The Iran nuclear deal

The accord on Iran’s nuclear programme announced in Vienna on July 14 marks a turning point in both realistic and liberal international politics. Arguably, if the US Congress successfully ratifies the nuclear agreement, the post-sanction period will create a host of economic opportunities for Iran to reinvigorate its sanction-stricken economy, thereby instigating economic prosperity on all fronts.
To make the deal a prodigious success, Iran made major concessions to secure the deal while agreeing not to manufacture highly enriched uranium; remove two-thirds of its centrifuges; not to use its advanced centrifuges; give up 98 percent of its existing enriched uranium stockpile for 15 years; transform the Arak heavy water reactor to obstruct production of weapons-grade plutonium and not build other heavy water reactors for 15 years; put its entire nuclear fuel cycle under full-time IAEA inspections and provide managed access to suspicious locations and as required to clarify past nuclear activities.
The economic sanctions, isolation from the international banking system and the loss of oil revenues have severely stunted Iranian economic growth. Iran’s currency, the rial, has lost two-thirds of its value against the dollar since sanctions were tightened in 2011. According to the Word Bank, Iran’s GDP was 415.3 billion with estimated 1.5 percent growth in 2014, inflation stood at 23 percent, unemployment was 14.02 percent and the country has lost 160 billion in oil revenue since 2012 due to mounting economic sanctions.
However, the agreement is of paramount importance economically for sanction-stricken Iran. As Iran re-enters the global economy, its consumer market of 78.5 million people will attract a number of international investments. By some estimates, Iran’s economy is expected to grow by an additional two percentage points, to more than 5 percent GDP growth within a year. After an additional 18 months, GDP growth could well reach 8 percent.
First, Iran has the fourth largest proven crude oil reserves in the world – estimated at 157.8 billion barrels. It already produces 2.8 million barrels per day. The International Energy Association forecasts that an end to sanctions will allow Iran to ramp up production by an additional 600,000 to 800,000 barrels per day within months, roughly four percent of global output.
Moreover, it has 30 million barrels oil ready to be sold direct after the lifting of the crushing sanctions. Besides, many international oil enterprises such as Norway’s Statoil and France’s Total with advanced and sophisticated oil exploring and refining technology are desperately waiting to tremendously invest in rich Iranian oil sector. Thereby, the Islamic Republic will not only amass billion dollars in revenue but also acquire a golden opportunity to replace its outdated technology with modern one.
Second, Iran possesses 1,187.3 trillion cubic feet gas reserves. At present, it is immersed in finalising a $100 billion oil and gas deal. The lifting of the sanctions would open export avenues for Iran to sell gas with competitive prices to China, Pakistan, India and the European Union. Presently, the EU is looking forward to the successful finalisation of the deal owing to a faltering supply of Russian oil and gas due to the former’s strategic incursion in Ukraine. Moreover, Iran might seek US oil and gas companies in joint ventures to expedite energy exploration.
Third, the severe economic sanctions have left Iran with an ageing national airline inadequate in terms of quality and quantity. Iran’s transportation minister announced that the country would need to replace as many as 400 commercial aircraft over the next 10 years; that’s at least $20 billion in potential revenue for foreign aviation companies like Airbus and Boeing. In the post-sanctions period, Iran will be able to purchase the needed airplanes.
Fourth, Iran lags far behind in terms of technology and innovation. Last year the total estimated technology market in Iran was only $4 billion. The nuclear deal has induced a large number of mobile, computer and software companies to seek out Iranian partners and distributors to open their outlets in Iran. As a result, Iran’s tech market is expected to grow to 16 billion annually.
Fifth, from 2009 to 2013, more than 300,000 Iranians left the country in search of better opportunities abroad. Today, 25 percent of Iranians with a post-graduate degree live in developed OECD countries outside Iran. This is, by some estimates, the highest rate of ‘brain drain’ in the world. According to the World Bank, the Iranian economy loses out around $50 billion annually as indigenous talent looks elsewhere for work. However, removal of the crushing sanctions the country has been under will persuade some educated Iranians to return home to work.
Sixth, the deal is also likely to lead to billions of dollars as investment by India in Iran’s southern port of Chahbahar and the completion of the long-awaited Iran-Pakistan (IP) gas pipeline. The result would be an immediate infusion of billions of dollars into the Iranian economy and creation of jobs. It would also help Iran invest in infrastructure.
Lastly, Iran can also take advantage by fostering its economic relations with China. China’s ‘One Belt, One Road’ initiative, which envisions a chain of energy, infrastructure, and maritime links from East Asia extending to Europe through the Middle East and Central Asia, is strategically important for Iran. Also, Iran’s location at the crossroads between these regions makes its participation in the initiative important for Beijing. An Iranian deputy minister claimed last year that China had already pledged to double its infrastructure investment in Iran to $52 billion. A good deal of that future investment by China may well focus on Iran’s energy sector. Prior to the imposition of oil export restrictions on Iran, Tehran was China’s third-largest supplier of crude oil.
The aforementioned opportunities would help Iran steer out its faltering economy from ruin by augmenting its stagnated GDP. That would provide it billions of dollars in oil and gas revenue, lower its skyrocketing inflation and double digit unemployment ratio; replace its outmoded technology with advanced ones; enhance its bargaining chip at the international market; and stock the possibility of political unrest and agitation.
Iran cannot, however, fully capitalise on the aforementioned advantages without bringing in needed economic reforms. At present the Iranian economy is plagued by a plethora of internal challenges. According to a 2015 survey by the Heritage Foundation, Iran ranks at 171 out of 186 countries surveyed for economic freedom. Moreover, rampant corruption has badly affected the economy; Transparency International has ranked Iran at 136 out of 170 in the list of most corrupt countries. Lastly, the country is not economically competitive for investors to set up businesses; it has recently been ranked at 83 out of 144 economies surveyed for global competitiveness. The country needs to introduce far-reaching economic reforms in order to eradicate these barriers for relentless economic boom.
The welcoming clouds have shown a silver lining for the Iranian economy to come out of lingering stagnation, stagflation, recession and downward trajectory. But the country should set its fallen economic house in order till the nuclear deal is finalised.
The writer is an independent
researcher, blogger, columnist based in Karachi.
Email:ayazahmed6666@gmail.com
Twitter: @ayazahmed66665