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Report: Economic Impact of Sanctions Relief

The Iranian economy will receive a boost from sanctions relief, both from increased trade and recovering billions of dollars in frozen assets. Additionally, Iran’s return to the oil market could cause oil prices to drop by 14 percent, according to the World Bank’s MENA Quarterly Economic Brief, which explores the economic implications of lifting sanctions on Iran. The following is an excerpt of the report.

Iran and the Permanent Members of the UN Security Council and Germany (P5+1) reached a deal on July 14, 2015 that limits Iranian nuclear activity in return for lifting all international sanctions that were placed on Iran This issue of the MENA Quarterly Economic Brief (QEB) traces the economic effects of the latter development—removing sanctions on Iran—on the world oil market, on Iran’s trading partners, and on the Iranian economy.
The most significant change will be Iran’s return to the oil market. The World Bank estimates that the eventual addition of one million barrels a day (mb/d) from Iran, assuming no strategic response from other oil exporters, would lower oil prices by 14 percent or $10 per barrel in 2016. Oil importers, including the European Union (EU) and United States (US), will gain while oil exporters, especially the Gulf countries, will lose.
Secondly, once sanctions and restrictions on financial transactions are relaxed, Iran’s trade, which had both declined in absolute terms and shifted away from Europe towards Asia and the Middle East, will expand. The World Bank estimates that sanctions reduced Iranian exports by $17.1 billion during 2012-14, equivalent to 13.5 percent of total exports in that period. Our analysis suggests that the countries that will see the largest post-sanctions increase in trade with Iran include Britain, China, India, Turkey, and Saudi Arabia.
Thirdly, the Iranian economy, which was in recession for two years, will receive a major boost from increased oil revenues—conservatively estimated at about $15 billion in the first year—and lower trade costs. In addition, there are estimates that Iran holds about $107 billion worth of frozen assets (including LCs and oil exports earnings) overseas, of which an estimated $29 billion will be released immediately after sanctions removal. Finally, foreign direct investment (FDI), which had declined by billions of dollars following the tightening of sanctions in 2012, is expected to pick up. There has already been some interest shown by foreign multinationals since the April 2015 framework agreement, especially in the oil and gas sectors. The World Bank expects FDI to eventually increase to about $3 - 3.5 billion in a couple of years, double the level in 2015 but still below the peak in 2003.
In addition to slowing down, the Iranian economy underwent a structural shift during the sanctions era, with the oil, automobile, construction and financial sectors declining the most. As sanctions are lifted, these sectors are likely to see an expansion of output.
All these changes to the economy involve shifting resources from one use to another. The most significant aspect of sanctions relief is that it enables resources to be shifted to where they are more productive, that is, for the economy to produce more efficiently. For example, Iran can now produce and export those goods in which it has a comparative advantage, and import goods in which it does not. In short, sanctions relief can be thought of as an economic windfall to the Iranian economy. The World Bank estimates the size of this windfall as a welfare gain of $13 billion or 2.8 percent of current welfare. Like all windfalls, however, they have to be properly managed in order that they sustainably benefit the population. In particular, as oil revenues enter the economy, the exchange rate will appreciate. While this will make imports cheaper, it will also make nonoil exports less competitive. During the early 2000s, when oil prices were soaring (and sanctions were not restrictive), Iran experienced this phenomenon. Many of the exporting industries suffered. In fact, the only ones that made progress were the petrochemicals and chemicals industries, which received massive subsidies, including subsidies on their consumption of fuel. With the lifting of sanctions, the government of Iran has the opportunity to put in place a policy framework that will enable the economy to make maximum use of this windfall and put the economy on a path of sustained economic growth.
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US Treasury: New Guidance on Sanctions

On August 7, the U.S. Treasury issued guidance clarifying that Iran will continue to receive the limited sanctions relief specified by the 2013 interim nuclear deal, known as the Joint Plan of Action (JPOA). Once the final nuclear deal is implemented – likely not until early 2016 – the Treasury will issue new guidance on sanctions relief. The following are excerpts from the Treasury’s latest sanctions guidance and frequently asked questions.

