Trade

January 16th 2016 will eternally be viewed as a glorious day for Iran. On that day, the International Atomic Energy Agency (IAEA) decided that Iran was fully compliant with its internationally agreed nuclear obligations—a ruling that in effect restored the Iran to the global community of nations and removed some of international sanctions that had been imposed on the country since 2006.

During Rowhani’s tour of Italy and France in January, he was interested to spend rials on one area: Infrastructure. And it is not surprising; Iran needs serious investment in power generation, water supply, air and rail.

The biggest single deal during Mr Rowhani’s tour was Iran’s purchase of 118 aircraft from the Airbus, including 12 A380s Superjumbos, at a total cost of US$25bn. Since the US’s imposition in 1995 of a ban on aviation companies selling aircraft and spare parts to Iran—a ban that also affected Airbus, given that its aircraft incorporate US-built parts—state owned Iran Air’s fleet has suffered worsening maintenance problems. As a result, reaching agreement on updating the country’s fleet has been a priority, and more such purchases, potentially even from US-based Boeing, are possible. Iran’s transport minister, Abbas Akhoundi, has remarked that Iran is in the market for some 400 medium- and long-range aircraft, as well as 100 short-haul aircraft. As well as plans to improve the country’s air infrastructure, Iran intends to invest some US$25bn to modernize and expand its rail network. That said, all of this will be fruitless without sufficient electricity to power the country’s transport network. The head of Iran’s Power Transmission, Generation and Distribution Company, Arash Kordi, has said that Iran needs to invest some US$7bn-8bn a year in its power generation and distribution.

Analysis

Even with Iran’s doors wide open, it would be smart to keep in mind the ancient Turkish proverb: “He who loves a rose must respect its thorn”. Iran’s economy is unorthodox 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, with a young and well-educated population. But the business climate is less welcoming. Vested interests might still permeate almost every aspect of the economy, mostly operating outside the parameters of international commercial law.

 

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