European companies were astonishingly quick to seek new business with Iran following the interim nuclear agreement the P5+1 states and Tehran reached in November 2013.
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In their zeal to boost trade following the easing of measures meant to stop Iran’s illicit nuclear program, EU businesses and governments are aggressively courting Iranian businesses, sometimes employing unconventional approaches. The Dutch ambassador to Iran, Jos Douma, tweeted in mid-January: “speeddate sessions to meet business[es] interested in Iran.”
When I asked him via Twitter about the nature of the trade and if the energy giant Royal Dutch Shell was represented at the dating session, he replied, “Private companies free tot [sic] do any business not covered by sanctions. Royal/Dutch Shell has withdrawn from Iran.”
While Douma is right that Royal Dutch pulled the plug on its work in the Islamic Republic several years ago because of sanctions, the firm, along with Italy’s Eni energy company and the giant Austrian oil and gas company OMV, met with Iran’s oil minister in Vienna in December 2013 to explore investments in the country’s oil fields.
Tehran’s mullah regime agreed to freeze elements of its illegal nuclear program in exchange for the P5+1 states (U.S., France, Britain, China, Russia and Germany) suspending some economic sanctions. But the carrots (incentives) for Iran’s rulers outweigh the disincentives (sticks) designed to stop its drive toward nuclear weapons.
Britain’s former Foreign Secretary Jack Straw, who traveled to Iran in January 2014 as part of a UK parliamentary delegation and has gone to great lengths to mainstream Iran’s new president Hassan Rohani, said, “Our Lufthansa flight back from Tehran was full of German business people.”
Daniel Bernbeck, the director of the German-Iranian Chamber of Industry and Commerce, said in early January this year that there are also airplanes “full of Italians,” including senior representatives from the Eni S.p.A. oil and gas company, traveling to the Islamic Republic. This is the same Bernbeck who dismissed human rights concerns after Mahmoud Ahmadinejad falsified the result of the 2009 presidential election and ushered in waves of violence to suppress the country’s democratic Green Movement.
Bernbeck saw “no moral question here at all” in conducting business transactions with Iran. France is part and parcel of this rush into Iran’s markets, with a meeting slated for early February 2014 in Tehran for its major companies, including Peugeot Citroën. The partial suspension of sanctions allowed Renault to restart shipments of parts for the assembly of cars in Iran in late January.
A study conducted my Foundation for Defense of Democracies colleagues showed the abolition of auto sanctions will provide a powerful shot in the arm to Iran’s wobbly economy. “Even if Iran’s auto sector contributed only 10 percent of the sector’s previous $50 billion annual contribution in GDP to Iran’s overall economy, that would be worth $2.5 billion in additional economic activity over the next six months not included in the White House’s calculations [of the value of loosening trade restrictions],” the study reported.
All of this high-intensity economic activity explains why the sanctions relief for Iran hovers around $20 billion, as Haaretz reported in December, instead of the $7 billion figure the Obama administration cited.
The German-speaking countries in Europe have energetically championed trade with Iran. Ali Naghi Khamoushi, a former head of Iran’s Chamber of Commerce, said prior to tough EU sanctions, “Austria is for us the gateway to the European Union.” His words have been transformed into actions since November. In December 2013, the Austrian Chamber of Commerce said representatives of 10 companies, and the chamber’s president, were slated to visit the Islamic Republic Austrian Rail technology firms Plasser & Theurer and AVL, high-rise engineering firm Doka, engineering consultants ILF and cable car maker Doppelmayr were listed as participating in the delegation.
Richard Schenz, the vice president of the Austrian Chamber of Commerce, participated in the trip to Tehran. He said last month, “There is no reason to comply with U.S. laws” regarding Iran sanctions.”
Abbas Araqchi, Iran's deputy chief nuclear negotiator in talks with the P5+1, announced in late January that Switzerland’s bank system is one of the countries selected to transfer suspended sanctions business.
Robust German exports to Iran have never missed a beat ever since “crippling sanctions” went into effect in 2010. For example, Herrenknecht, which dominates the world market for tunnel boring machines, has been building metro lines for the Iranians. A spokeswoman told me in January this year that the company “takes seriously the concerns and peace in the Middle East in every way and understands the security interests of Israel.”
But business as usual for over 100 German companies in Iran continues to provide a kind of economic lifeline for Tehran at the expense of human rights and stopping Iran’s nuclear program.
While the Obama administration insists that “Iran is not open to business,” the Islamic Republic’s nuclear chief, Ali Akbar Salehi, said the “iceberg of sanctions is melting while our centrifuges are also still working."
There are already some telltale signs that this nascent phase of sanctions relief has breathed life into Iran’s battered economy. The World Bank noted that Iran’s GDP is slated to increase by 1 percent this year and in 2015 it will hit 1.8 percent. After years of a plummeting currency, Iran’s rial is on a steady path to recovery.
What is driving Iran’s rapid recovery is the market psychology effect. If sanctions slowly begin to disintegrate, then all the conditions are primed for a snowball effect: Investors believe sanctions will not be re-imposed and Iran is open for business. A telling example is Russia’s decision to engage in an oil-for-goods deal with Iran, which is estimated to be valued at $1.5 billion a month. The total revenue for Iran would be an additional $18 billion. This could be viewed as a secondary effect of the sanctions relief - the positive market psychology influencing investment attitudes toward Iran. The U.S. has objected, but Putin does not take Obama's rhetoric seriously.
European companies are simply not in the business of making large-scale investments without a strong sense of that these will be worthwhile over the longer term. Whether the companies already rushing to invest in Iran are negotiating long-term contracts that assume that sanctions will not be re-imposed is not yet clear. But these businesses surely took heart from recent comments by Catherine Ashton, who signaled that the six-month interim deal, mitigating part of the sanctions regime, could well be rolled over “by mutual consent.”
The interim nuclear deal has stimulated Iran’s economy well beyond the initial estimate of cash infusion. The forecast for Iran’s economy, and for European companies setting their consciences on the side and heading into the Persian gold rush, seems rosy. Few choose to remember that the demise of the sanctions regime has far broader effects on the Middle East and globally; in a few months, little will be left of the one proven type of leverage that brought Iran—the world’s leading sponsor of terrorism—to the negotiating table.
Benjamin Weinthal is a Berlin-based Fellow at The Foundation for Defense of Democracies. Follow Benjamin on Twitter @BenWeinthal