Guidance relating to the continuation of certain temporary sanctions relief pursuant to the JPOA, prior to implementation of the JCPOA
On July 14, 2015, the United States and its partners in the P5 + 1 (China, France, Germany, Russia, and the United Kingdom, coordinated by the European Union’s High Representative) reached a Joint Comprehensive Plan of Action (JCPOA) with Iran that will verifiably prevent Iran from acquiring a nuclear weapon and ensure that Iran’s nuclear program will be exclusively peaceful. The JCPOA builds on the foundation of the Joint Plan of Action (JPOA), achieved in November 2013, and the political framework announced in Lausanne on April 2, 2015. Under the JCPOA, Iran will receive phased sanctions relief once the International Atomic Energy Agency (IAEA) verifies that Iran has implemented key nuclear-related commitments described in the JCPOA. The date on which sanctions relief under the JCPOA will commence is referred to hereinafter as “Implementation Day.” Prior to Implementation Day, the U.S. Government (USG) will issue guidance related to the implementation of the sanctions relief provided for under the JCPOA.
The P5+1 and Iran also decided on July 14, 2015 to further extend through Implementation Day the nuclear commitments and sanctions relief provided for in the JPOA. Accordingly, during the period from January 20, 2014 through Implementation Day (the “JPOA Relief Period”), the USG will implement the limited JPOA relief as set out below. This JPOA sanctions relief is the only Iran-related sanctions relief that will be in effect until Implementation Day.
The USG retains the authority to impose sanctions under the authorities outlined below to the extent such activities are materially inconsistent with JPOA sanctions relief as outlined in this guidance. The USG also retains the authority to continue imposing sanctions under other authorities, such as those used to combat terrorism, destabilizing regional activity, and human rights violations. During the JPOA Relief Period, the USG will continue to vigorously enforce our sanctions against Iran, including by taking action against those who seek to evade or circumvent our sanctions.
With the exception of civil aviation activities described in section IV and the humanitarian channel described in section VI below, none of the sanctions relief outlined in this guidance may involve a U.S. person, or, as applicable, a foreign entity owned or controlled by a U.S. person, if otherwise prohibited under any sanctions program administered by the USG.
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Frequently asked questions relating to the continuation of certain temporary sanctions relief pursuant to the JPOA prior to implementation of the JCPOA
Q. Will sanctions relief be provided to Iran after the announcement of the JCPOA?
Prior to Implementation Day, the only sanctions relief available is the JPOA relief, which was initially provided in January 2014 and has now been extended through Implementation Day. The sanctions relief described in the JCPOA will commence only after the IAEA verifies that Iran has implemented key nuclear-related commitments.
2. Q: What types of sanctions relief will be provided to Iran between the announcement of the JCPOA and Implementation Day?
On July 14, 2015, the USG committed to continue the sanctions relief provided for under the JPOA through Implementation Day. To implement this relief, the USG will continue to temporarily suspend certain sanctions involving Iran’s purchase and sale of gold and other precious metals, Iran’s export of petrochemical products, Iran’s automotive industry, and certain associated services1 regarding each of the foregoing. The USG will also continue to coordinate with Iran regarding the use of financial channels established in furtherance of the JPOA to facilitate Iran’s import of certain humanitarian goods to Iran, payment of medical expenses incurred by Iranians abroad, payments of Iran’s UN obligations, and payments of $400 million in governmental tuition assistance for Iranian students studying abroad. The USG will also continue its favorable licensing policy in connection with transactions related to the safety of Iran’s civil aviation industry. Finally, the USG will continue to pause efforts to further reduce Iran’s crude oil exports and will enable Iran to access an agreed amount of Restricted Funds2 in installments. Unless otherwise noted, these relief measures do not include transactions with persons on the U.S. Treasury Department’s Office of Foreign Assets Control’s (OFAC) List of Specially Designated Nationals and Blocked Persons (the SDN List) (http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx).
The USG will continue to vigorously enforce our sanctions against Iran that are not subject to the limited relief provided pursuant to the JPOA, including by taking action against those who seek to evade or circumvent our sanctions.
3. Q: How do the JCPOA and the extension of JPOA relief impact U.S. sanctions on Iran?
Except for the limited relief provided pursuant to the JPOA, all U.S. sanctions with respect to Iran, including financial sanctions, sanctions pertaining to the purchase of Iranian crude oil, and sanctions on investment in Iran’s energy and petrochemical sectors, remain in effect with respect to U.S. and non-U.S. persons until Implementation Day. Prior to Implementation Day, the USG will provide additional guidance regarding the phased sanctions relief to be provided under the JCPOA.
With certain limited exceptions, the relief provided in the JPOA only pertains to conduct and transactions fully completed during the JPOA Relief Period and involves only certain sanctions on non-U.S. persons not otherwise subject to section 560.215 of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR) (hereinafter “non-U.S. persons not otherwise subject to the ITSR”), as described in more detail in these FAQs.3 U.S. persons and U.S.-owned or -controlled foreign entities continue to be generally prohibited from conducting transactions with Iran, including any transactions of the types permitted pursuant to the JPOA, unless licensed to do so by OFAC.
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US Scientists Endorse Deal in Obama Letter

