Outlook for doing business with Iran improves

17 July 2014

While a quick resolution on Iran’s nuclear programme remains elusive, many countries in the region are strengthening ties with the Islamic Republic

Onlookers hoping for a quick resolution to Iran’s nuclear negotiations with the West are likely to be disappointed as the Vienna talks look unlikely to yield a permanent agreement. However, signs of improved relations between the two sides are clear.

Both US Secretary of State John Kerry, who left the negotiations on 15 July after two days, and Iran’s Foreign Minister Javad Zarif have signalled that talks will likely continue after 20 July – the deadline of the six-month interim agreement.

After landing in Vienna for the talks, Kerry said on 13 July that “significant differences” remained in the two sides’ negotiating positions and the lack of significant breakthroughs has led to growing speculation that the deadline will be extended until later in the year.

In a rare interview on Iran’s negotiating position, Zarif told the New York Times on 14 July that Tehran is prepared to accept a deal that freezes its nuclear fuel capacity for several years in exchange for step-by-step relief from economic sanctions.

Zarif said he is prepared to satisfy Washington’s aim to limit the volume and purity of nuclear fuel produced by Iran for several years. The foreign minister is placed in the difficult position of giving enough concessions to the US to reach a deal while appeasing the Islamic Republic’s conservative military and clerical establishments – led by Supreme Leader Ali Khamenei – which have taken a hardline stance on the country’s nuclear development.

Exact limits

The main sticking point is the exact limits to which Iran would have to roll back its nuclear programme and the length of time these constraints would be enforced. “I can try and work out an agreement where we would maintain our current levels [of nuclear enrichment centrifuges],” Zarif said in the interview.

However, Kerry has dismissed the idea that Iran could maintain the present number of centrifuges as part of a long-term deal, saying “we have made it crystal clear that the 19,000 [centrifuges] that are currently part of their programme are too many”.

Tehran is looking to reach a deal in its nuclear programme in exchange for relief from US-backed sanctions against energy and trade, which have had a crippling impact on the Islamic republic’s economy.

The interim deal with the P5+1 powers – China, France, Russia, the UK, the US and Germany – signed in Geneva on 24 November 2013, have given Iran limited relief from sanctions in exchange for its efforts to curb uranium enrichment. These measures include access to frozen oil export revenues and suspended sanctions against its petrochemicals, automotive and aviation sectors. 

It is unclear whether Zarif is seeking further sanctions relief during the talks in Vienna, or if both sides are willing for the interim agreement to simply be rolled over to another date later in the year.

Since the appointment of the more moderate Hassan Rouhani as president in August 2013 and the inking of the interim nuclear deal, many countries in the region have taken a softer public approach towards relations with Tehran.

At the same time, international companies have been positioning themselves to do business in the Islamic Republic in anticipation of a positive outcome to the nuclear talks. GCC countries could stand to gain much from expanding economic ties with Iran, but the two sides have long had a difficult relationship.

Iran and key US ally Saudi Arabia remain rival geopolitical and sectarian powers in the region, while the Islamic Republic’s relationship with the UAE has been damaged by tension over three disputed islands in the Gulf.

However, Tehran has maintained varyingly friendly relations with Kuwait, Qatar and Oman, and there are now signs of tensions lifting with the UAE.

Earlier in the year, Oman signed a deal to import gas through a proposed pipeline from Iran, and Kuwait has entered similar talks with the Islamic Republic over a gas deal.

Warming relations

In January, the UAE’s prime minister and ruler of Dubai, Sheikh Mohammed bin Rashid al-Maktoum, urged Washington and other world powers to scrap economic measures targeting Iran’s banks and energy sector. He later accepted an invitation to visit Tehran.

Iran has long been a key trade partner with the UAE, especially Dubai, but the bilateral relationship has been strained by political tensions with the UAE’s powerful Washington allies.

Prior to the tightening of sanctions in 2012, the Islamic Republic was the UAE’s second-largest market for the export of non-oil goods and re-exports, and its fourth-largest trading partner overall.

In 2008, the UAE exported $13.2bn of goods to Iran, compared with a combined $1.6bn from the other five GCC countries, according to statistics from the Washington-headquartered IMF.

According to Dubai Customs, merchandise trade dropped 31 per cent in 2012 to AED25bn ($6.8bn), but rebounded marginally in 2013 to AED26bn.

Although a conclusive nuclear deal is unlikely to be reached in Vienna, the medium-term outlook for doing business with Iran has significantly improved in just a year. Anticipation is high for the Middle East’s third-largest economy to be open for regional trade again.

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