The lifting of sanctions on Iran as part of the nuclear deal with world powers may be a bonanza for companies in Europe and Asia, but not so much for those in the US.
The actions taken Saturday in Vienna leave in place a number of US restrictions on commercial dealings with Iran over its ballistic missile programme and support for terrorist groups that will block any swift flood of US business with the Islamic Republic and its roughly 77mn people.
One exception is Boeing Co and other makers of commercial aircraft and parts. They will have authority to quickly do business as Iran revitalises its ageing airliner fleet. For other companies, those in financial services in particular, the deal only lifts sanctions imposed to punish Iran on its nuclear programme and doesn’t touch a sweeping ban on US trade and investment put in place by the Clinton administration in 1995.
“There is not going to be a comprehensive law allowing all US companies to operate in Iran anytime soon,” Majid Rafizadeh, president of the International American Council on Middle East and North Africa and a member of the Harvard International Relations Council, said in an e-mail. “This will make American firms the biggest losers of the nuclear deal.”
The agreement struck with the US and five other world powers in July provided that sanctions tied to Iran’s nuclear programme would be lifted simultaneously with a finding by the International Atomic Energy Agency that the government in Tehran had met commitments to curb its ability to develop a nuclear weapon. That will open up the $406bn Iranian economy for investment after more than a decade of penalties.
But the nuclear accord doesn’t repair a US-Iran relationship ruptured by the seizure of the American embassy in Tehran in 1979, in which dozens of American diplomats and citizens were held hostage for over a year, and has been further frayed by Iran’s missile tests and support for terrorist groups.
“A sanctions regime very much remains in place with respect to Iran, making it very complicated and risky to do business” there, said Juan Zarate, chairman of the Financial Integrity Network, an advisory firm, and a senior White House and Treasury Department official during the George W. Bush administration.
“Any company going into Iran has to deal with a whole range of business and compliance risks, not to mention reputation risks,” Zarate said.
US and European airplane makers, such as Boeing and Airbus Group, stand to benefit, according to a Bloomberg Intelligence report published on January 14. Aircraft leasing companies such as AerCap Holdings and Air Lease Corp may also gain business because the carve out includes leases as well as sales to Iran, said Bloomberg Intelligence analyst Caitlin Webber.
Airbus got a jump on Boeing even before the Saturday’s proceedings were finalised: Tehran agreed to buy 114 Airbus planes, the Tasnim news agency reported on Saturday, citing Abbas Akhoundi, Iran’s transport minister. The deal includes a mix of new and used jets.
The country’s fleet is ripe for replacement, especially its narrow-body jets. Like automobiles in Cuba, planes in Iran have been frozen in time due to trade being halted with the regime. The average age of Iran Air’s 45 planes is 27 years - practically antiques by industry standards - with its Boeing 747s the oldest of the bunch, according to Planespotters.net.
Iran is interested in Airbus wide-body planes including A350s and the A380 double-decker, too, along with Boeing Co 737 narrow-bodies and twin-aisle 777s for long-haul flying, according to an Iranian official who asked not to be identified because the details are private.
US and European engine makers such as General Electric Co, Safran SA and United Technologies Corp may also benefit from airplane purchases.
For most US companies, however, little will change after the deal’s implementation gives Iran access to more than $50bn in cash frozen in overseas accounts and eases restrictions on Western business deals.
Foreign subsidiaries of US companies will get “some relief of as yet unknown quantity” under the general licences issued by the Treasury Department when the agreement is implemented, said Adam M Smith, an attorney who designed and enforced US sanctions when he worked at the Treasury Department and is now an attorney with Gibson, Dunn & Crutcher LLP in Washington. Those licences will clarify how much access private businesses with US ties will have to the Iranian market.
Even if a US-based company is granted a licence for a foreign subsidiary, it will have to take great pains to ensure its American business is walled off from any Iranian entities still sanctioned under US law, said Mark Dubowitz, executive director of the Foundation for Defense of Democracies in Washington and a supporter of tougher sanctions.
“The large financial institutions, the large energy companies and industrial companies are going to have to be very, very cautious,” Dubowitz said in a telephone interview. “They’ll have to ask themselves ‘Is it really worth the risk?”’ Ben Rhodes, Obama’s deputy national security adviser, said the US won’t be left behind by a sudden flood of investment and commercial deals from Europe and Asia after the lifting of international sanctions.
“Some companies are going to wait and see: Is this going to hold? Are these guys going to stick to the agreement?” Rhodes said at a lunch with Bloomberg editors and reporters on Friday. “So I think it will be a more incremental process.”
Companies will have to consider political calculations as well. Some US lawmakers are pressing for fresh sanctions that would punish Iran for recent missile tests. The House is set to vote on legislation that Democrats say is aimed at scuttling the nuclear deal - although some Democrats also favour new penalties. The leading Republican contenders to succeed Obama next year, including billionaire Donald Trump and Texas Senator Ted Cruz, have vowed to rip up the accord if they win office.
“President Obama now has less than 13 months left in office, so you don’t want to be on the wrong side of an enforcement action in 2017,” Dubowitz said.
The lifting of sanctions, while not fully opening the Iranian economy to US companies, could help set the Washington and Tehran on a path toward normalisation, said Rafizadeh of the International American Council. “Business will facilitate political ties, and political rapprochement will expand bilateral trade,” he said.