But the Iranian official’s comments were delivered around the same time that 270 members of the European Parliament released a statement urging Germany and all other European Union countries to take the opposite course and avoid expanded relations with the Islamic Republic at least until certain conditions are met.
The statement, whose lead author Gerard Deprez is the chairman of the Friend of a Free Iran parliamentary committee, emphasized the situation of human rights, which some say have deteriorated even further since the election of President Hassan Rouhani, regarded by certain Western policymakers as a moderate. As reported by the International Business Times, it pointed out that since he took office in 2013, the rate of executions has risen to a 27-year high, and the Islamic Republic has continued to execute juvenile offenders and hold numerous political prisoners, including journalists.
The statement went on to urge Western powers to make any expanded political or trade relations conditional upon the improvement of Iran’s overall human rights record and the immediate halt of executions. Other Western lawmakers have criticized recent trade agreements on the basis of their potential to material contribute to Iran’s ongoing abuses, not just in its domestic environment but also in the broader Middle East.
That is to say that many of Iran’s critics explicitly reject Zarif’s notion that investment in Iran will contribute to peace and stability in the region. Rather, they tend to blame Iranian Shiite influence for the increasingly sectarian nature of various regional conflicts, thereby contributing to recruitment for groups like ISIS.
These perceived dangers can be expected to continue holding back European companies and banks from investing in the Islamic Republic. Some concerns in this regard are purely practical, as the persistence of Iran-sponsored regional conflicts makes for a notably less stable business environment. But other reports on investor wariness have indicated that some relevant concerns deal solely with the reputational consequences of investing in the world’s foremost sponsor of terrorism.
There is certainly a great deal of overlap between these two factors, as well. Iran’s traditional sponsorship of terrorism is a major part of the reason why the US State Department considers the entire Iranian financial system to be of “primary money laundering concern.” And on Thursday, The Tower reported that an executive with HSBC had declared that the international banking institution would not invest in Iran as long as there remained a pronounced risk of financial crime. And this disincentive is made greater by the fact that in spite of relief from nuclear-related sanctions, Iran remains subject to US sanctions on its terrorist financing and human rights abuses.
Furthermore, there are indications that the Islamic Republic and its state-affiliated businesses have no intention of making it more difficult for would-be Western investors to avoid the targets of these sanctions. A thorough assessment of the current prospects for investment in Iran was published by Oil Price on Wednesday and it indicated that forthcoming Iranian rules for foreign investors may still require at least one domestic proxy, and that any such institution is very likely to be connected to the powerful Iranian Revolutionary Guard Corps.
Divisions of the IRGC are involved both in the repression of dissent within the Islamic Republic and the financing of terrorism or prosecution of military interventions in foreign territory.
These practical and reputation constraints on European investor interest have helped to prevent the Islamic Republic from restoring its pre-sanctions levels of oil exports and general trading volume with European countries. And Iranian officials including Foreign Minister Zarif and Supreme Leader Ali Khamenei have complained bitterly about the US preventing Iran from receiving the full scope of its expected financial benefits under the nuclear agreement.
Yet in spite of existing US sanctions and persistent wariness among European investors, Iran’s post-sanctions recovery has actually been significantly faster than many analysts anticipated, according to a number of recent reports. The Tower indicates that Iran’s economic growth was estimated at three percent during the 2014 to 2015 fiscal year. And that growth has continued since the Joint Comprehensive Plan of Action was implemented in January.
A CNN Money report that was also published on Thursday specified that the International Energy Agency had estimated Iran’s May oil output at 3.64 million barrels per day, putting it remarkably close to the roughly four million barrel peak prior to the imposition of sanctions. Meanwhile, waterborne exports have risen to 2.6 million barrels per day.
Bloomberg declares outright that the latest statistics have defied expectations. Yet all of these sources also agree that the long-term sustainability of Iran’s recovery will be a much more difficult proposition, especially if Iran continues to avoid the compromises that are probably necessary for it to encourage investor interest.
The Tower indicates that analysts believe Iran’s growth will stabilize around four or four and a half percent in about five years, but only if the Islamic Republic makes relevant economic reforms. These reforms will be necessary for Iran’s stated goals, which CNN gives as the attraction of at least 70 billion dollars in foreign investment and the expansion of oil exports to about 4.8 million barrels per day by 2021. In the short term, the Iranians anticipate that at least 200 million dollars of investment will be necessary just to reach pre-sanctions levels.
The CNN report adds that the prospects for such investment are diminishing as Iran drags its feet over new contracts, likely signaling that the IRGC is anxious over the prospect of losing part of the Iranian market to foreign “infiltrators.” Perhaps because of the resulting sluggish pace of investment, the International Energy Agency doesn’t foresee Iran exceeding even four million barrels per day of oil output before 2021.
Wednesday’s Oil Price analysis seems to not only happily embrace this conclusion, but also to recommend that European governments and businesses retain their wariness about reentering the Iranian market. Anticipating Zarif’s urging for closer cooperation between Iran and Germany, the article accuses the Rouhani administration of trying to attract investment in order to perpetuate the Iranian system’s “inherent corruption,” which both contributes to human rights abuses and “undermines the transparency in business with foreign investors.”