On August 8, 29 top U.S. scientists wrote to President Barack Obama in support of the Iran nuclear deal. The “innovative agreement” has “much more stringent constraints than any previously negotiated non-proliferation framework,” according to the co-signers, who include six Nobel laureates, nuclear experts and former White House advisers. The letter was published by The New York Times amidst an Obama administration campaign to build support for the deal in Congress, which has about a month left to review the agreement. The following is the complete text.

Dear Mr. President,
As scientists and engineers with understanding of the physics and technology of nuclear power and of nuclear weapons, we congratulate you and your team on the successful completion of the negotiations in Vienna. We consider that the Joint Comprehensive Plan of Action (JCPOA) the United States and its partners negotiated with Iran will advance the cause of peace and security in the Middle East and can serve as a guidepost for future non-proliferation agreements.
This is an innovative agreement, with much more stringent constraints than any previously negotiated non-proliferation framework. It limits the level of enrichment of the uranium that Iran can produce, the amount of enriched uranium it can stockpile, and the number and kinds of centrifuges it can develop and operate. The agreement bans reconversion and reprocessing of reactor fuel, it requires Iran to redesign its Arak research reactor to produce far less plutonium than the original design, and specifies that spent fuel must be shipped out of the country without the plutonium being separated and before any significant quantity can be accumulated.
A key result of these restrictions is that it would take Iran many months to enrich uranium for a weapon. We contrast this with the situation before the interim agreement was negotiated in Lausanne: at that time Iran had accumulated enough 20 percent enriched uranium that the required additional enrichment time for weapons use was only a few weeks.
The JCPOA also provides for innovative approaches to verification, including monitoring of uranium mining, milling, and conversion to hexafluoride. Centrifuge manufacturing and R&D will be monitored as well. For 15 years the Natanz facility will be the only location where uranium enrichment is allowed to take place and it will be outfitted with real-time monitoring to assure rapid notice of any violation. The authority is provided for real-time monitoring of spent fuel as well.
Concerns about clandestine activities in Iran are greatly mitigated by the dispute resolution mechanism built into the agreement. The 24-day cap on any delay to access is unprecedented, and will allow effective challenge inspection for the suspected activities of greatest concern: clandestine enrichment, construction of reprocessing or reconversion facilities, and implosion tests using uranium. The approach to resolving “Possible Military Dimensions” is innovative as well: the International Atomic Energy Agency (IAEA) must be satisfied that it is fully informed about any previous activities, in order to guide its future verification plans, but Iran need not be publicly shamed. This agreement, also for the first time, explicitly bans nuclear weapons R&D, rather than only their manufacture as specified in the text of the Non-Proliferation Treaty (NPT).
Some have expressed concern that the deal will free Iran to develop nuclear weapons without constraint after ten years. In contrast we find that the deal includes important long-term verification procedures that last until 2040, and others that last indefinitely under the NPT and its Additional Protocol. On the other hand, we do believe that it would be valuable to strengthen these durable international institutions. We recommend that your team work with the IAEA to gain agreement to implement some of the key innovations included in the JCPOA into existing safeguards agreements. This will reduce the proliferation risks associated with national fuel cycle facilities worldwide. Thus in the future, when Iran is treated the same as all non-nuclear weapons states with nuclear energy programs, all such programs will be more stringently constrained and verified.
As you have stated, this deal does not take any options off the table for you or any future president. Indeed it will make it much easier for you or a future president to know if and when Iran heads for a bomb, and the detection of a significant violation of this agreement will provide strong, internationally supported justification for intervention.
In conclusion, we congratulate you and your team on negotiating a technically sound, stringent and innovative deal that will provide the necessary assurance in the coming decade and more that Iran is not developing nuclear weapons, and provides a basis for further initiatives to raise the barriers to nuclear proliferation in the Middle East and around the globe.
Richard L. Garwin, IBM Fellow Emeritus

