Insider news & Analysis in Iran

By: Mohammad Amin

Published in French Language EconomieMatin

The attractive trade table with Iran involves risks and obstacles that could cause damage.

After a lengthy negotiation, the Renault Group finalized a contract for a joint venture with Iranian carmakers on 7 August. According to the terms of the contract, Renault Group will hold 60% of the company shares, the Iranian state company IDRO (Industrial Development and Renovation Organization of Iran) will hold 20% and the remaining 20% will return to "Negin-Khodro" another apparently private company. The stated objective is to increase the production of different models of Renault vehicles in Iran to 150,000 units per year.

This contract is in addition to the long list of transactions between French companies and Iran in the period following the nuclear agreement (called the Joint Comprehensive Plan of Action or JCPOA) with the six world powers, concluded in July 2015. At that time, Hassan Rouhani, President of the Iranian executive branch, followed by Mohammad-Reza Ne'matzadeh, his Minister of Industry, Trade and Mines, went to Paris.

On the French side, two foreign ministers, Laurent Fabius and Jean-Marc Ayrault, as well as ministers of Economy, Transport, Foreign Trade, Agriculture and Higher Education, traveled to Tehran.

Regarding economic relations, according to a report by Muriel Pénicaud, former director of the French Agency for International Business Development, since the signing of the nuclear agreement, officials from more than 300 French companies have visited Iran and more than 2,000 companies have expressed an interest in working with Iranian partners.

The biggest contract was signed by oil company Total who is joining an investment with more than 50% of shares in a $ 4.8 billion project for the development of an offshore gas field on the Persian Gulf. Other large contracts have also either been signed or are under negotiation. They include:

- The sale of more than 100 Airbus aircraft, ongoing negotiations for the sale of about 40 medium-haul aircraft PSA (Peugeot-Citroën) contracts with “Iranian-Khodro” and “Saipa”. Also, there have been negotiations between Alsthom with the Iranian companies IDRO and IRICO for the construction of train carriages, as well as joint venture contracts in various other fields.

This has resulted in “a 235% increase in trade between Iran and France in 2016,” according to Michel Sapin, the then-Minister of Economy and Finance in an interview published in the 4 March 2017 edition of Iranian daily “Donyay -e Eghtesad”.

Iran, with population of 80 million and an eager market, is a country with favorable conditions for business, but there are also risks and obstacles that could act against the process which could cause significant damage and financial losses.

First obstacle:

Internationally, US President Donald Trump is persistent on isolating the Iranian government and imposing new sanctions and this is a major disadvantage for potential investors. As a result of this new approach by the White House, the future of the nuclear agreement is called into question. Even without taking into account these doubts, the almost unanimous vote of the two chambers of the US Congress against the Iranian Revolutionary Guards Corp (IRGC / Pasdaran) in July 2017 is likely to make any transaction with Iran very risky.

First, because the law in question prevents major European banks from financing transactions with Iran for fear of US retaliation.

The second reason for this is due to the fact that most Iranian companies are linked, in one way or another, to the IRGC and / or their partners and they are all blacklisted in the United States.

A study on the evolution of the political economy in Iran that the author of this article carried out in 2015 shows how, over a period of ten years from 2005 to 2015, the IRGC and its affiliates took the monopoly of Iran’s most important economic institutions by forming a network of 14 major poles.

Because of this, it means that any foreign enterprise entering into commercial relations with Iran is visibly or invisibly involved in relations with IRGC. Some examples:

- With its investment in a gas field in Iran (South Pars), Total has created a partnership with an Iranian company and a Chinese company. Petropars, the Iranian company, is part of Naftiran Intertrade Company, which in turn is part of Nikou Oil. Yet the latter has been deeply involved in recent years in money laundering and the financing of the IRGC’s missile program. It is for this reason that the United States put the company on its sanctions list in 2010, 2012 and 2013.

- The Airbus consortium has sold one hundred large and medium-sized carriers to Iran, while the entire Iranian fleet, including Iran Air airliners, has been strongly suspected of being used for transfer of IRGC troops and armaments and ammunition from Iran to Syria for several years.

When the first Airbus was delivered to Tehran on 13 January, Transport Minister Abbas Akhondi said the passengers on the first flight would be IRGC family members on a pilgrimage to the city of Mashhad.

- The PSA group (Peugeot-Citroën) has made an investment in partnership with the Iranian company "Saipa", while the latter is part of the "Bahman" group belonging to the IRGC.

- K.B.C Trading Co. is the sole representative of the French pharmaceutical company Sanofi Pasteur in Iran. KBC Trading Co. is one of the subsidiaries of the Barakat Pharmaceutical Company, one of the most profitable companies in an organ that manages profits on behalf of the Supreme Leader (a body named "Headquarters for executing the orders of the Imam Khomeini", better known as the Setad or Headquarters in Persian).

- One of the partners of the contract signed with auto manufacturer Renault on 7 August is the company "Negin-Khodro" apparently belonging to the private sector, but which is actually one of the companies with extremely corrupt leaders linked to the IRGC. Over the last three years, protests, sometimes with crowds of more than 4,000 people, were organized outside this company’s offices to claim (in vain) their money "stolen" by its leaders.

In fact, one can hardly imagine making commercial or other transactions in Iran without the presence of the IRGC from one end of the chain to the other.

Second obstacle:

The other major problem concerns the political situation of Hassan Rouhani at the head of the government. Currently, a ruthless struggle for power rages in Iran. On the side, the president with very limited powers, on the other side the Supreme Leader who holds all the levers in all political, security, military, financial and religious fields. Even though the past 38 years have shown that none of the factions of this theocratic system are moderate or capable of becoming so, the European Union (including France) still seems to favor the faction headed by the president, who they nevertheless consider moderate. It is with this vision that the EU has invested in economic relations with Iran in the hope of seeing internal and international developments go in the direction of strengthening the position of Hassan Rouhani.

However, this policy is not unanimous within the EU itself. Countries such as the United Kingdom, one of the signatories to the nuclear agreement - which is still a member of the Union - and Poland, are opposed to it. On the Iranian side, this policy comes up against Iran's military intervention and the de facto occupation of Syria by the IRGC on the one hand and the pursuit of the Iranian ballistic program on the other. All this goes against France’s Middle East policy.

Third obstacle:

A political logic, not just a commercial one, is at the origin of contracts signed by French companies with Iranian companies. A close and case-by-case analysis of these transactions clearly shows that it is the French side that benefits most and not the Iranian side. For political reasons, the Iranian government insists on the multiplication of such contracts to encourage the EU, in particular France, to remain on its side facing the United States.

Thus, if the domestic and international political situation of Iran improves, these contracts will undoubtedly be called into question. Conversely, if the situation of the Iranian theocracy continues to deteriorate and its confrontation with the United States gets worse, French transactions will also fall under US sanctions.

In light of these facts, French companies have shown great courage in doing business with Iran. But it is still an extremely risky gamble.

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