Iran Back in Business with Sanctions Lifted

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January 17, 2016

By Jonathan Tirone

(Bloomberg) — After a decade of unprecedented economic sanctions, Iran is about to be back in business.

The Islamic Republic curbed its ability to make a nuclear bomb as required under a deal with world powers, clearing the way for it to resume global commerce, the International Atomic Energy Agency said Saturday. The European Union, United Nations and U.S. agreed in July to lift sanctions simultaneously once compliance was verified.

The IAEA’s assessment will trigger a financial windfall for Iran that adversaries Saudi Arabia and Israel, which opposed the deal, say will empower Tehran’s theocracy and further destabilize the Middle East. Tensions between mainly Shiite Muslim Iran and Sunni-ruled Saudi Arabia have escalated since the agreement was signed, helping fuel wars from Syria to Yemen, where they back opposing sides.

“This is the Big Bang transforming Iran from the most sanctioned country on Earth into that with the most monitored nuclear program,” said Ali Vaez of the International Crisis Group in Istanbul. “The race of sanctions against centrifuges has finally ended.”

Averting War

The verification marks a milestone for President Barack Obama, who said this week that his policy of hard-nosed diplomacy backed by onerous penalties succeeded in keeping the U.S. out of “another war.” The deal, struck on the 18th day of last-ditch talks in Vienna, capped more than two years of wrangling between Iran and the U.S., China, Russia Germany, France and the U.K.

The U.S. and its European allies see Iran’s willingness to confront its own hardliners over the nuclear deal as an opportunity to bolster a more pragmatic leadership since President Hassan Rouhani came to power.

While Iran says it never sought to develop a weapon, the IAEA reported that Iranian scientists had experimented with nuclear-bomb technologies without ever taking the final steps needed to produce one.

Oil Rush

Iran, holder of the world’s fourth-largest reserves of crude and largest of natural gas, will gain instant access to about $50 billion in frozen accounts overseas, funds the government says it will use to rebuild industries and infrastructure. The IAEA’s report also opens the door to foreign investors who are keen to enter a relatively untapped market of 77 million.

EU company executives have been lining up in anticipation of potential deals in energy, finance and transportation. The EU’s trade with Iran plunged to about $9 billion a year from $32 billion a decade ago, while China’s jumped to $54 billion.

The biggest prize of all is oil, according to Paolo Scaroni, deputy chairman of investment bank Rothschild and a former CEO of Eni Spa, Italy’s largest energy company. Massive reserves and production costs of as little as $2 a barrel make Iran one of the most attractive opportunities in the world, even with crude prices at 12-year lows, he said.

“Everyone is going there,” Scaroni said. “Everyone is expecting the new contracts will be the real start of the race.”

Republican Opposition

Not everyone shares that optimism.

With Obama in his final year in office and Republican presidential candidates including front-runner Donald Trump vowing to scuttle the deal, many investors will be hesitant to rush in.

Mistrust runs deep between the U.S., which helped organize a coup in Tehran in the 1950s, and Iran, which held more than 60 Americans hostage from 1979 to 1981. Underscoring the depth of the suspicions that remain, Iran this week seized two U.S. Navy boats in its territorial waters, only releasing their crews after they publicly apologized.

The Republican-controlled Congress has already started working on new sanctions that may target Iran for issues other than its atomic program, including terrorist financing, ballistic missile development and compliance with international law.

‘Revolutionary Roots’

Even with the lifting of nuclear-related sanctions, most U.S. entities will still be prohibited from doing business with Iran directly under anti-terrorism measures adopted in the 1990s, according to law firm Latham & Watkins LLC.

And Obama ensured clauses were included in the nuclear accord that allow the U.S. to quickly re-impose penalties in the event of violation.

Even so, Peter Jenkins, a former U.K. negotiator whose partners included future Iranian President Rouhani, said the historic agreement Obama championed shows that a new, more cooperative Iran is emerging.

“The Islamic Republic is maturing away from its revolutionary roots,” Jenkins said. “They have become wise in the ways of the world and can see they have no need of nuclear weapons.”

–With assistance from Francine Lacqua and Grant Smith.

©2016 Bloomberg News

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