Nuclear reshuffle: what did Iran after the lifting of sanctions

Monday, January 16, marks a year since the lifting of sanctions with Iran, the UN. Under the terms of the so-called Iranian nuclear deal, agreed in July 2015, a gradual lifting of international sanctions is in response to the admission of international observers on Iran’s nuclear facilities and adjustment of the Iranian nuclear program. In January 2016, experts from the International atomic energy Agency (IAEA) confirmed that Iran has made all the promised steps and the parties, which imposed sanctions regimes, announced the partial or full removal of restrictions.

Thus, the United States abolished the effect of 20 years of the ban on cooperation with Iranian firms (leaving, however, a trade embargo, and adding in a day a new package of sanctions in regard to the missile tests); the EU lifted tightened in 2010 a ban on the supply of oil and allowed financial transactions; the UN abolished all introduced in 2006, sanctions related to its nuclear program.

For the year Iran managed to restore oil exports to rein in inflation and revive trade with foreign partners. However, all these achievements can be jeopardized in the current year.

Rising exports

Before the sanctions, oil production was in Iran, according to OPEC during the years 2011-2012, to 3.5–3.7 million barrels. a day. According to the Ministry of petroleum of Iran, in 2012 the country produced 4,085 million barrels. a day. The export of Iranian oil was made in 2009-2012 to 2.1–2.4 million bbl. on a daily basis. Of these, Europe accounted for about 700 thousand Barr. a day, and the rest to countries in Asia, plus some 100 thousand Barr. a day were African countries. The revenues from oil exports amounted in 2011 to $114 billion, or 79% of export profits.

After the introduction of sanctions, oil production dropped to 3.1 million barrels., and exports to 1 million barrels. in 2015. The share of oil revenues in total exports fell to 35%. Exports to Europe fell to 100 thousand barrels. a day. Deliveries in Asia fell to 1 million barrels. on a daily basis. Export to Africa by 2013 reset to zero.

According to estimates of the congressional research service of the United States (CSR), Iran’s oil exports to the EU rebounded in March 2016 up volumes close to pre-sanctions (700 thousand Barr. a day). Also, according to the service to pre-sanctions levels by December 2016 returned shipments to key customers of Iranian oil in Asia — China, Japan, India, South Korea and Turkey. According to the International energy Agency (IEA), the pre-sanctions level of oil production at 3.6 million barrels. a day was achieved in April 2016 and was supported in may (according to the Iranian authorities, production in may exceeded the pre-sanctions level and amounted to 3.8 million barrels. a day). US Department of energy expects oil production in Iran in 2017 at 3.6 million barrels. on a daily basis.

The Minister of oil of Iran Bijan Zanganeh said that the country faced a goal through 2021 to boost production to 4.8 million barrels. of oil per day. For this purpose it is planned to attract about $70 billion investment. However, the IEA assesses the ability of Iran to increase production at 4.1 million barrels. a day.

Falling inflation

As stated in the CRS report, the national currency of Iran for the period from 2012 to 2014 has depreciated by 56%. According to the same data, inflation in 2011-2013 was about 50-70%. It was frozen about $120 billion of Iranian accounts in banks around the world. After the lifting of sanctions foreign Bank accounts were unfrozen, and Iran had the opportunity to receive payment for export in freely convertible currency. According to CRS, the country gained access to about $115 billion accounts worldwide.

International companies had the opportunity to invest in the economy of Iran. However, there was probability of introduction of U.S. restrictions against foreign financial institutions that perform dollar transactions with Iran, therefore, the inflow of investment, according to CRS, was insignificant. For this reason, Iran could not take advantage of the lifting of the ban on insurance operations, which is necessary for activation of Maritime transport, because the pool of the largest companies in this sector based in the United States.

After the lifting of sanctions annual inflation at first decreased to 15%, and in June 2016 fell below 10%. Over the past year in the country the country has created 1.5 million jobs, points out lead researcher of the Institute of Oriental studies Vladimir Sazhin. However, according to him, the recovery level of purchasing power will take three to five years.

The Russian advantage

The lifting of international sanctions, the UN allowed freely to work in the Iranian market and to Russian companies.

“Russia may be interested in such sectors of the Iranian economy, as the oil and gas sector, where the Russian side can act as investor and supplier of technology, transport infrastructure, especially railway, energy sector, military-industrial complex”, — said the chief strategist for the shares of “Renaissance Capital” Daniel Salter.

In March last year, the pipe metallurgical company (TMK) has announced that it has begun negotiations for the supply of pipes for the oil and gas sector of Iran. In June, the President of LUKOIL Vagit Alekperov Salil that the company is “preparing to go to Iran”, and in August it became known that LUKOIL plans to participate in the development of fields in West of Iran. In October, Russia completed a contract to supply Iran air defense systems s-300.

