piled on the country since 2006. Keen to make up for lost time, Iran’s president, Hassan Rouhani, has been urgently seeking to attract new business. On January 23rd he hosted a summit for China’s president, Xi Jinping, in Tehran, at which the two sides agreed to boost bilateral trade to US$600bn within a decade. This was swiftly followed by a trip to Italy and France, where some €50bn (US$55bn) in contracts were signed.

 

Iran EU Deal

The deals Iran signed with Italy and France during Rouhani’s visit to Europe.

 

Consequently, foreign business delegations have flocked to Tehran including a delegation from Turkey’s largest business organization, the Union of Chambers and Commodity Exchanges of Turkey’s (TOBB), and the delegation lead by Prime minister Davutoğlu on 2-5 March 2016.

In his visit to Tehran, Davutoğlu reminded his hosts that Turkey had stood together with Iran during their hard days under sanctions and highlighted that the removal of the sanctions means the two neighbours can easily exceed their previous trade target of $30 billion annually. The trade volume between the two nations was $9.7 billion in 2015, according to the Turkish Statistical Institute (TÜİK). Turkey mainly sells machinery, vehicles and iron and steel products to Iran. Oil and natural gas make up 90 percent of Iranian exports to Turkey.

Expectations on Iranian Economy

After five years of stagnation, during which the Iranian economy experienced a shrink by an average of %4, the removal of nuclear-related US and EU sanctions will likely to push the country to the top of the regional growth rankings. The most immediate cause of this growth will be a fast recovery in oil exports that are set to rise by around 700,000 barrels/day (b/d) by the end of 2016. There will be further increases in 2017- 20, but the size of these will depend in part on whether Iran can persuade technologically advanced international companies to invest in the sector. The lifting of sanctions on the financial sector, which will see Iran’s reincorporation into the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, will help to ease general trading and investment conditions, and will therefore provide a big boost to Iran’s sizeable non-oil sectors. With rising inward investment and an improvement in the public finances, private consumption will also strengthen. Overall, given Iran’s hydrocarbons wealth, demographics and economic diversity, the comprehensive nuclear deal could herald a return to trend real GDP growth rates of around %5.

Analysis

Even with Iran’s doors wide open to commerce, it would be wise for businesses to keep in mind the ancient Turkish proverb: “He who wants a rose must respect the thorn”. Iran’s economy is unusual among the region’s oil exporters; it boasts the largest natural gas reserves in the world and the fourth-biggest oil reserves, and yet it has a diversified economy (including a significant manufacturing sector), all backed up by a large, youthful, well-educated and welcoming population.

That said, Iran will definitely be picky when it comes to close multi-billion dollar deals on large projects with foreign contractors yet, the foreign policy path Turkey is choosing to follow in the region is not quite helping. Given its deep-rooted state tradition, the “Persians” know very well how to get along with the “Turks”, as two neighbours still respect the international border established back in 1739, still remaining untouched even after two world wars. Turkey, with a dynamic and capable private sector, can only get its fair share from the Iranian markets, should the Persians see Turkey shifting away from regional grievances and sectarian policies, in a direction that Iran may prefer.

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