Qualified relief in the business community

31 October 2003
The threat of sanctions has been hanging over Tehran's international business community. As the 31 October nuclear revelations deadline approached, major decisions were put off, trips were postponed and investment was delayed. While the tension has not been entirely relieved and the prospect of sanctions still lurks over the horizon, businessmen are beginning to feel they can start to operate normally again.

'Qualified relief' is how one French businessman put it. 'Yes, it is good news that Iran has avoided the immediate problem, but we must wait and see what happens.'

Oil projects have been among those hardest hit by the difficult political risk environment. The failure to reach an agreement with a consortium of Japanese companies on the Azadegan oil field was attributed by both sides to political problems stemming from the nuclear question, even though the commercial terms were far from established.

Other oil companies in Tehran say they could not make long-term investment decisions when there was such an imminent danger of disruption. Iran's first liquefied natural gas project, now being prepared for tender, would have involved a 20 or 25-year offtake agreement for the successful oil company and engineering and construction work worth billions of dollars for the successful contractor.

Officials have also blamed the crisis for hindering their power privatisation programme. Not a single bid was received for Iran's first build-own-operate (BOO) independent power plant in September - a sign, many said, that investment risk in Iran outweighed the level of investment protection guarantees.

Now the imminent risks have lifted. Although there are still many pitfalls lurking ahead, Iran appears to have made the decision to work with the international community rather than in defiance of it.

'We were very concerned about the potential for sanctions,' says an oil executive in Tehran. 'It made Iran a much greater risk for big investments than it was a year ago - and because of that we were reconsidering our plans here. The situation is not yet resolved and there are still many obstacles to overcome, but I think we are more confident now that international firms will be able to work here in the coming years.'

Other factors have weighed on the risk too. While strong oil prices will improve trade and investment prospects for Iran, the continued problems in securing peace in Iraq cast a shadow over the perceived regional stability.

Further ahead, the nuclear deal could also boost European industrial exports to Iran. The promise of nuclear technology for co-operation will, if it becomes effective, provide a route for significant trade deals. Germany was already involved in Iran's nuclear programme in the late 1980s and will be keen to resuscitate parts of that project. 'Perhaps exports will increase,' says a European commercial diplomat in Tehran. 'Certainly we could expect an improvement in dual-use technology.'

And politically, there are yet more problems. Iran's apparent trade embargo of the UK and Argentina, since the arrest of former diplomat Hadi Soleimanpour, will not be well received by potential trading partners. Ultimately, Iran has made a strong declaration that it means, in every sense, business. But the declaration will be tested in the months ahead.

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