Robert J. Goldston, Princeton University

R. Scott Kemp, Massachusetts Institute of Technology

Rush Holt, American Association for the Advancement of Science Frank von Hippel, Princeton University

John F. Ahearne, Director, Ethics Program at Sigma Xi, The Scientific Research Society

Philip W. Anderson, Professor Emeritus, Princeton University

Christopher Chyba, Princeton University

Leon N. Cooper, Brown University

Pierce S. Corden, Former Director, Office of International Security Negotiations, Bureau of Arms Control: Department of State

John M. Cornwall, Professor of Physics and Astronomy, UCLA

Sidney D. Drell, Stanford University

Freeman Dyson, Professor Emeritus, Institute for Advanced Study, Princeton University

Harold A. Feiveson, Princeton University

Michael E. Fisher, Professor Emeritus, Cornell University and University of Maryland

Howard Georgi, Harvard University

Sheldon L. Glashow, Boston University

Lisbeth Gronlund, Union of Concerned Scientists

David Gross, Professor of Theoretical Physics, Kavli Institute for Theoretical Physics, UCSB
Sigfried S. Hecker Center for International Security and Cooperation, Stanford University

Martin E. Hellman, Professor Emeritus of Electrical Engineering, Stanford University

Ernest Henley, University of Washington

Gregory Loew, Emeritus Deputy Director and Professor, SLAC National Accelerator Laboratory

C. Kumar N. Patel, Professor Emeritus of Experimental Condensed Matter, UCLA

Burton Richter, Stanford University

Myriam Sarachik, City College of New York, CUNY

Roy F. Schwitters, The University of Texas at Austin

Frank Wilczek, Massachusetts Institute of Technology

David Wright, Union of Concerned Scientists
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Report: Guide to Assessing the Nuclear Deal

Assessing the final nuclear deal “boils down to assessing relative risks – accepting the current agreement…or taking the chance that a better agreement can be achieved down the road,” according to a new report from Harvard Kennedy School’s Belfer Center for Science and International Affairs. The report, edited by Gary Samore, presents information and analysis on the major aspects of the deal, including uranium enrichment, plutonium production, verification, and sanctions relief. The following is an excerpt of the report.

