Post nuclear-deal Iran: The next emerging market?

This day, 35 years ago, saw a failed top-secret attempt by the United States to free American hostages held in Iran’s capital, Tehran.

Leaving behind those war-mongering days, the United States and Iran have now reached an extremely interesting phase in their otherwise tempestuous relationship.

With the landmark nuclear deal expected to fructify on June 30, geo-political dynamics in the region are never going to be the same again. This will in turn have a ripple effect on the geo-economics of the region and the world. With gradual lifting of sanctions on Iran, the reopening of Middle East’s second largest economy will provide a market that has been out of reach to varying extents since the 1979 Islamic revolution, with sanctions becoming broader since 1995 and expanded further since 2005.

Some factors in Iran’s favour are: It’s large population of 80 million (third largest in the region, after Egypt and Turkey), its young and educated consumer base and a middle class that continues to have a taste for western goods since the Shah’s days. In 2013 the World Bank classified Iran as an “upper middle-income” country. It estimated that per capita income — based on purchasing power parity (PPP) — was $15,610.

Before the 1979 revolution, the US and Iran had a close relationship based on energy trade and common Cold War-era security priorities. Bilateral trade peaked in 1978, when the United States exported $3.7 billion worth of goods to Iran and imported $2.9 billion worth of goods from Iran. The figure for 2014 was only $182 million.

Now, in the wake of the P5+1 and Iran deal, there is a sense of anticipation in the air. Four sectors are going to be particularly appealing for Iranian and American businessmen — automobiles, cosmetics, cigarettes and aeronautics. The auto industry has historically been Iran’s largest non-oil industry. Domestic production peaked in 2011, at about 1.6 million vehicles per year, before tightened sanctions cut off imports of car parts and bank transfers that halved output. A female population of nearly 40 million, Iran is reportedly the second-largest cosmetics market in the Middle East. Iran Air’s aging fleet includes 12 Boeing aircraft, some of which are more than 30 years old. So far, Boeing has repaired seven of Iran Air’s plane engines, according to Iran Air CEO Farhad Parvaresh. Boeing’s small sale of aircraft manuals, drawings and navigation charts to Iran Air in October 2014 carried symbolic weight as the first publicly acknowledged transaction between the US and Iranian aerospace companies since the 1979 US hostage crisis.

The lifting of sanctions, however, is likely to be a lengthy and uneven process for the US and European countries. And some sanctions — imposed in response to alleged human rights abuses and support for extremist groups by the Iranian government —will remain in place. The difficult business climate, rife with corruption, could be an additional obstacle. In any case western companies will be testing the Iranian business waters for some time to come.

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