Iran stands to receive over 100 billion dollars in unfrozen assets, adding to those it has already accrued as a result of merely remaining at the negotiating table since January of last year. The large-scale removal of economic sanctions is expected to go into effect around the end of this year or the beginning of 2016, depending upon the International Atomic Energy Agency’s confirmation that Tehran is fulfilling its obligations under the agreement.
The resulting enrichment of the Iranian economy stands to have effects that extend beyond financial markets and into the realm of politics and international relations. A commentary published by Bloomberg View on Wednesday puts a largely positive spin on this while retaining focus on the central financial question of future oil prices.
A sharp decline in those prices has already come about on the news of the deal, which could flood the market with the contents of Iranian oil reserves and the roughly two dozen tankers that have been unable to offload their oil supplies in the midst of sanctions. Bloomberg View describes the possible long term persistence of these low prices as the key positive effect of the Iran nuclear deal. The article goes on to note that Russia appears to be cooperating with the transition in spite of the fact that its economy stands to be negatively affected by lower oil prices.
Bloomberg View speculates that this is indicative of a Russian shift toward lesser confrontation with the West, on the recognition that rapprochement is the new normal in the wake of the agreement between the US and Iran. But a more pessimistic interpretation of the same situation might focus on Iranian-Russian cooperation and the prospects for these and other Asian nations to build a coalition against Western interests upon the foundation of a stronger Iranian economy.
While Russia’s economy is sure to be harmed in the short term by lower oil prices, it could benefit in the long run either via greater global cooperation or through greater control of oil markets through partnership with oil-rich nations like Iran, as well as major non-Western oil buyers like China.
This threat may be made more actionable by the fact that, according to Live Trading News, Western oil companies are expected to hold out for better terms from Iran than they received in the early 2000s. If Asian markets prove more eager, the results may include greater financial leverage against the West as well as greater political cooperation among Asian countries.
Already there are clear signs that India and Pakistan may be quick to take advantage of the opening of the Iranian market. India has long been Iran’s second largest Asian oil buyer but has also restrained its recent purchases in order to remain under limits imposed by US sanctions. In addition to allowing India to purchase more freely in the future, the nuclear deal allows for Iran to demand the payment of 6 billion dollars in past-due transactions with India, which were frozen under the sanctions regime.
This points to the importance of Iran’s forthcoming management of its accounts and its interactions with foreign entities. An up-front demand for all of these past due accounts may strain relations between the two countries. But if relations remain cordial, India is expected to be eager not only for the opportunity to purchase more oil at cheaper prices, but also to expand sales of pharmaceuticals and other consumer goods to the Iranian market, according to India TV News.
At the same time, the nuclear deal also promises to bring Iran closer to India’s chief regional adversary, Pakistan. The persistence of economic sanctions was blamed for stalling a joint Iranian-Pakistani pipeline project. Iran has completed its portion of the project and previously threatened Pakistan with financial penalties if it did not hold up its end.
Pakistan Today quoted Pakistani Minister of Petroleum and Natural Resources Shahid Khaqan Abbasi as saying on Wednesday, “A lot of issues that have built up over the years will be resolved, especially the Iran-Pakistan pipeline, where we have a contractual obligation to buy the gas and they have the obligation to deliver the gas but that has been hit by the sanctions.”
The same article adds that China may become involved in this project and extend the same pipeline to near the Chinese border. For those concerned about the possibility of an Asian bloc challenging Western interests in the region, this may be further evidence of emerging cooperation among major powers that have uncertain relations with the West.
If Iran is particularly savvy, it may be capable of playing India and Pakistan against each other as they each pursue expanded financial relations. In the midst of nuclear negotiations, fears of losing ground to other investors were cited as encouraging some Western business interests to push for early entry into the Iranian market, even as a deal remained uncertain. The completion of the deal is still somewhat in doubt as it must be approved by both the US Congress and the Iranian supreme leader. But the political consequences of rushing into the market may be less serious for traditional US allies in Asia than they are for US-based businesses.
Live Trading News points out that Western businesses are indeed looking forward not only to oil investment in Iran but also to large projected growth in markets for dairy, foodstuffs, and various consumer goods including tobacco. But the article also notes that “questions remain about the stability of any nuclear deal and how much the state will want Western companies to profit.”
The Financial Express further emphasizes this latter point in its analysis of the challenges facing the administration of Iranian President Hassan Rouhani as it deals with the forthcoming influx of capital and foreign investment. It says that foreign investment from some sources could result in a strong political backlash from Iranian hardliners and also that such investment could pose a real threat to domestic Iranian industries.
At the same time, the Financial Express finds that if the economic boom is not carefully managed it could result in various destabilizing effects on the Iranian economy, leading to damage that could be worse than the sanctions, according to Yahya Ale-eshagh, president of the Tehran Chamber of Commerce, Industry, Mines and Agriculture.
Thus, the long-term effects of the nuclear deal on the Iranian economy are still up in the air. But assuming that the situation is well managed and that Tehran courts sufficient foreign investment without upsetting the political establishment, the Islamic Republic stands to come away with a great deal of capital that it can invest as it sees fit.
In defending the nuclear negotiations, the Obama administration insisted that the Iranian regime could be expected to spend much of its new wealth on economic development. But opponents of the regime countered that even in the midst of sanctions it had kept up spending on foreign intervention and support for terrorist organizations, and that this was unlikely to change. The promise of new wealth is widely regarded to bring with it the threat of even greater regional meddling on the part of Iran.
The Fiscal Times reports, for instance, that the deal could provide Iran with enough additional economic and political leverage to allow it to seriously influence the selection of a new president in Lebanon, where Iran controls the powerful Hezbollah paramilitary and the process of installing a new president has been complicated by sectarian differences.
In commenting more generally of the possible effects of the nuclear deal on Iranian foreign policy, Euro News quoted Jon Alterman of the Center for Strategic and International Studies as saying that the agreement has addressed the proliferation issue to the exclusion of all other threats posed by Iran. These include its long-standing financing of groups like Hezbollah as well as more recent exertions of influence in the Iraqi government and in the sectarian civil war in Yemen.