The Joint Comprehensive Plan of Action (JCPOA) is intended to stop Iran from acquiring nuclear weapons. If fully imple - mented, the physical constraints and verification provisions of this comprehensive nuclear agreement will effectively prevent Iran from producing fissile material for nuclear weapons at its declared nuclear facilities for at least 10 to 15 years. During this period, the provisions of the JCPOA—along with continuing national intelligence efforts—increase the likelihood of detecting any Iranian attempts to build covert facilities to produce fissile material, thus helping to deter Tehran from attempting to do so. Over 10 to 15 years, the physical constraints on fissile material production at declared facilities and most of the specialized verification and enforcement provisions of the JCPOA expire. At that point, Iran could expand its nuclear capabilities within a few years to create more practical options to produce fissile material for nuclear weapons, whether at declared or secret facilities. Actual production of nuclear weapons would violate Iran’s safeguards agreement with the International Atomic Energy Agency (IAEA), the JCPOA, and the Non-Proliferation Treaty (NPT). The agreement poses no restrictions on what the U.S. or other countries could do in that circumstance.
The central nuclear limits of the JCPOA are physical restrictions on Iran’s ability to produce fissile material for nuclear weapons (either separated plutonium or enriched uranium) at its declared nuclear facilities.
The Plutonium Route
The physical limits on plutonium production in the JCPOA essentially close that pathway for the foreseeable future. The redesigned Arak heavy-water research reactor will not be able to produce large amounts of plutonium, its spent fuel will be shipped out of the country for the lifetime of the reactor, and Iran is not allowed to build additional heavy-water reactors or a reprocessing facility to separate plutonium from spent fuel for at least 15 years. Any Iranian attempt to secretly produce or divert plutonium from the Bushehr nuclear power plant would be quickly detected. Even after 15 years, when the ban on build - ing new heavy-water reactors and a reprocessing plant becomes “voluntary” (i.e. Iran expresses the “intent” not to build such facilities), Iran would require years to build them. Although the Arak reactor will not be dismantled, it would require at least a few years to convert the reactor back to its original specifications and the effort would be easily detected.
The Uranium Route
The physical limits on enrichment at declared facilities in the JCPOA are less robust. While the agreement requires Iran to dis - mantle two-thirds of its installed centrifuges and eliminate 98% of its current enriched uranium stock, it permits Iran to retain a substantial uranium enrichment infrastructure and to begin to expand that infrastructure after 10 years. For 10 to 15 years, Iran will restrict the number and types of centrifuges installed and operating at Natanz, end enrichment at Fordow, limit research and development on advanced centrifuges, maintain a small stockpile of low-enriched uranium, and cap the level of enrich - ment. While these measures are reversible over a period of a few months to a few years, any reversal would be quickly detected.
Under these limits, “breakout time” at Natanz over the next decade would be extended to roughly a year, from the current estimated breakout time of 2 to 3 months. From year 11 to year 15, breakout time at Natanz will decline as Iran is permitted to replace its first-generation centrifuges with limited numbers of advanced models, although the restrictions on enriched uranium stocks and enrichment level continue through year 15. Estimating breakout time during years 11 to 15 is difficult. The number and type of advanced centrifuges that Iran is permitted to deploy during this period is not public, and the performance of advanced centrifuge models under development is uncertain.
Some contributors to this report believe that breakout time by year 15 could be comparable to what it is today—a few months—while others believe it could be reduced to a few weeks. In any event, Iran is unlikely to attempt breakout at Natanz during this period because detection would be swift and the risk of provoking a military attack would be high. Since all enrichment will be limited to Natanz for 15 years under the JCPOA, Iran’s nuclear program would be vulnerable to military attack.
After 15 years, all physical constraints on enrichment imposed by the agreement will be lifted. At that point, Iran could build an enrichment plant large enough to produce low-enriched uranium to fuel a nuclear power reactor within a matter of years.
Such a facility could make breakout a more credible option, and the availability of advanced centrifuges and large stocks of enriched uranium would create additional options for Iran to pursue secret enrichment activities, especially as the specialized monitoring provisions of the JCPOA expire. Once the cap on enrichment level expires in 15 years, Iran could also claim that it needs to begin producing highly enriched uranium under safeguards for civil uses, such as research-reactor fuel or isotope production. If Iran accumulated a stockpile of material that could be directly used to produce nuclear weapons, it could achieve the same threshold status as countries like Japan.
