Deal will have ‘major’ economic impact
Iran’s agreement over its nuclear programme with world powers, paving the way to lifting sanctions on Tehran, will have a major positive i mpact on the Iranian economy, a leading expert told the Financial Mirror.
At the same time, property developers active in Cyprus and Greece are rubbing their hands in delight that they will, at last, be able to sell holiday homes or other forms of housing, mainly to younger Iranian couples in want for the EU residency permits that are attached to investments of 300,000 euros in Cyprus.
Bigger investments or wealth-related deposits will also get them one step closer to applying for citizenship, something that had upset US diplomatic circles on the island.
On the other hand, Cypriot construction companies active in the Gulf, have recently been to-ing and fro-ing to Tehran with the hope of clinching some deals of their own, while Trade and Energy Minister Yiorgos Lakkotrypis paid an official visit to Iran to explore closer commercial and other ties.
“GDP and growth are very sluggish after a 15-20 year period of growth in the post-IranIraq war. Successive five-year economic plans, while not a raging success, had nonetheless positive results overall in leading Iran out from a one-product economy of only oil and gas,” said the analyst with over 40 years Iran experience.
“Actually, Iran is a two-product economy if you include domination of the pistachio market, and has tried to become a more mixed economy with downstream industries, manufacturing and exports,” added the analyst, who remains anonymous due to his ties with both Iran and the West.
“The UN sanctions from 2006 onwards dampened all that down, to the present situation where widespread unemployment (especially the under 30s) has prevailed for several years and living standards have fallen. The international sales of Iranian oil have been badly affected by the sanctions and is currently losing the government some $4080 bln a month in lost revenue. The costly burden of state subsidies for the poorer half of the population, brought about by a mix of post-war widows/ orphans/ disabled, a low wage economy, sanctions and populist government policies over decades, may at long last be able to be reduced if sanctions are lifted.”
Examples of major industries that will benefit from removing sanctions are steel, chemicals, plastics, cars, white goods, construction and tourism. Iran Khodro is now a major car manufacturer that recently opened ultra-modern robotic assembly lines in conjunction with Rover (the Shanghai Rover, that is).
Tehran’s current national economic plan includes provisions to build hundreds of new cities, towns and large villages (the smallest build project being 5,000 dwelling units) and there are huge construction projects that will benefit from assured capital investment flowing from the lifting of sanctions.
Domestic demand is bound to rise especially with a rapidly growing Iranian population, currently at 75 mln. Currently, it is possible to get imported goods fairly easily in Iran but they are very expensive. The combination of increasing demand and reduced import costs (as the sanctions go) may boost the demand for imported goods of all kinds.
“Put at its simplest, the removal of sanctions will (a) boost export revenues from oil but not just oil, and (b) greatly reduce cost burdens arising from cost premiums on imports and sanctions busting,” said the analyst.
“Foreign investment in Iran, already encouraged by the lifting of restrictions some five years ago, is likely to rise significantly once sanctions go. Already, a number of large foreign companies, primarily European and Asian, have invested there in a variety of ways. Foreigners are now allowed to own companies there, own real estate and have bank accounts. Lifting the sanctions will re-establish the SWIFT access to and from Iran and the bi-directional flow of monies. This should have a positive effect generally, but also to Iran’s traditional trading neighbours in Dubai, Bahrain and other Gulf states, as well as to the near East, Cyprus, Turkey, etc. Foreign tourism and property investment by Iranians is likely to grow once sanctions are lifted.”
To the US and the West in general, the nuclear programme deal is positive.
“For good or ill, Iran is politically, economically and militarily stable and holds a pivotal geographic position between unstable and dangerous states to its east and west. As (Foreign Minister) Mohammad Javad Zarif has said, the ISIS/daesh threat is a threat in common to us all. Based on the building of trust and confidence, the deal then enables some form of strategic alliance between the West and Iran to combat and defeat ISIS/daesh.”
“While I believe that a stable Iran ‘on board’ will be a good thing, there are others who refuse to countenance such an outcome. Such objection is largely based on fears of various kinds. Israel refuses to believe that Iran is not the devil incarnate or that Iran will live up to its deal commitments. For their part, countries such as Saudi Arabia will not accept the trustworthiness of Iran on its nuclear commitments,” added the analyst.
“Thus, there may be a rather surprising realignment of interests with the West getting closer to Iran after decades of isolation, while Israel and some Arab states share a common interest in keeping Iran as weak as possible. Israel has already today declared that it will engage in political lobbying to thwart the deal – this presumably means using the strong Jewish lobby and APAC in the US to block US support for the deal in Congress. A very negative and dangerous game, in my opinion.”