In December in Tehran, was held the 13th meeting of the permanent Russian-Iranian Commission on trade-economic cooperation. After it was signed eight agreements affecting areas such as energy, railway transport, trade, Finance, industry, mining, agriculture. The Memorandum of understanding concluded between the National gas company of Iran (National Iranian Oil Co (NIOC)) and “Gazprom” assumes development of two oil fields in the West of Iran, Cheshme-Khosh and Shangule, noted in the message of the Iranian company. “Gazprom” has agreed with National Iranian Oil about the study potential oil deposits Cheshmeh-Hosh and Cangele, Bloomberg reported. Earlier, the MOU with Iran was signed by LUKOIL and Zarubezhneft. According to the Minister of oil of Iran of Bijan Namdar Zanganeh, Rosneft is also interested in development of four Iranian fields, including South Azadegan, it was reported in the press release of the NIOC.

“Russian investors can go faster in Iran than their Western European competitors, since Russian banks more freedom, given more action against Iran the U.S. sanctions, explained to Bloomberg Richard Dalton, former British Ambassador to Tehran. — Russia has definitely more comfortable position than the UK, France and Germany.”

The Russian company “Tekhnopromexport” and holding company for the production of electricity at thermal power plants of Iran signed an agreement to build four units of TPP “Hormozgan” near the city of Bandar Abbas. The project involves funding from Russia in a €1.2 billion, the report said the Ministry of energy. “RZD international” signed a contract for the electrification of the railway line in Iran. Among the signed documents — the “road map” for the implementation of the Russian-Iranian cooperation projects in the field of trade and industry for 2016-2020, in which it was agreed more than 70 projects.

However, the lifting of the sanctions on the Iranian economy bears not only advantages but also disadvantages, the world Bank study, released in February 2016. In General, the lifting of restrictive measures against Iran will hit Russia, concluded the experts of the Bank. So, per capita income in Russia as a result of lower oil prices will decline because of this, 1.6% (or $30 billion). The total volume of production in the Russian economy will shrink by 0.1%. Total losses of Russia in trade and investment experts of the Bank was estimated at $1.3 billion.

Modest trade

The volume of Russian-Iranian trade remains relatively modest. According to the FCS of Russia, in January—October 2016 the bilateral trade turnover totaled $1.76 billion Is significantly higher than the $1.04 billion over the same period in 2015, but only about 0.5% of the volume of foreign trade of Russia.

The main trading partner of Iran — China. After the lifting of sanctions, Tehran and Beijing signed a ten-year plan for the development of trade ties to $600 billion a year.

As said Vladimir Evseev from the Institute of CIS countries, Iran now has a lot of Russian companies, but their activity is hampered by the lack of reforms in financial and property legislation, as well as lengthy process of returning Iran to the global financial system.

International business involved in the active exploration of opened the Iranian market. In Nov 2016, Iran signed a contract with Total volume of $4.8 billion — the first deal since the lifting of sanctions. In December 2016, Boeing signed a ten year agreement to supply Iranian national carrier Iran Air 80 passenger aircraft, including 50 737 MAX 8s, 15 777-300ERs and 15 777-9s, totaling $16.6 billion transaction was the largest U.S.-Iran trade agreement since 1979, when Iran’s Islamic revolution. Iran Air has also entered into a contract to purchase 100 passenger planes of this huge aircraft European Airbus, including the A320 46, 38 and 16 A330 A350 XWB. Estimates of the group, to upgrade and increase its passenger fleet Iran needs to buy about 400-500 ships.

New threats

2017 is a threat of the “Iranian nuclear deal”, warns expert Vladimir Yevseyev. The reason for this “two political uncertainty” — a change of U.S. administration and the upcoming election of the President of Iran.

During the election campaign Donald trump and Vice-President Mike Pence promised to terminate this agreement. However, Rex Tillerson, candidate for Secretary of state, and James Mattis, the candidate for the post of defense Minister, said they would advise President-elect to keep it. “When America gives the word, we have to hold him and to work with allies,” said Mattis. To preserve transaction on 16 January called on the administration of outgoing President Barack Obama. In a statement, the White house emphasizes that this is not just an agreement between Iran and the US, and the achievement of the leading world powers.

Inside Iran, as noted by senior research fellow, Institute of Oriental studies, RAS Elena Dunaeva, in the summer of 2016 there has been a shift in public opinion right: “the First months after the lifting of sanctions was euphoric, but then came the understanding that not all restrictions are removed, the agreement does not lie”. In these circumstances, strong conservative lobby that blocks in the Parliament the adoption of laws on liberalization of economic life. Thus, the presidential election is not guaranteed the victory of the current President Hassan Rouhani, agreed on a “nuclear deal”. If elected, the conservative candidate, Tehran may once again go to the aggravation of relations with the international community and restarting their nuclear program.