The Covert Option
If the agreement effectively deters Iran from producing fissile material for nuclear weapons at its declared nuclear facilities for at least 10 to 15 years, will it deter or detect Iranian cheating on the agreement by producing fissile material for nuclear weapons at undeclared facilities? On one hand, the verification regime of the JCPOA will make it more difficult for Iran to conceal covert nuclear activities, while the provisions for rein - stating UN sanctions increase the likelihood of penalties if Iran is caught cheating. If U.S. and allied intelligence capabilities are maintained at their current level, there is a high probability of detecting major covert activity (e.g., construction of a secret conversion or enrichment plant). The provisions of the JCPOA improve the odds that intelligence agencies and international inspectors would detect covert facilities to process nuclear material.
On the other hand, the provisions of the JCPOA (as well as national intelligence) are less likely to deter or detect more incremental Iranian cheating, such as covert nuclear weapons research or advanced centrifuge research. While such activities are less significant than covert fissile material production, they could enhance and accelerate Iran’s nuclear weapons options if fissile material for nuclear weapons production becomes available. Finally, the detection of covert activities is heavily dependent on effective intelligence, and some nuclear activities, such as weaponization, are inherently difficult intelligence targets because they involve a small number of people and relatively little infrastructure. To the extent that Iran improves its ability to hide nuclear activities from U.S. and allied intelligence agencies, the likelihood of detecting covert nuclear activities will be diminished.
Long Term Implications
The long term implications of the JCPOA for Iran’s nuclear program are extremely difficult to predict and assess. The JCPOA constrains Iran’s nuclear option for at least 10 to 15 years through a combination of physical limits on fissile material production and verification provisions. It does not eliminate the risk that Iran will seek to acquire nuclear weapons after 15 years. JCPOA proponents argue that it could ultimately undermine advocates of nuclear weapons inside Iran by reducing the threat of military conflict with the U.S. and increasing the benefits of economic integration, all of which would be jeopardized if Iran pursues nuclear weapons. JCPOA opponents argue that it will legitimize Iran’s nuclear program and will not fundamen - tally change Tehran’s hostility toward the U.S., including the perceived need for nuclear weapons to defend itself against the “Great Satan” and to assert the Islamic Republic’s dominance in the region.
While it is impossible to resolve this issue, answers may become more apparent in 15 years. Assuming that Iran’s motivations have not fundamentally changed, the risk is less that Iran will suddenly dash for a bomb after 15 years, because Iran’s declared nuclear facilities will still be vulnerable to military attack. The more likely risk is that Iran will begin to gradually expand its enrichment capabilities and enrich at higher levels to create a more credible option to break out on short notice or to build covert facilities. At that point, the U.S. would have the option of accusing Iran of pursuing a nuclear weapons capability under the guise of an expanded enrichment program, or of produc - ing higher levels of enrichment that are unnecessary for its nuclear power needs. However, rallying international support for renewed sanctions or military action to block Iran’s efforts is likely to be difficult once all nuclear sanctions have been removed and after Iran has complied with the JCPOA for 15 years.
If Iran complies, the JCPOA buys at least 10 to 15 years before Tehran can significantly expand its nuclear capabilities. If Iran cheats during this period, JCPOA monitoring and national intelligence are likely to detect major violations, which would enhance U.S. and international options to intensify sanctions and take military action if necessary. If the agreement survives after 15 years, Iran will be able to expand its nuclear program to create more practical overt and covert nuclear weapons options. There are different views on whether the JCPOA will create conditions that help to reduce Iran’s incentives to pursue nuclear weapons in the long term. Ultimately, the decision to support or oppose the existing agreement boils down to assessing rel - ative risks—accepting the current agreement (with its known strengths and weaknesses) or taking the chance that a better agreement can be achieved down the road. That choice will have profound implications for U.S. foreign policy, the politics of the Middle East and relations among the major powers, inter - national economics, and the global effort to stem the spread of nuclear weapons.
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Economic Trends: June and July

