Thursday, 24 September 2015

Iran's business

        Tuesday, July 14, 2015 is a date with double significance. Not only is it the day on which world powers, led by the United States, signed the deal with Iran that nominally limits its nuclear programme, but it also marks the re-emergence of Iran into world markets after decades of crippling sanctions. In truth the consequential commercial and economic benefits of the deal will be as vital to Iran’s ambitions as the nuclear.

        As for Iran’s ambitions, its leaders have never concealed them. The Islamic Republic of Iran seeks to become the dominant political and religious power in the Middle East. As the prime exponent of the Shi’ite tradition of Islam, Iran views as its main rival the leading Sunni state, Saudi Arabia. Iran seeks to impose its own version of Islam on the world, just like its Sunni mirror image, Islamic State (IS). And just like IS, it regards Western democracy with contempt. It dubs its leading exponent, the United States, the “Great Satan”. and has for decades initiated and supported terrorist attacks on US targets, many of them deadly. Iran abhors Israel in particular, and it makes no secret of its intention eventually to eliminate the State of Israel from the map of the Middle East.

        It is to this rogue state that the much-vaunted nuclear deal has handed the keys to an eventual nuclear arsenal, and the means to enjoy a mushrooming economy and commercial growth on a previously unimaginable scale. Starved of economic development, and with a population of some 80 million, Iran is replete with juicy commercial plums simply waiting to be plucked.

        “The early bird catches the worm.” The ink was barely dry on the nuclear agreement, before a German government plane filled with some of the nation’s top economic and commercial interests touched down in Tehran.

        The German delegation was led by vice-chancellor, Sigmar Gabriel, who declared that the nuclear deal “has laid the foundations for a normalisation of economic relations with Iran.” He led a team which included the chief executive of Siemens, the German industrial conglomerate, and leading figures from Daimler, Volkswagon and ThyssenKrupp.

        “A lot of companies at the moment are preparing agreements to be signed the moment sanctions are lifted,” said Michael Tockuss, head of the German-Iranian Chamber of Commerce. He said that his association was organising a trip every week for companies interested in doing deals in Iran.

        Germany is far from alone. Newspaper reports speak of European ministers and business people flocking to the country: “Upscale Tehran hotels are packed and tables at trendy restaurants are scarce, as foreigners jostle for bargains.” There are reports of businessmen across Europe packing conference halls to discover how to unlock Iran’s vast potential after three decades of isolation. On August 27 four hundred of them piled into a hotel in Zurich for a day of briefings. Austria’s president is planning to take 240 businessmen with him when he visits later in September.

        Meanwhile, major deals are in the making, while some have already been signed. Italian bank Mediobanca signed a memorandum of understanding in Tehran earlier this month to finance deals between Italian and Iranian businesses. The loans would be guaranteed by Italy’s state-run export credit company.

        On September 15 the Iranian firm Aria Ziggurat Tourism Development Company signed an agreement with the major French hotel chain, AccorHotels. Under the contract, the Iranian company will use the Novotel and Ibis brands, both owned by AccorHotels, for 15 years. Iran hopes to increase tourist arrivals from the current 4.5 million to 20 million over the next 10 years, the head of Iran's Cultural Heritage and Tourism Organization, Masoud Soltanifar, said during the signing ceremony.

         But there are even bigger fish to fry on Iran’s giant cooker. Towards the end of August Iran’s Tasnim News reported that two Russian companies had signed a deal with an Iranian firm to develop a remote-sensing satellite observation system based on the Russian Kanopus-V1. Satellite observation systems can be used to gather information about the Earth's atmosphere, surface, and oceans. What else they can be used for was not specified in the Iranian news report, leaving the imagination to run riot.

        Under the terms of the deal, NPK BARL of Russia will build the ground infrastructure, while another Russian firm VNIIEM will be responsible for building and launching the satellites. Bonyan Danesh Shargh of Iran will operate the observation system. The launch is scheduled for 2018 aboard a Soyuz carrier rocket.

        Scientific cooperation between Tehran and Moscow is nothing new – it is well known that Russia had helped Iran build its Bushehr nuclear power plant. Now reports indicate that Russia has agreed to cooperate with Iran in the fields of aviation and shipbuilding, and plans to supply Iran with commercial airplanes in the future. In addition a deal is close to being finalized for the sale by Russia of S-300 anti-aircraft missile systems to Tehran. Soon after the nuclear deal was signed, Moscow lifted the ban on the potential sale of the advanced surface-to-air missile systems, and Iran increased the order from three to four systems.

        As a matter of interest, the nuclear agreement explicitly prioritizes "the sale of commercial passenger aircraft and related parts and services to Iran." In consequence Iran has started negotiations aimed at upgrading its commercial air transport system. Transport Minister Abbas Akhoundi estimates that 400 new planes could be needed. Negotiations with Airbus and Boeing are under way to rebuild the fleet and finalize leasing arrangements for short-term cover. In addition to fleet upgrades, Iran's infrastructure will see massive investment in areas like radar, air traffic management, the 300 domestic airports and passenger experience. All are key opportunity areas for international firms. Already organized for March 2016 is the first Aviation Iran trade show, to be hosted in Dubai.

        Underneath all this frenetic commercial activity lies something not quite so appetising. A major beneficiary will be Iran's highest authority, Supreme Leader Ayatollah Ali Khamenei, thanks to his close control of one of the most powerful and secretive organizations in Iran -- "Setad Ejraiye Farmane Hazrate Emam," or Setad, a multi-billion dollar operation at the heart of Iran’s economy.

        The nuclear deal lifts US secondary sanctions on Setad and about 40 firms it owns or has a stake in. With a finger in nearly every sector of Iran's economic pie, Setad built its empire by confiscating thousands of properties belonging to religious minorities, business people, and Iranians living abroad. According to a 2013 Reuters investigation, which estimated the network's holdings at about $95 billion, Khamenei exerts exclusive control over Setad's economic empire.

        Do the government officials and businessmen, falling over each other to grab the business opportunities now opened up, know or care what nefarious activities their commercial deals will be facilitating? Probably not. “Business is business” they are likely to declare. “Let the politics take care of themselves.” 

        A dangerous philosophy.

Published in the Jerusalem Post on-line, 24 September 2015:

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