Iran's Market: From 'El Dorado' to 'Hell'

There are few international agreements in contemporary history that have met a tragic fate like the Joint Comprehensive Plan of Action (JCPOA). The nuclear agreement signed in July 2015 between Iran and the group known as the 'P5+1' in Vienna generated great enthusiasm not only among a significant portion of the Iranian public but also in international economic circles, particularly in Europe. Over a relatively short period, the initial excitement gave way to deep despair, and what was supposed to be the beginning of a great opening turned into a tangled mess. Major global economic players, who had pinned their hopes on the 'mythical' capacities of the Iranian market following the signing of the JCPOA, now look with regret and astonishment at the ruins of their dreams. Since the signing of the Vienna agreement until the onset of the second wave of U.S. sanctions in November 2018, only about three years and three months have passed, yet it feels as though many years have gone by and a world has been replaced by another. Here, it suffices to look at a 220-page report titled 'Iran: A Trillion Dollar Growth Opportunity?' published in June 2016 by the renowned firm 'McKinsey'. The report discusses an international company with 109 offices in 61 countries, providing consulting services to numerous public, private, and non-governmental entities worldwide. 'McKinsey' begins its report by stating: 'A new era for Iran's economy has begun. Following the reduction of international sanctions in January 2016, Iran, which had been relatively self-reliant and lacked extensive relations with Western countries, will once again be able to renew its ties with the global economy. Expectations for rapid economic growth among the Iranian government, ordinary people, and domestic and international business communities are increasing.' Based on its analysis, 'McKinsey' concludes that 'over the 20 years until 2035, Iran has the opportunity to add one trillion dollars to its GDP and create 9 million jobs. Domestic companies will have the greatest impact on future growth, but international companies will also play a significant role...'. It is worth noting that even before the implementation of the JCPOA, top figures from major industrial powers, from the Prime Minister of Italy to the German Minister of Economy, led large economic delegations composed of executives from the most prestigious international companies to Tehran. Senior officials of the Islamic Republic, after years of isolation, saw the doors of the world opening to them. Hassan Rouhani's European tour in January 2016, marked by the signing of multi-billion dollar contracts, provided an opportunity for an Islamic president that had not been seen in the post-revolution history of Iran. Among the major players in the global economy, European companies were the most hopeful about the future of the Iranian market. French media often referred to Iran after the JCPOA as the 'El Dorado', a mythical city in South America that Spanish conquerors believed was filled with gold and were willing to go to great lengths to find and seize it. In fact, Europeans were eyeing Iran's potential, a country of 80 million people with the fourth-largest oil reserves and the second or (according to another account) the largest gas reserves in the world, possessing 15 land and maritime borders, an ancient and stable identity, a significant middle class, and a young generation deeply familiar with the requirements and needs of the 21st century. With such winning cards, why couldn't Iran become the Brazil or even the Germany of the Middle East? This question was posed by European experts, concluding that a country so authentic and significant, after years of isolation and sanctions, needed almost everything, and Europe, from their perspective, could meet a large part of these needs. Today, as the palace of dreams has collapsed, the big question is how all this delusion surrounding the JCPOA came to be and what led all institutions and experts specializing in assessing the risk levels of countries to misjudge the 'risk' of the Islamic Republic and the political and economic deadlocks prevailing in Iran's business environment. The simplistic answer to this question is to say that the mentioned institutions and experts could not have predicted Donald Trump's election as President of the United States and his burial of the JCPOA. This answer is simplistic because it forgets that even before Mr. Trump's entry into the White House, it was Ayatollah Khamenei who, through his words and actions, stifled the engine of the JCPOA. It suffices to refer to his speeches in the months following the signing of the Vienna agreement. His positions can be summarized as follows: the acceptance of the JCPOA by the regime is a manifestation of a 'heroic flexibility' to fend off the deception of Western oppressors, especially the 'Great Satan'. And again, from his perspective, those who seek to question the traditional