In mid-January, Greece paved the way for an accelerated economic and trade engagement of the basically de-sanctioned Iran by purchasing the first batch of barrels of Iranian oil.
The reinstatement of Iran as a bona fide partner was later impressively manifested by the European tour to Italy and France by its President Hassan Rouhani, who netted quite remarkable benefits thus providing an unequivocal answer to the question used as a title for his study by expert Euler Hermes “Iran: Back in the game?” Indeed, this is a comeback for the 80-million nation, heir of the Persian Empire, and the would-be new regional leader.
To begin with, during Rouhani’s visit to Rome Italian Saipem signed two memorandums of understanding with Iran's National Gas Company and Persian Oil & Gas Company to enter negotiations on the possible cooperation for upgrading the Pars Shiraz and Tabriz refineries. “Upgrading” is the sweetest consolation word for Iranian energy sector, which throughout the silent sanctions’ war remained effectively starved of investment and deprived of the essential regular influx of sophisticated Western technologies to enhance the accessibility of the oil and gas fields, and improve productivity.
Second, the talks in Italy resulted in initialing contracts worth roughly $17bn, and would most certainly ensure a most favoured nation treatment for Italian business returning to Iranian markets.
In France, both sides confirmed that negotiations that had already lasted for 10 months would be concluded by a wide-range deal to buy 114 Airbus planes to revitalise the Iranian ageing fleet. Transport Minister Abbas Akhoundi revealed that only 150 of the country's 250 planes are operational, and Iran is looking for the purchase of “400 long- and mid-range and 100 short-range planes."
In the coming two years, according to estimates by Euler Hermes, the total volume of imports to Iran would reach $20bn with $4bn accounting for machinery and industrial products, and another $2,7bn for cars and trucks. The main beneficiary of the “opening up” of the 80 million customers nation would be Germany with additional $1,3bn revenues from its exports, followed by Italy (+$900 million), UK (+$600 million), and the US (+$500 million).
The key issues used to be the US and European sanctions on financial transactions to-and-fro, which were crippling the Iranian economy. Tehran’s purchasing power was undermined by embargoes on its oil and gas exports. Now, the energy sector is viewed once again as the main “bread winner” or rather the supreme earner of hard currency.
The estimations by Euler Hermes expect Iranian exports to go up as much as 20%, contributing to a 4% GDP growth by the end of 2016, which is double of its 2015 pace of development, and with the forecast of 4,2% GDP tempo in 2017.
No wonder, oil exports are prioritized (currently production amounts to app. 2.9 million barrels a day) but gas exports are in no way neglected. National Iranian Gas Export Director Alireza Kameli announced his country was looking into options to “join the international LNG club.” It relates to the ambitious Iran LNG program reportedly completed by 40% when it was grounded in 2012 by international sanctions regime. The finalization of the LNG potential would require at least 3-4 years. Nevertheless, Mr. Kameli was quoted in The Wall Street Journal as saying that Iran would be ready to break into the ranks of LNG exporters in two years time.
Apart from local production, Iran plans to construct a pipeline to Sultanate Oman, which is already in possession of an LNG production train. Iranians are also holding talks with European manufacturers to acquire floating LNG plants.
In the long-term Iran entertains the idea of surging its gas exports to Europe to around 30 bcma. If compared to the 10bcma planned for delivery from the Azeri Shah Deniz 2 gas field along the TANAP pipeline network, the Iran supplies would exceed it threefold. Yet, it would be no game changer to beat the app. 150-160 bcma of Russian pipeline gas contracted by European customers for the next decade. Besides, the fast pace of refurbishing and upgrading of the Iranian energy sector should not be taken for granted, just as the readiness of Western governments to facilitate Iran becoming a fast-track “new economy” with a formidable economic potential to back up its undiminished aspirations of acting as a regional forerunner.
In January, the French government raised the stakes in the process of “liberation” of Iran by putting back into the agenda the issue of Iranian missile program in a display of NATO-rooted transatlantic solidarity. Earlier that month, the U.S. Treasury Department unleashed sanctions against 11 people and companies involved in the ballistic missile program, not covered by the last year’s compromise on Iran’s nuclear projects hammered out by P5+1.
During the European tour President Rouhani, noted for his intellectual looks and careful wording of his public statements, sounded cautiously optimistic about the evidently uphill battle to re-establish Iranian footprint on the global already glutted energy markets at a time when oil prices have spiralled downward to record lows and show no sign of rebounding. The chief pragmatist in the heterogeneous political class in Iran tacitly admitted it would be a “long road” to Iran's full economic integration with the world.
Moreover, energy experts and political pundits put to doubt the possible long-term attachment of Iran to the EU market. First of all, the consistent European Commission’s policy of assuming power to administer commercial contracts and basically determine final commitments of business entities do no implant confidence in the lucrative trade. Secondly, Iran will be watching closely for any unfriendly moves by Western governments, being psychologically ready for the resumption of sanctions.
And finally, with the EU fixation on lowering prices for imported oil and gas, and steadily reducing fossil fuel consumption, the European market are losing long-term competitive advantages of such inherently insatiable for all kind of energy imports countries as neighbouring Pakistan, India, and further on, Bangladesh. Actually, it is no news, no “pivot to Asia” for Tehran since it is already a fait accompli: for the last six years it was China that enjoyed the status of the number one trade partner.
At the end of January, China’s president, Xi Jinping became the first foreign leader to visit Tehran after most international sanctions were lifted. Xi declared that the land of the Rising Renminbi views Iran as a vita link in the restoration of the Silk Road alliances aimed at creating a zone of mutual economic interest while extending China’s trade outreach. The visit produced the agreement to boost bilateral trade to $600 billion in the coming decade.
Mr. Xi in an open letter to the Iranian people, reported by Xinhua, China’s state news agency, defined China’s interest in doing business with the promising “emerging market”: “Iran has rich resources, ample labour force and huge market potential, and it is in the crucial stage of industrialization and modernization.” And the final touch: When meeting Mr. Xi, Iran’s supreme leader, Ayatollah Ali Khamenei, made no bones about the feelings of religious authorities who run the country: “Iranians had never trusted the West.”
It all boils down to a forecast: Going eastward instead of entering the tightly regulated and shrinking European markets would make more commercial sense for Iran, where the political class, despite a strong pragmatic leaning, still harbours resentment and defiance of the Western mistreatment it was subjected to for solong