Thursday, 3 July 2014

Iran could be goldmine if nuclear negotiations successful

A wild new frontier in trade is opening in Iran. For 35 years, Iran has been behind a trade wall as it jostles with the United States and other western powers.

But Iran’s market isolation coupled with its struggling infrastructure and economy could be a goldmine. Money could be made hand over fist in what is essentially a virgin territory of 80 million people.

New Zealand is currently spending precious diplomatic capital on the isolated country to gain a preparatory headstart in anticipation of a loosening of trade sanctions in the near future.

Minister of Foreign Affairs Murray McCully was in Tehran recently reportedly discussing how New Zealand’s cordial relationship with the Islamic Republic could benefit if the country returns to international markets.

Sanctions were placed on the country in 2006 after Iran refused to suspend its uranium enrichment programme. They now encompass oil, gas, business dealings with the Iranian military, banking, insurance transactions, shipping and many Internet services into Iran.

They are the toughest UN–backed sanctions ever to be imposed on a country. Pressure on the Iranian economy forced the two sides to rare discussion at the end of last year.

Those diplomatic talks in November 2013 organised a preliminary reprieve for Iran. Follow–up talks set for Wednesday this week in Vienna hope to draft a more binding contract before the November’s agreement expires on 20 July.

Should the upcoming nuclear negotiations between Iran and the five permanent members of the UN Security Council plus Germany reach an agreement, trade floodgates could be opened for New Zealand export companies.

A source from the Ministry of Foreign Affairs and Trade (MFAT) told INTEL and Analysis that Iran is trying to encourage trading countries to get in now before the sanctions are lifted and “everyone will be in there.”

“Right now, sanctions are making it difficult for most countries and New Zealand is no exception,” the source says.

However, until many of the sanctions are lifted New Zealand companies will find it difficult to make any significant economic inroads. 

“We used to put in 80 or 90 thousand tons of sheep meat into Iran, we’re now doing nothing. We are still doing a lot of dairy, although it isn’t easy for them.

This is because the Iranian entity that owns their ports is subject to sanctions. New Zealand companies have had to find other ways to get their product in, and that’s not easy. It’s also quite expensive.

“So technically it is not difficult, but it is politically hugely difficult.

“There’s a lot of very detailed work to go between now and the end of July’s talks. And if no agreement is reached [the P 5+1 and Iran] have to make a decision about whether there’s enough positive movement towards an agreement to continue.” MFAT says.

Business heads of New Zealand’s largest exporting companies are also very keen to have more access to the burgeoning Iranian economy. Yet they too are hesitant to move any further until the sanctions are slackened.

Despite their promised riches waiting at the end of the negotiating rainbow, they are still highly nervous about pre-empting the loosening of sanctions by trading with Iran.

They are worried because much of the current trade with Iran runs the very real risk of fines imposed by the United States or the European Union. And the potential repercussions are not to be trifled with.

The fines involved if a company is caught skirting the sanctions can be enormous and crippling, especially if any of the goods could potentially be used for nuclear weaponry.

A Canadian company which manufactures O–rings was recently fined tens of thousands of dollars, even though the shipment was reportedly misprinted and meant to enter Dubai not Iran.

France’s largest lender BNP Paribas this week agreed to pay between $US8 billion and $US9 billion for allegedly covering up to $US30 billion in transactions which violate US sanctions on Iran.

Prosecutors claim that BNP used third-party countries to route funds through overseas banks in oil deals with Iran. Authorities concluded the funds were wilfully hidden to avoid sanctions enforcers.

While some New Zealand agricultural goods are arriving in Iran, there is as yet no simple or cheap way to ensure the business relationship can scale up significantly or that revenue is processed cleanly from these trades.

“The key thing is that agriculture and other goods can enter Iran alright, the issue is with banking and that is very expensive right now for our businesses.

“Companies from the US can sell more cheaply into Iran for agricultural products like butter, so that’s a real challenge as well. American companies can work through the American banks and we still cannot do that,” notes the MFAT source.

Australian owned banks operating in New Zealand are very concerned about any business to do with Iran, says MFAT, but would probably be right behind New Zealand companies should the nuclear negotiations unlock Iran.

US officials have caught Iran secretly setting up banks in Muslim countries around the world to skirt sanctions. Although Iran is believed to have had limited success with these banks.

On the sidelines, Tehran reportedly encourages international exporting companies – which may reportedly include some New Zealand companies – to route their finances through countries which don’t support the US and EU–led sanctions regime. Although so far no New Zealand company is biting.

Despite the current obstacles, the benefits for this country are directly applicable to New Zealand’s already strong representation in Middle East countries.

Trade Minister Tim Groser recently told the National Business Review that a pending free trade agreement with the Gulf Cooperation Council (GCC) – which includes most Persian Gulf countries – is moving quickly towards completion after five years in the slow lane.

The most important aspect in a hopeful Iranian return to the international community will be an increase in regional security. If an agreement cannot be reached and Iran attains a nuclear capability there are fears this could spark nuclear proliferation in the region, especially with Iran’s rival Saudi Arabia.

Iran is currently New Zealand’s third largest export market in the Middle East. Exports to the country totalled $262 million in 2012, with dairy products contributing over 83% of this amount according to Statistics New Zealand.

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