In the early hours of Sunday 24th November the foreign ministers of Iran and the “P5+1” group – China, France, Germany, Russia, UK and USA – agreed an interim Joint Plan of Action on solving the long crisis of Iran’s nuclear programme. The talks, led by the EU’s High Representative for Foreign Affairs and Security Policy, Baroness Catherine Ashton, had been significantly aided by secret Omani-brokered talks between Iran and the USA since Hassan Rouhani’s surprise election as President of Iran in June, as well as talks between Iran and the UN’s International Atomic Energy Agency (IAEA) which had been taking place separately from the P5+1 talks. An earlier set of Geneva talks, which had seemed likely to result in a breakthrough, had broken up with no agreement on 9th November after France allegedly held out for a tougher interim settlement, much to the delight of the Israeli Prime Minister Binyamin Netanyahu. Just two days later Iran reached agreement with the IAEA over access to the Arak nuclear reactor and the Gachin uranium mine, and on the same day the UK and Iran announced that they would be re-opening diplomatic relations – suspended after the British Embassy in Tehran was attacked in 2011 – with the exchange of non-resident charges d’affaires. On 17th November France’s President Hollande arrived in Israel for a previously scheduled visit and announced that France would continue to hold out against the easing of sanctions on Iran until it was convinced Iran was not pursuing a nuclear weapons programme. It was against this backdrop – and the bombing of the Iranian Embassy in Beirut on 19th November – that the Geneva talks re-convened. With expectations lowered following the previous round of talks, the talks were at “official” rather than ministerial level, and whilst they were underway Binyamin Netanyahu engaged in a frantic round of visits trying to forestall an agreement, including visiting Russian President Putin in Moscow on 20th November and meeting with John Kerry in Israel on 22nd November. This proved fruitless for Netanyahu, with good progress evident in Geneva as the P5+1 foreign ministers converged on Geneva on Saturday. Despite a long wrangle over the details of one or two points, a deal was eventually struck in the early hours of 24th November, with all sides claiming victory for their negotiating standpoints. But as the dust settles from Geneva, what does the agreement mean for Iran’s prospects over the next 6-12 months, and for the UK’s engagement with Iran? A series of blog posts from the Iran Crisis Watch group will investigate prospects for Iran over the coming months.
The Prospects for Trade
The Joint Plan of Action allowed for a limited easing of sanctions against Iran which may aid Iran’s ailing economy in limited ways. It puts a hold on efforts to further reduce Iran’s crude oil sales – which have dropped from around 2.5m barrels per day to 1m barrels per day – and allows Iran’s crude oil customers to maintain their current levels of supply. Sanctions on the automotive sector, petrochemicals and precious metal exports are suspended, and a channel is opened for humanitarian aid which will include food and agricultural products as well as medical and pharmaceutical supplies. The effect on trading partners has been surprisingly rapid, although the temporary nature of the current deal has led many to approach potential trade deals with caution.
One immediate beneficiary is likely to be India. Given its fragile relations with Pakistan, India has been involved in work to build a deep water port at Chabahar in Iran, which it views as an essential route for Indian trade into Iran and Central Asia. Illustrating the region’s difficult geopolitical situation, Chabahar would be in direct competition for international trade with the Chinese-financed Gwadar port, just 44 miles away in Pakistan. Iran has announced its intention to establish a free trade zone around the port, probably to attract lost trade back to the country; the port of Bandar Abbas is reportedly handling almost half of the trade now that it was two years ago. The announcement of the free trade zone already seems to be creating interest, with several Gulf States keen to invest. Japan also seems keen to rekindle trade with Iran, with talks having taken place in Tehran recently.
A number of opportunities arise for European trade with Iran, which will be highly beneficial for many stagnant European economies; EU exports to Iran are down 45% (3.4Bn euros) in the first 9 months of 2013 compared with the same period in 2011. France will be keen to re-kindle Peugeot and Renault’s previous exports to the Iranian automotive sector, although it remains to be seen whether their reported intransigence in Geneva will be held against them. Iran has also begun reaching out to oil companies that it would like to see re-entering the market, going as far as naming the companies it wants to do business with – including two from the USA, and Britain’s BP. Italian company Eni has been the first to show signs of interest, with its CEO meeting with Iran’s oil minister at the annual OPEC meeting in Vienna on 4th December. This sector is likely to be slow to develop, given the uncertainty over a long-term settlement and the poor terms under which Iran dealt with foreign oil companies in the past. An Austrian trade delegation visited Tehran in early December, reportedly focusing on infrastructure and manufacturing opportunities. Pakistan is also using the recent international developments to reinvigorate a stalled project to construct a gas pipeline from Iran into central Asia, despite opposition from the USA. Although Iran is keen to progress this project, their recent cancellation of finance for the Pakistan side of the pipeline reflects Rouhani’s pragmatism, showing a desire to fix Iran’s ailing economy structurally as well as through increased international trade.
Two UK companies stand to benefit immediately, thanks to the humanitarian sanctions relief. GlaxoSmithKlein and AstraZeneca have both maintained trade with Iran during the recent sanctions (reportedly $32.2m and $14m annually, respectively), and they can expect an immediate increase in sales of medicine and medical equipment. Beyond that there are no immediate reports of UK companies seeking new trade in Iran, but over the next 6 months – as work on a permanent agreement with Iran progresses – more interest is likely to be shown. According to the British Iranian Chamber of Commerce, opportunities are likely to lie in telecommunications and IT, joint manufacturing ventures (particularly in vehicle manufacturing), water and waste water projects and banking sector reform. The re-opening of diplomatic relations bodes well for potential future trade deals; Ajay Sharma, the UK charge d’affaires has already visited Tehran, and a reciprocal visit by his counterpart to London has just taken place. William Hague has made it clear that this will be a step-by-step process, rooted in demonstrable trust being developed, but the early signs are promising.
There are likely to be some negative aspects to the recent deal as well. With many GCC States believing, at least privately, that steps towards normalisation of Iran’s relations with the outside world will upset the balance of power in the region, it is possible that they will seek to scale down trade with members of the P5+1 group in retaliation. However, a more unexpected result may be to kill off some arms trades in the region. It already seems likely that the UAE will either postpone or cancel a potential Eurofighter Typhoon buy from the UK, citing fears over destabilising the region militarily and with one eye on seeking increased trade with Iran themselves. Oman even went as far as standing in opposition to the other 5 GCC members recently when they called for deepening the partnership into a military alliance. Oman has a strong trading history with Iran, and does not want to harm future relations by joining a potentially threatening regional alliance. For the UK, the real trade benefits will come with the agreement of a permanent settlement to Iran’s nuclear programme, and may necessitate a change of approach to the region, treating the Arab GCC states as individuals rather than as a homogenous bloc.