Promising sectors in Iran for investments after the removal of economic sanctions

By Pamkhuila Shaiza on February 9, 2016

In November 1979, the United States of America (US) imposed sanctions on Iran regarding imports, which amounted to $12 billion in assets. In 1995 the United States prohibited any of her country’s companies from investing in Iranian oil or any other trading activities. By 2006, there was an additional burden to Iran, when the United (UN) Security Council imposed sanctioned on Iran’s trade in nuclear-related matters, followed by the United States in 2007. From 2010 till 2013, the sanctions against Iran by the United States, the UN and European Union (EU) went to encompass the backs, trade, technology, assets (properties) and technology among others. This system of sanction changed in early April 2015, when the United States and the European Union decided to lift sanctions. The lifting of the sanction became formal when Iran agreed to limit their nuclear activities and agreements were reached with the P5+1 countries (China, France, Russia, the United Kingdom, and the United States; plus German) on 14th July 2015 (Cordesman, 2015). The official proclamation of the United Nation Security Council to unanimously approve this lifting of various sanctions against Iran on 20th July 2015 finally has opened up new opportunities in Iran.

Banking and commerce

Among the many sectors, the most lucrative sector is the banking and financial investment sector. International financial service groups or investment banking groups are expected to grow rapidly in Iran, to the extent of booming immediately or in a few years to come (Cordesman, 2015; Matthews, 2015; Torchia, 2015). Ramin Rabii, the CEO of Turquoise Partners, which is a Tehran-based investment firm with more than $200 million of worth asserts that banking and financing systems can now expect to achieve stability in the near future owing to the removal of the economic sanction (Reuters, 2015; Torchia, 2015). Potential foreign investors will now bring immense opportunities in Iran in the coming years. Iran expects themselves to be readmitted into the Society for Worldwide Interbank Financial Telecommunication (SWIFT) which allows global financial institutions to transact, send, and receive insecure and standardized network, allowing the country’s banking and investment to grow (Torchia, 2015). Many of the Iranian accounts which are blocked across the world will be able to transact freely in the global platform through SWIFT, making investment and banking transaction easier and better.

Oil and gas industry of Iran

In terms of crude oil reserve, Iran holds almost 10% of the world reserves, and 13% of OPEC reserves (Table I). By entering the global oil market, it is expected to bring down crude oil price by $5-$15 per barrel (Bremmer, 2015). While this is a welcome change for all the consumers, the neighbouring kingdom of Saudi Arabia may lose a significant share of the oil market to the Iranians.  In terms of natural gas reserves, it is the second-largest proved natural gas reserve holder after Russia. Her holdings come to 17% of the world’s proven natural gas reserves and one-third of the OPEC’s proved natural gas reserve (Table II). Keeping this rich reserve in mind, many countries are looking forward to investing in the Iranian oil reserves. For most of the European investors, this means freedom from the dependence on Russian oil reserves. European oil companies like Norway’s Statoil and France’s Total were stopped from dealing with Iran in 2012. The removal of economic sanction is expected to bring back the joint ventures (Matthews, 2015). Iran intends to spend $170 billion to develop its oil and gas potential and $50 billion to cater to the demand and investment of renewable energy. This is expected not only to push the country’s GDP but also to develop infrastructure and create jobs for the country.

Largest Proved Reserve Holders of Crude Oil in USD Billions (January, 2015. Source: Cordesman, 2015, p. 82).
Table I: Largest Proved Reserve Holders of Crude Oil in USD Billions (January 2015. Source: Cordesman, 2015, p. 82).
Largest Proved Reserve Holders of Natural Gas (End of 2014 in Trillion Cubic Feet, Source: Cordesman, 2015 p. 87).
Table II: Largest Proved Reserve Holders of Natural Gas (End of 2014 in Trillion Cubic Feet, Source: Cordesman, 2015 p. 87).

Developing the automobile industry of Iran

Mohammad Reza Nematzadeh, Iran’s Industry Minister stated that the country is opening up investment in engineering, technology, and automobile manufacturing sector (Paivar, 2015). Iran aims to develop, design, and engineer automobile production. The main objective here is to triple cars and automobile production by 2025. Since the lifting of the sanction, many leading European technological countries and Asian countries like are showing immense interest in developing the automobile industry of Iran (Paivar, 2015). General Motors of the United States is also showing interest, which will amount to joint production in the future (Paivar, 2015). But the most prominent interests in developing the automobile industry of Iran are coming from Germany and France. This is so because, before the economic sanction was applied, car manufacturers like Volkswagen and Peugeot were the market leader in Iran (Matthews, 2015). The lifting of the economic sanction has brought these companies to show interest in reopening ventures again. Interestingly, within hours of the sanction being lifted, Peugeot released a plan to reclaim the title of a popular car in Iran (Reuters, 2015; Torchia, 2015).

Other industries that are showing signs of promising returns on investment

Mining is another sector where investment is opening up in Iran. In this sector, the country needs around $20 billion investment in order to carry out various mining process (Paivar, 2015). The mining sector has been steadily increasing in Iran and the country experienced a growth rate of 9.8% in 2014 (Paivar, 2015). The food industry in Iran is also showing as an opportunistic deal to investors (Bremmer, 2015). Iran’s food industry is being known for its untapped potential; favourable regional market popularity; and for its export potential. Kaveh Zargaran, Secretary of Food Industries Association of Iran stated that the dairy products along with chocolates and other confectionary items have high investment power. Given the fact that Iran has access to high seas (easy exports), the food industry can be a great opportunity for foreign investors.

Lifting up of the sanctions had a major impact on the Iranian economy and the country regularly suffered from steep inflation and fall in Gross Domestic Product during the sanctions. Many of the Iranians also reportedly left the country during the economic sanctions, in search of new and better opportunities. In fact, more than 25% with postgraduates live in OECD countries, making it the highest ‘brain drain’ in the world (Bremmer, 2015). Removal of the sanction is now expected to bring economic growth in the country, with simultaneous investment from various foreign countries since every investor is rushing for ‘first-mover’ advantage to invest in Iran. Iranian officials can now finally get into the business conference to discuss open investment in their country from foreign investors without interference from the United States officials.