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Iran’s Inconsistent Prospects for Economic Cooperation

Naturally, that re-engagement has been particularly pronounced among nearby trading partners and countries with which Iran has had traditionally cooperative relations. While Iran sanctions remained in place, Russia was reportedly a frequent partner in circumventing those restrictions. Since the conclusion of nuclear negotiations, the two partners have openly boasted of expanded cooperation not only in non-illicit economic areas, but also with respect to political and defensive strategies.

It is no surprise, then, that the Russian transport company FESCO began running a direct service between Russian and Iranian ports on March 13. That service will handle the import and export of various commodities, presumably including some oil and gas, in a five-day time span. And the operations are set to expand in the near future, in line with the continued Russian exploitation of a post-sanctions Iranian business environment.

Recent reports have indicated that Iranian shipping companies also resumed some operations with Western European companies, but the recovery of these interactions has been notably slower, in large part because international banks and other Western-based businesses remain extremely wary of transactions with Iran, owing to the persistence of some US-led sanctions and the possibility of new sanctions being imposed if Iranian-Western relations begin to degrade again.

Of course, some Western businesses quickly moved to reenter the Iranian market virtually as soon as sanctions were removed. Others have been exploring possibilities to be pursued when the investment situation seems more stable. For instance, Trend reported on Friday that the French company Total had recently signed a non-disclosure agreement with the Islamic Republic, clearing the way for exploration of Iran’s South Azadegan oil field.

That field currently produces oil at a rate of 30,000 barrels per day, but the country’s Oil Ministry is eyeing an increase to a rate of 320,000 barrels per day over the next few years, with the help of an anticipated 5 billion dollars of foreign investment. This is a small part of the country’s overall plan to secure as much as 500 billion dollars in investment and to more than double current nationwide oil output, which is reported to be around 2.2 million barrels per day.

However, Iran has fallen short of a number of its prior projections and has struggled to secure investment from Western European and North American entities. In an apparent commentary upon this situation, Iranian Supreme Leader Ali Khamenei used the Iranian New Year celebration of Nowruz last weekend to accuse the US of “aggression” in the form of pressure upon international banks to avoid transactions with the Islamic Republic.

But various reports have suggested that the wariness of those institutions is a response less to American aggression and more to Iranian provocations, which contribute to the perception that the rapprochement between the two countries may be short-lived. For instance, Reuters indicated on Friday that oil exports from Iran to Western Europe had gradually picked up speed over the past few months, but had also been severely held back by factors that are exacerbated by the Iranian government’s failure to cooperate with foreign nations, both European and Middle Eastern.

The report emphasized that oil storage was becoming a serious obstacle to Iran’s exports. This is in part because Iranian oil companies are still unable to gain access to an oil terminal called Sidi Kerir, which is collectively owned by Egypt, Kuwait, the United Arab Emirates, Qatar, and Saudi Arabia. Presumably, Iran’s chances of regaining access are diminished by its ongoing rivalry with the Gulf Arab states, especially Saudi Arabia.

The Iranians and Saudis are engaged in a proxy war in Yemen, as part of a larger contest for regional influence, and public opinion arguably turned against the Iranians early this year when the Saudi embassy and consulate in Tehran and Mashhad were sacked and burned. Iran has also refused to participate in an agreement amongst several OPEC and non-OPEC states to freeze oil production and stabilize prices. Iranian officials have cited a desire to reclaim lost market share, but the lack of cooperation may spur rivals to push back against this effort.

The ongoing rivalry between Iran and Saudi Arabia could also threaten Iran’s expansion of economic relations with other regional countries. For instance, on Friday, KSL reported upon Iranian President Hassan Rouhani’s visit to Pakistan, and it pointed out that Pakistan is very much the target of a tug-of-war between the Iranians and the Saudis, possibly undermining Rouhani’s vow to make Islamic cooperation a near-term priority for his administration.

But these circumstances are incidental to Iran’s economic relationships with the West, but they do arguably contribute to the perception of Iran as an unstable, even combative actor on the world economic stage. More important to the issue of European investment, however, is Reuters’ observation that the Islamic Republic has so far refused to “sweeten the terms” of export agreements in order to encourage Europeans to take more Iranian oil.

Prior to implementation of the July 14 nuclear agreement, there was considerable discussion about whether regime institutions like the Iranian Revolutionary Guard Corps would use oil contracts to actively discourage foreign investments that might threaten their own control over the Iranian economy.

Of course, unfavorable contract details are less demonstrative of aggression that recent hot-button issues of Iranian behavior, including the March 8 and 9 tests of three ballistic missiles, in defiance of a UN resolution calling upon Iran to avoid work on weapons capable of delivering nuclear warheads. In addition to showcasing Iran’s disinterest in cooperating with such international resolutions, these issues also increase the danger to foreign investors, as evidenced by new embargos enacted on two Iranian businesses by the US, in response to the tests.

This in term has reinforced the perception of Iran’s political instability, insofar as it has prompted additional defiant commentary from Iranian officials. For instance, Investment Underground reported on Friday that Foreign Ministry spokesperson Hossein Jaber Ansari had referred to the embargos as a “meddlesome USA measure” and said that the Islamic Republic would respond by further ramping up its ballistic missile program, in line with a recent order by President Rouhani.