Banking Restrictions Not the Only Barrier to European Investment in Iran

Anti-American rhetoric from such figures as Supreme Leader Ali Khamenei has actually increased in both frequency and intensity since the conclusion of nuclear negotiations between the two countries in July. This has generally been understood as push-back against the perception that broad-based rapprochement between Iran and the West would be possible in the wake of the Joint Comprehensive Plan of Action, which lifted many economic sanctions on Iran in exchange for certain limits on the Iranian nuclear program.

Indeed, some of that rhetoric has served not only to discourage political reconciliation with the US, but also to discourage commerce. In a message on the occasion of the Iranian New Year in March, Khamenei declared the year ahead to be the “Year of the Resistance Economy,” referring to economic policies that had promoted domestic development in order to weather the storm of US-led sanctions without compromising on the issues that brought those sanctions about.

More recently, officials loyal to Khamenei announced that Iranian businesses would not be permitted to import vehicles from American carmaker Chevrolet. This is apparently part of a broader effort to obstruct or limit American imports. So it remains to be seen whether the Oil Ministry’s open-ended invitation for investors will be carried out in practice. Most analysts seem to agree that there are factions of the Iranian government that see greater benefit from exploiting the full measure of economic sanctions and others who see greater benefit from holding onto the perception of the US as an adversary and persecutor.

The persecution narrative has been particularly evident in recent weeks, with Khamenei and many of his subordinates blaming the US for preventing European companies from reengaging with Iran economically. Khamenei has specifically said that the US is abiding by the nuclear deal “only on paper,” and that its restrictions are making international banks nervous about reclaiming access to the Iranian financial system and potentially making themselves subject to ongoing sanctions enforcement.

But Iran News Update previously linked to a Breaking Energy News article which pointed out that the banking restrictions that Khamenei has been criticizing are unrelated to the nuclear deal, are not specific to Iran, and are primarily a function of the Iranian government and central bank failing to take appropriate measures to guarantee that the country would not expose international banks to increased danger of money-laundering, tax avoidance, and other problems.

This fact was further emphasized by the Gatestone Institute on Thursday, in an article that reported upon corroborating comments from officials with the Central Bank of Iran. These banks acknowledged that especially in the wake of the presidency of Mahmoud Ahmadinejad, transparency, money laundering, and undue influence by hardline government agencies are all persistent problems in the Iranian banking system.

The central bank’s governor, Seif Valiollah even went so far as to contradict the supreme leader’s criticisms by praising the US for its efforts to encourage European investment and to make it clear that Iran is not the target of any additional banking restrictions over and above those that are imposed upon all country’s financial systems. Valiollah and some of his colleagues reportedly acknowledged that the lack of access to international transactions is primarily the fault of Iran itself, in part because it has not acquired software or adopted relevant practices that would allow for such access.

What is not clear from their comments is whether this ongoing non-participation is a result of bureaucracy and ordinary obstacles, or whether it represents a policy originating at high levels of the Iranian government. In any event, the comments do make it clear that there are factors constraining Iran’s recovery which are not related to the supposed persecution repeatedly highlighted by Khamenei in recent weeks.

The announcement of forthcoming oil contracts serves the same purpose, in that it reminds readers that the lack of such contracts had previously been highlighted by foreign entities as a source of anxiety about the security of their potential investments in Iran. While the Oil Ministry’s commentary suggests favorable terms in those contracts, it will not be known until July whether they will truly end a 20 year-old buy-back system “under which foreign firms have been banned from booking reserves or taking equity stakes in Iranian companies,” according to Trade Arabia.

At the same time that Khamenei and his followers are apparently opposed to this reversal, it also appears to be the case that advocates of engagement are not interested in waiting for it to go into effect before trying to entice foreign businesses to invest in Iran. Toward that end, oil industry officials have frequently boasted of the speed of recovery in the months since the January implementation of the nuclear agreement. And more such boasting was delivered on Thursday by Rokneddin Javadi, the managing director of the National Iranian Oil Company, according to Bloomberg.

Interestingly, that commentary not only pointed out that Iran expected to reclaim pre-sanctions output levels within another one or two months, it also suggested that the country would be willing to reverse its current policy of non-cooperation with OPEC output limits once that benchmark is achieved. This arguably serves to provide foreign companies with the impression that Iran will become more cooperative around the time that the new contracts are released, without requiring that the Oil Ministry release those contracts first to prove it.

But even if this is an accurate description of Iran’s emerging economic policies, it does not answer all of the concerns that foreign companies have about investing in the country’s oil and import markets. Many other concerns are geopolitical in nature. That is, Iran remains a risky investment as long as there is a danger that its relations with the West will deteriorate again, possibly leading to the cancellation of the nuclear agreement.

Iranian officials have made some effort to dispel these concerns by downplaying their intrusions into regional conflicts on sides opposite to those supported by the US and its allies. For instance, Rudaw reported on Thursday that Iranian Deputy Foreign Minister Hossein Amir-Abdollahian had once again denied that Iran has combat troops in Iran. “We used to send military advisers from the Revolutionary Guards Corps (IRGC) there, upon the Syrian government’s request; those are our military advisors, our specialists who are experts in fight against terrorism,” he said in an interview with Russia’s Sputnik News.

But these denials have been consistently undermined, and in fact Amir-Abdollahian’s comments went on to acknowledge the presence of Shiite militias fighting along the Syrian army, albeit without acknowledging that the membership of those militias is largely the product of Iranian recruitment, and even includes members of the Iranian military. These factors continue to threaten the political environment among Iran, the US, and allies on both sides. Thus, it also poses a lingering threat to the economic environment within Iran, as well.