How should treasurers do business in post-sanctions Iran?

Iran now makes a compelling proposition for multinationals. But infrastructure issues and risk factors await corporate treasurers, explains Semih Ozkan

Following the signing of a Joint Plan of Action (JPOA), a state of commercial hopefulness surrounds Iran.

The immediate outcomes from the lifting of economic and trade sanctions have been: increased oil and gas production and exports, trade deals, the unfreezing of assets and, last, but not least, reconnection to the worldwide interbank financial telecommunications network.

Iran’s oil and gas sector is the most obvious beneficiary of the post-sanctions era. The sector not only delivers around two-thirds of the country’s revenue, but its restoration paves the way for foreign direct investments.

In a relatively short period, the sector achieved pre-sanction production levels of nearly four million barrels a day and exports of two million barrels a day, well above the expectations at the time of the agreement, and a development that has helped Iran regain market share in Asia and Europe.

 The global risks are beyond the scope of corporate treasurers: however, they still need to ensure business growth and continuity 

A wide range of foreign trade and direct investment deals, including a handful with US companies, were concluded following the lifting of sanctions. Iran also gained access to more than $100bn of overseas frozen assets.

Meanwhile, SWIFT reconnected a number of Iranian banks, including the Central Bank, to its network, making financial transactions more transparent and economical for the country.

In light of these developments, Iran’s central bank has said it expects GDP to rise above 5% this year. The International Monetary Fund similarly readjusted its forecast to around 4-5.5%. Clearly, the new era is expected to bring in significant economic benefits.

However, the anticipated welfare is not much visible as yet. Economic benefits do not tend to spread evenly in state-led economies, and international companies are still proceeding with caution.

Corporate treasurers required to operate in this environment will have clear sight of the market potential, but no straightforward answers to help them navigate Iran’s commercial landscape. They will need to take a holistic view and demonstrate significant patience if their companies are to benefit while mitigating downside risks.

A holistic view

The JPOA has opened a new window.

On the one hand, traditional trading partners, such as China, India, Russia and South Korea, are deepening their relationships, leveraging years of goodwill. On the other, new partners, especially in Europe, are looking to tap into Iran’s economy, the second largest in the region.

Barely a few months into the post-sanctions period, all these countries’ businesses had made inroads.

President Vladimir Putin was in Iran in November 2015, prior to the agreement’s implementation, not only to develop $2bn worth of economic ties, but to investigate a new free-trade zone dialogue.

The post-sanctions agreement period started off ambitiously with president Xi Jinping’s visit, paving the way to a tenfold increase in bilateral economic relationships to $600bn over a decade.

Following China’s ‘one belt, one road’ visit, Iran’s president, Hassan Rouhani, made progress in Europe, and inked a number of deals – most notably the €22bn Airbus deal, bringing Iran into the international civil aviation community.

At the same time:

  • Saipem was contracted to restore the Pars Shiraz and Tabriz oil refineries for €3.5bn – both plants are essential to Iran’s oil and gas sector;
  • Total started to lift crude oil for the National Iranian Oil Company and to investigate a petrochemical plant investment;
  • Total and Shell were granted licences to operate branded service stations in Iran;
  • Italy’s Danieli signed a €5.7bn deal to supply heavy machinery and equipment to the Iranian steel industry; and
  • Peugeot signed a €400m deal to join with Khodro to produce three car models in Iran.

There are significant gains to be made for European businesses: economic ties presently stand at a historic low of $10bn.

South Korea’s president, Park Geun-hye, and Indian president Narendra Modi’s visits coincided in May, and both were declared successful. South Korea intensified the recently eased economic relationships threefold to $18bn from $6bn, and India signed up to spend $500m to develop the geopolitically important Chabahar port.

While ties with the US will remain challenging, Boeing and General Electric are scoping out deals.

A thorough analysis

When it comes to doing business in challenging territories, unemployment, underemployment and energy price shocks lead the list of top economic risks in the World Economic Forum’s Global Risks Report 2016. Those are followed by the failure of national governance, fiscal crises, asset bubbles and cyberattacks.

The Middle East region reflects similar patterns to the rest of the world, along with terrorist attacks and interstate conflict. Iran is no exception. The global risks are beyond the scope of corporate treasurers; however, they still need to ensure business growth, and continuity in the face of downside risks related to the JPOA, as well as country-specific challenges.

At present, Iran ranks 118th out of 189 in the World Bank’s Ease of Doing Business index. Current regulations do not necessarily facilitate business.

There is also room for more transparency; Iran ranks 130th out of 163 in Transparency International’s latest report. Plus, Iran’s overall infrastructure is ranked as average in the recent Logistics Performance Index – 96th out of 160, highlighting crucial need for improvement.

Recent economic and policy developments around developing a diversified economy, progressing in science and technology, and promoting cultural excellence are helping to improve Iran’s standing in these areas. Even so, doing business in Iran still remains a very complex and ambiguous task for corporate treasurers.

Businesses need to stay conscious of remaining sanctions and specially designated entities. The US dollar market is not accessible, but euro trade is, so businesses require an appropriate channel, depending on underlying base currency, to manage payments and collections. The global banking system, especially in Europe, is unclear on how to manage transactions allowed by the JPOA.

Banks prefer to be reactive and impose enhanced due diligence for any corporate asking about payments and collection. Added to which corporate treasurers will need to manage regular business risks, such as credit, compliance, legal and political risks.

To operate effectively, corporate treasurers must prepare well-defined strategic plans. That should include comprehensive compliance details as well as risk and reputation assessments, exhaustive corporate intelligence, information on access to banking and FX, risk management and business continuity planning.

Ongoing monitoring will also be essential to help treasurers navigate the evolving economic and political dynamics in the new period in Iran.

Be patient

Even given recent positive economic and policy developments, the new period will not necessarily be straightforward – for these five reasons:

  1. There may be adverse reaction to strengthening ties between Iran and the rest of the world, perhaps even to the extent of one of the JPOA parties ceasing to perform its commitments under the agreement.
  2. While the oil and gas sector has seen immediate benefits, until more certainty and trust is generated, foreign trade and direct investment ties are likely to develop more slowly with sectors such as the automotive industry, airlines, pharmaceuticals, retail and banking.
  3. Iran’s ability to capitalise on the new period also depends on its ability to continue structural economic and policy reforms. The latest efforts score well in improving doing business in Iran. However, the progress is gradual, and might fall short of corporate treasurers’ expectations.
  4. While the financial sector’s reconnection to the international financial system will help the sector to reduce transaction costs and bring in up-to-date technology and expertise, many international banks remain ambivalent when it comes to reconnecting with the Iranian banking system. Progress is likely to be slow, with limited options for straight-through banking services onshore.
  5. International companies, especially retailers, stand to benefit from Iran’s acknowledged market potential. However, the expected harvest might take longer as the welfare does not uniformly and efficiently spread, and long-outstanding local brand associations do not break hurriedly.


The post-sanctions period unquestionably presents a powerful commercial and financial proposition for international companies. Some are already reaping rewards from signing deals early. However, the road to successfully unlocking those propositions will be uncomfortable.

A long-term view, thorough analysis and a significant degree of patience are essential for corporate treasurers seeking to manage this balancing act.

About the author

Semih Ozkan is an ACT student (CertlTM) and a transaction banking professional in an international bank.

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This article was taken from the October 2016 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership

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