Cameron Glenn

Economic trends in June and July were heavily shaped by the nuclear deal between Iran and the world’s six major powers, which was announced on July 14. Iran is poised to benefit economically from the deal, once a number of U.N., U.S., and E.U. sanctions are lifted. European and Asian investors, businessmen, and officials flooded Iran in the weeks following the announcement, seeking to explore new economic opportunities. Iranian officials have been soliciting foreign investment, particularly in the oil and gas and automotive industries.

Domestically, Iran experienced a boost on the Tehran Stock Exchange following the deal’s announcement, and tourism income is expected to increase by 4.4 percent in 2015. Rouhani’s administration also continues to cut back on the cash handouts established under former president Mahmoud Ahmadinejad. In July, officials announced plans to suspend handouts to one million wealthy Iranians.
The following is a rundown of the top economic stories with links.
U.N. sanctions and nuclear-related E.U. and U.S. sanctions on Iran will be removed on the nuclear deal’s implementation day, expected to occur in early 2016. As sanctions are lifted, Iran will also recover around $100 billion in foreign exchange assets, though U.S. Treasury officials estimate that only around $50 billion of that amount will be in usable liquid assets.
Businessmen from Europe and Asia have been flocking to Iran in anticipation of sanctions relief. Iran is “looking for investments and new technologies, and finally an increase in our exports,” President Hassan Rouhani said on July 27. Foreign companies “are seeking a strong presence in Iran, and if we have a win-win policy in our economic planning, both sides would benefit,” according to Rouhani. Head of Iran’s Trade Development Organization Valiollah Afkhami-Rad said on July 27 that he expects Iran’s exports and domestic production to rise at least 20 percent after sanctions are lifted.
But officials indicated Iran will be selective in its trade partners. “We never get overexcited about the arrival of any trade delegation…we have the power to choose the best,” Government Spokesman Mohammad Baqer Nobakht said on July 28.
Deputy Foreign Minister Abbas Araghchi made similar remarks on July 30, stating that “European foreign ministers are queuing up to travel to Iran, but it does not mean we’ll offer them whatever they would want. Rather, it is us who have the choice.”
United States
U.S. sanctions relief will generally be restricted to nuclear-related restrictions on non-U.S. individuals and companies. A senior U.S. administration official said American companies “will still be generally prohibited from all dealing with Iranian companies, including investing in Iran or facilitating third-country trade with Iran.” Limited exceptions include civil aviation and goods like carpets, pistachios, and caviar.
But head of Iran’s National Carpet Center Hamid Kargar still expects an increase in carpet exports to the United States after sanctions are lifted. “Hand-woven carpet manufacturers must observe the American market and monitor the performance of rival countries so that we can boost our exports in 2016,” he said. Before the latest round of sanctions in 2010, the United States accounted for 16.5 percent of Iran’s carpet exports.
Additionally, on July 14, Head of Iran World Trade Center Mohammad Reza Sabzalipour announced that Iran plans to send a delegation of economic activists to the United States later this year.
E.U. sanctions relief will be more extensive, lifting restrictions on financial transactions, energy, investment, and other areas. European companies have been quick to explore new opportunities in the Iranian market.
On July 23 and 24, a conference was hosted in Vienna by the Austrian Federal Economic Chamber, Iran’s Trade Promotion Organization, and the joint chambers of commerce of Iran, France, Germany and the United Kingdom. Minister of Industry, Trade and Mine Mohammad Reza Nematzadeh led the Iranian delegation. Iran has already approved more than $2 billion in investment projects by European countries, according to Deputy Economy Minister Mohammad Khazaei.
Additionally, Serbian Foreign Minister Ivica Dacic visited Iran on August 3 to discuss strengthening economic ties, and Spanish Foreign Minister Jose Manuel Garcia Margallo announced that he will visit Iran in September. Food companies in Denmark, Finland, and the Netherlands are also eyeing Iran as a potential market for dairy products.

Italian Economic Development Minister Federica Guidi visited Iran with a team of 300 businessmen in early August. Italy, which used to be one of Iran’s major trade partners, has been trying to revive economic ties. During the visit, investment bank Mediobanca, Italy’s development ministry, and export credit agency SACE signed a memorandum of understanding “to facilitate future economic and commercial relations between the two countries.”


Minister Laurent Fabius visited Iran on July 29, meeting with Iranian Oil Minister Bijan Zanganeh and other senior officials. It was the first visit to Iran by a French foreign minister in 12 years. Fabius said France was “very firm” during the negotiations, but that it would not impact the ability of French firms to reenter Iran. French firms – particularly oil company Total and automaker Peugeot – had been active in Iran before sanctions were tightened.
During Fabius’ visit, Zanganeh said a “new chapter will open in cooperation with France’s Total for development of Iran’s oilfields.” Additionally, deputy head of Iran’s Civil Aviation Organization Mohammad Khodakarami said that France will explore increasing flights between Paris and Tehran. France also plans to send a delegation of businessmen to Iran in September.
In early July, before the deal was announced, French companies had already struck deals to renovate Iran’s cargo and passenger planes and develop railway stations.
Economy Minister Sigmar Gabriel became the first high-level European official to visit Iran after the deal was announced. “German companies are not only prepared to sell products to Iran, but also seek to expand lasting and stable economic cooperation [with Iran],” Gabriel said. But he also indicated that closer economic ties would depend on Iran improving its stance towards Israel. Gabriel was accompanied by a delegation of businessmen, and met with several Iranian officials including Oil Minister Bijan Zanganeh.
German and Iranian officials hope to increase bilateral trade from 2.7 billion euros in 2014 to 6 or 7 billion euros in 2016.
Iran plans to increase its trade with Greece to three billion euros in the next three years, according to Secretary General of the Iran-Greece Joint Council Majid Moafeq Qadiri. Iran hopes to boost exports of petrochemicals, dried fruits, carpets, minerals, and building materials. An Iranian trade delegation will visit Greece in August.
China – Iran’s largest trade partner – plans to ramp up its activities in Iran’s oil and gas sector. Chinese energy firms plan to pump an additional 160,000 barrels of Iranian oil per day starting in October, as part of two energy projects that had previously stalled under sanctions. China imported 671,800 barrels of Iranian crude oil per day in June 2015, up from 531,200 barrels per day in June 2014, according to Reuters.
Iranian Deputy Foreign Minister for Asia and Pacific Affairs Ebrahim Rahimpour met with Chinese foreign minister Wang Yi on July 28, reinforcing China’s role as a strategic partner for Iran.

