CPC - Caspian Policy Center

Research

iran’s likely turbulent path to economic normality

Iran’s Likely Turbulent Path To Economic Normality

Author:

Aug 16, 2016

On 21 May, the office of Iran’s President Rouhani announced that since January 2016, when international sanctions on Iran were officially lifted, Tehran has attracted 41 foreign investors in deals amounting to nearly $3.5 billion. This made headlines but in truth the Rouhani government remains deeply anxious about Iran’s ability to secure big-ticket deals that it needs to kick-start the economy after a decade of severe sanctions So far, the flood of investment, which had been anticipated following the signing of the July 2015 landmark agreement has not translated into tangible economic benefits on the ground. President Rouhani’s team, which came to office in August 2013 on the specific promise to revive the economy and lift living standards among the general Iranian population face a number of key challenges at home and abroad. They are political and economic in nature and likely to go away anytime soon. The Rouhani government had from the outset maintained that with the nuclear deal Iran has turned an important page and that the sustainability of the country is dependent on its ability to adhere to international norms. On the other hand, Rouhani’s domestic detractors – mostly those from the top ranks of the Islamic Revolution Guards Corps (IRGC) – have focused on disparaging the government’s foreign policy strategy, dismissing it as naive at best and irresponsible and treacherous at worst. For Rouhani’s hardline rivals, the repeated attacks on him in speeches and the press are meant to ensure that even the successful implementation of the nuclear agreement does not give his administration the momentum to bring about broader reform in Iran’s domestic and foreign policy agenda and behavior. It is a deep struggle for power and one in which ideological values are only used as pretext to safeguard vested political and economic interests. No other case is as illuminating in this regard as the competition for influence in Iran’s highly lucrative energy sector. 1. Alex Vatanka is a Senior Fellow at the Middle East Institute and the Jamestown Foundation in Washington, D.C. In fact, since the signing of the nuclear deal, most of the internal disagreement about the course of the economy has centered on the future of Iran’s oil and gas industries. The energy sector remains the bedrock of the Iranian economy and a source of political power for whichever faction is able to dominate it. After coming to power in 2005, Ahmadinejad purged the technocratic elite at the Ministry of Petroleum, removing the minister at the time, Bijan Zangoneh and many other top industry names. Over the eight years of Ahmadinejad’s presidency, many companies linked to the IRGC via its conglomerate Khatam al-Anbia instead became dominant players in upstream and downstream energy projects. Although the IRGC-linked arms secured lucrative contracts, they failed to expand energy production due to a combination of mounting international sanctions and the lack of domestic expertise in key areas such as deep-sea drilling or the development of liquefied natural gas (LNG) facilities. When he came to power in 2013, Rouhani returned the pre-2005 technocratic leaders to senior positions, for example restoring Zangeneh to the position of minister of oil, and vowed to open Iran up for foreign investment in this critical sector. This effort has been spearheaded by Zangeneh; a close ally of Rouhani. Zangeneh’s message at home has been simple, and that the return of Western energy companies such as Shell, BP, or Eni need not come at the expense of IRGC interests and that win-win formulas are achievable where Western commercial presence and IRGC-linked interests can co-exist. Underlining this approach, Zangeneh has warned that unless Iran can quickly reduce the technological gap with other global energy players, it will become a secondary producer in a competitive oil and gas industry environment. Nevertheless, given that the IRGC is by far the most sanctioned Iranian institution, with many of its officials and a affiliated companies blacklisted due to activities that fall outside the diplomatic settlement secured as part of the nuclear deal framework, it has proven enormously difficult for Zangeneh to balance the anxieties of foreign companies with accommodating IRGC interests. The IRGC’s web of political, military, and economic interests – ranging from its role as a repressive domestic security organ, to its military campaigns in Iraq and Syria, to its economic interests – has turned its potential presence in any commercial enterprise into a substantial and dangerous unknown for foreign investors that are otherwise keen to enter the Iranian market. The views expressed in this article are those of the author alone and not Caspian Policy Center.   

Related Articles

Security and Politics Program (SPP)

Washington Welcomes a New Afghan Ambassador

Energy and Economy Program (EEP)

A Digital Economy in Central Asia? Not So Fast