positions of the Islamic Republic, both domestically and internationally, through this agreement are misguided. Hassan Rouhani and Mohammad Javad Zarif presented a view of the JCPOA that was worlds apart from the leader's positions. In fact, the Islamic president and his foreign minister viewed this agreement as the beginning of a new chapter in the history of the post-revolution regime, which was supposed to change Iran's status on the global stage and create the necessary space for internal reforms, paving the way for advancements towards new stages referred to as 'JCPOA 2', 'JCPOA 3', and so on. This perspective was sold by Hassan Rouhani and Mohammad Javad Zarif to a very large segment of international political and economic circles, especially in Europe, comparing the post-JCPOA Islamic Republic to communist China after Mao Zedong's death, with the hope that Iran could become 'Chiran' (a combination of China and Iran). The great fear The experience of the JCPOA once again showed that even the most calculating and forward-looking players on the global stage can imagine their wishes as reality. It was enough for their experts to read the Constitution of the Islamic Republic carefully to know that the real driver of domestic and international policies in the system of absolute clerical rule is not Hassan Rouhani but Ali Khamenei. For the Supreme Leader and the circles around him, the survival of the Islamic Republic is conditional on remaining 'abnormal', and for this reason, the mission of the JCPOA must solely be to recreate the breathing space before sanctions for the system of clerical rule, without making the slightest change in its nature and objectives. Even before the U.S. President's decision to withdraw from the JCPOA, many foreign companies that had gone to Iran were fed up with the multitude of obstacles in the country's business environment, from rampant corruption and chaotic bureaucracy to the cumbersome presence of institutions and monopolies linked to the Revolutionary Guard and various foundations. Moreover, the continuation of violence and rigidity in the discourse of the Islamic Republic's foreign policy, which was particularly manifested in the louder cries of 'Death to America' and 'Death to Israel', increasingly troubled foreign investors. With Donald Trump's entry into the White House and his decision to reinstate U.S. sanctions, the remnants of the dreams of those who had pinned their hopes on 'El Dorado' were completely blown away. On May 8, when Donald Trump announced his country's withdrawal from the JCPOA, a large number of major European and Asian companies present in the Iranian market, or those intending to invest in Iran, concluded that their cooperation with the Islamic Republic was hanging by a thread. However, even this little hope was blown away following the onset of the first wave of the return of U.S. sanctions (August 6), and the 'flight' of major companies from Iran began; including giants like Total, Peugeot-Citroën, Siemens, and Alstom, which had a long-standing presence in the Iranian economy. Then, as the second wave of sanctions approached (November 5), even small and medium-sized European companies, which ostensibly have no interests in the U.S. market, became frightened, and some of them turned to the option of exiting Iran. Beyond investors, even small and medium-sized trading companies exporting to Iran gradually lost hope for their future in the Iranian market. In a meeting composed of French exporters of goods and services to Iran, held in early October in Paris, one official from the 'French State Investment Bank' warned his audience about the results of the second wave of U.S. sanctions against the Islamic Republic: 'Your life can turn into hell.' (Quoted from 'Les Echos', the most important economic newspaper in Paris). And one employer present in the gathering responded to this warning by saying: 'The reality is worse than what you describe. Last week I attended the telecom exhibition in Tehran. All international operators are leaving Iran.' The great fear of all non-American companies working with Iran has been the registration of their names on the list known as 'SDN' (Specially Designated Nationals) controlled by the U.S. Treasury Department. This list includes those who assist the sanctioned country through economic and financial transactions. Even French lawyers (including many Iranian-French) who had opened offices in Tehran to carry out legal affairs related to the cooperation of European companies with Iran following the JCPOA have begun to return, except for those who remain in Iran to resolve the legal matters related to the exit of these companies from Iran. And of course, the rare lawyers who have kept their representative offices in Tehran in hopes of better days. The situation of Iran's economic partners in other EU member countries is similar to that of the French. They too had hoped to discover 'El Dorado' in relation to the JCPOA and the Islamic Republic, but have reached 'hell'.