When more than 300 German companies visited Iran last month, their interest in the Islamic Republic stretched across myriad sectors, from machinery and healthcare, to the auto industry and energy.
They were just the latest batch of European, Asian and other foreign companies that have beaten a path to Iran since as they look to tap into the potential of the oil-producing nation and its 78m population. But while provisional agreements worth billions of dollars have been reached, there is mounting frustration in Iran that they have yet to materialise into completed deals on the ground.
The hope is that one big international deal will unlock the floodgates.
“Everyone is waiting for the first big bang — like France’s Total or Royal Bank of Scotland to open the way,” said an Iranian businessman.
But western investors first have to overcome a stumbling block — the to work with Iranian institutions and individuals. Although many sanctions were lifted after Tehran reached a deal with western powers last year to scale down its nuclear activities, US sanctions related to issues such as facilitating terrorism remain in place.
“No major western bank or company wants to be the first,” said a senior western diplomat.
Mohammad Javad Zarif, Iran’s foreign minister, on Tuesday urged Washington to do more to encourage banks to do business in Iran.
“It is important for everybody to realise that an agreement will be sustainable if everybody feels they are making gains from the agreement,” he told reporters. “Its implementation must also be a win-win implementation so that everybody feels there are benefits, there are dividends.”
Analysts say the government of Hassan Rouhani, the centrist president, is adopting a policy of trying to rebalance trade with the west by encouraging more European investment. It is interpreted as a move partly based on the hope that the more western investment there is in the country, the harder it would be for sanctions to be reinstituted
Bankers’ resistance to doing business with Iran comes in spite of pressure from top western officials to help facilitate deals with the country, including John Kerry, the US secretary of state, who last month called for banks to re-engage with the Islamic Republic.
Bankers argue it is not just sanctions that are an issue, but also the risk of inadvertently aiding money laundering, financing terrorism or financial crime in a country that has for many years been in the wilderness.
Still, some smaller European banks are tentatively re-engaging. Belgium’s KBC Bank and Germany’s DZ Bank have started handling transactions on behalf of European clients doing business in Iran. Austria’s Erste Bank is preparing to do so.
Rene Harun, managing director of the German-Iranian Chamber of Industry, believes that as growing numbers of European companies show interest in Iran, “the more pressure [there will be] on European banks to do business”.
“The financial problem has to be resolved within the next few months,” Mr Harun said. “There are many companies that want to start or restart Iran business.”
Ahmad Pourfallah, head of the Iran-Italy Chamber of Commerce, said initial agreements worth tens of billions of dollars have been signed, as the likes of Germany, Italy and France seek to revive their previous positions of leading trade partners with Iran, which they lost to China and South Korea during the last decade.
One such deal is an agreement with aircraft. This month, Turkey’s Unit International said it had reached a $4.2bn deal to build seven natural gas power plants, which it claimed was the biggest investment since the easing of sanctions.
Italian financing agencies have also agreed to give Iran nearly €5bn in credit lines and guarantees for exports, which was announced during a two-day visit to Tehran by Matteo Renzi, Italy’s prime minister, in April.
The same month, Jacob Zuma, South Africa’s president, led a delegation to the Islamic Republic, at end of which both sides committed to “take economic and trade relations to greater heights following the lifting of sanctions in Iran”.
A critical area deemed in need of western investment is the hydrocarbons sector, and Bijan Namdar Zanganeh, Iran’s oil minister, on Sunday said that Iran — once the second largest Opec producer — expected to sign a first post-sanctions oil contract with a foreign company within three months.
He did not provide further details. Mr Zanganeh also appointed Ali Kardor, whose background is in finance, as the new head of the National Iranian Oil Company last week. The appointment was seen as an attempt to tackle financial issues, which along with unattractive terms of contracts and low oil prices, have hampered new oil projects.
And while banks’ reluctance to back business in Iran is one barrier to investment, companies also want to see greater reforms to bring more transparency to opaque financial and economic systems.
“We have not yet offered stable conditions for foreign investors who have basic concerns like what parity rate they can use when they bring in investments and at what rate they can take out their profits,” said Farhad Ehteshamzad, a member of Iran-South Korea Chamber of Commerce.