Russian Energy Minister Aleksandr Novak said that Russia plans to explore the possibility of resuming oil and gas projects in Iran. Russian oil firm Lukoil had reopened its Iran office in April, with plans to resume operations once sanctions are lifted. Additionally, a meeting of the Russian-Iranian commission on trade and economic cooperation will be held in the fall.
Analysts expect that Iran’s return to the oil and gas market could have a negative impact on Russia, driving down oil prices and creating new competition. But Novak downplayed those fears, claiming that Iran’s return to the oil market will not have a significant impact on prices. “The market has assessed and absorbed all of [Iran’s comeback to the oil market] long ago," he said on July 17.

Cash handouts

In August, Iran will suspend its monthly cash handouts to one million wealthy citizens, according to Labor and Social Welfare Minister Ali Rabiei. The monthly handouts, established by former president Mahmoud Ahmadinejad, are 455,000 rials (around $15). All Iranians had been eligible to receive them, regardless of income, but they have increasingly strained Iran’s state budget in a climate of sanctions and low oil prices.
On July 13, Vice Governor for Economic Affairs at the Central Bank of Iran Peyman Ghorbani said Iran hopes to lower inflation to single digits by 2017. As of June, inflation stood around 15.6 percent.
Oil and Gas
On June 15, President Hassan Rouhani announced that Iran’s current budget is “the least oil-dependent ever.” But oil ministry officials announced plans to increase oil exports as Iran and the world’s six major powers concluded a nuclear deal. On July 6, deputy oil minister Mansour Moazzami said Iran planned to double its oil exports from 1.2 million barrels per day to 2.3 million barrels per day after sanctions are removed. On July 20, Oil Minister Bijan Zanganeh said “Gas production in Iran will surpass 1,000 million cubic meters per day in the next three days. Moreover, oil production is expected to reach 4.7 million bpd in the near future.”
Iran’s oil sector needs $50 billion in annual investment, according to Amir-Abbas Soltani, secretary of parliament’s energy commission. Most of these funds, Soltani said, are needed to develop Iran’s South Pars field, the world’s largest natural gas field. Deputy Oil Minister for Commerce and International Affairs Amir-Hossein Zamaninia said on July 23 that Iran could feasibly deliver liquefied natural gas to Europe within five to 10 years. Officials are aiming to implement oil and gas investment projects worth $185 billion by 2020.
Iran also plans to introduce new contract models, addressing some of the issues with “buy-back” contracts unpopular with foreign firms, according to Deputy Oil Minister Hossein Zamaninia. The new deals will last 20-25 years, much longer than the old contracts.
Auto Industry
Minister of Industry, Trade and Mine Mohammad Reza Nematzadeh said on July 24 that Iran hopes to produce three million vehicles by 2025, with one million units exported abroad.
On July 29, Iranian automaker Iran Khodro and German automaker Mercedes-Benz announced they plan to sign a five-year deal to distribute Benz cars in Iran and a 10-year deal for production of commercial vehicles.
Iran Khodro has also held discussions with Volkswagen and French automaker Peugeot. It hopes to expand ties with Renault and Suzuki as well, according to CEO of Iran Khodro Industrial Group Hashem Yekeh Zareh. Meanwhile, Chinese automaker Chery announced in July that its share of the Iranian market had decreased in the past year.
Iran’s auto industry is its second largest sector, after the oil industry, and accounts for 10 percent of Gross Domestic Product (GDP).
Tehran Stock Exchange
On July 14, stocks on the Tehran Stock Exchange rose to their highest levels since April after the nuclear deal was announced, led by oil and gas companies. The Tamim Petroleum & Petrochemical Investment Company saw the largest gains, with a 3.2 percent increase.


On July 1, Supreme Leader Ayatollah Ali Khamenei signed off on Iran’s economic development plan for 2015 to 2020, envisioning an average of 8 percent economic growth annually. He called for increasing foreign investment by “creating the necessary motivation and incentives,” particularly from Southeast Asia.
The value of Iran’s tourism industry is expected to increase by 4.4 percent in 2015, according to the World Travel and Tourism Council. Iran’s investments in tourism are also expected to increase from $2.8 billion in 2014 to $2.9 billion in 2015.


Tags: Economy

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