Now that Iran and the US have reached an interim nuclear deal, ahead of the final the June 30 deadline, the remainder of 2015 will be an interesting time for relations between the two powers. The economic potential that will come from the removal of sanctions will be vast, so it is time to unlearn many preconceived notions and to embrace the new realities we are witnessing elsewhere. In Burma and Cuba there have been seismic changes after decades of isolation. These countries are the talk of the international community, as is the new US foreign policy approach, which comes presumably as Barack Obama focuses on his legacy.
For the US president, Iran would be the biggest fish to land. It has a population of 80 million, eclipsing those of Burma (51 million) and Cuba (11 million). With the staged removal of sanctions, the income per capita of Iranian households is bound to grow. Iran would be doing justice to its boardroom tag as the “Last Frontier Market” in the world. In a recent speech, US Secretary of the State John Kerry acknowledged this fact when he said, “Economic policy and foreign policy are… completely interconnected. They are the two sides of the same coin.” Put simply, economics and trade will bring the US and Iran back together, because they share the following common interests:
1 | Natural Gas
Iran has the second-largest gas reserves in the world, and these are largely untapped. A removal of US sanctions will trigger access to technology and have a catalytic impact on Iran’s gas infrastructure. This will be a game-changer in terms of energy security for the Middle East and beyond. The US could allow Iran to be an alternative route and supply source of gas to Europe, shifting the energy calculus of many of its allies in Europe who currently rely on Russia. This could also be a positive force for change in both Pakistan and Iraq, bringing electricity to the troubled region. Iran’s gas is no short-term fad. With a combined 1,495.44 trillion cubic feet of gas, the US and Iran could soon be the founder members of a new force in energy, OGEC — The Organisation of Gas Exporting Countries!
2 | The Diaspora Effect
Perhaps it would not be an exaggeration to say that Iran’s biggest asset blocked by American sanctions is not money but the expertise of its diaspora who want contribute to the development of their homeland. There are an estimated 700,000 Iranians living in the US, and a quick audit of prominent “rain-makers” reveals a vast depth of talent: Pejman Nozad, a venture capitalist in Silicon Valley, Babak Parviz, former director of the Google X labs, Saeed Amidi, founder and CEO of Plug and Play Tech Center in Silicon Valley) are among the list. So too are Dr Gholam A. Peyman, MD, founder of LASIK eye surgery, and Professor Kamel Khalili from Temple University, whose research team has eradicated the trace of HIV in human DNA. This talent could jump-start Iran’s home market with tech and medical start-ups.
3 | Business to Consumer
Despite the difficulties of doing business, in 2010 Iran was the tenth-largest global market for International brands in consumer electronics. For many international FMCG companies it was the largest market in the MENA region. It would not be an exaggeration to say that in the decade after sanctions are lifted, Iran has the potential to become a B2C market of $1 trillion. And that’s a conservative estimate. Each year, a Persian consumer would only have to spend $1,250 to achieve that figure. In Turkey (population, 75 million) Tesco is currently planning 70 new stores to add to its existing portfolio of 250. Carrefour is currently the market leader in terms of presence, with 450 stores. Today there are just five Carrefour stores in Iran. The opportunity is enormous. What might this huge new market mean for Apple, Mondelez, Hilton, SC Johnson, Nike, GM, Starbucks and Gap?
4 | Business to Business
One can only imagine the opportunities for American companies in Iran, from construction companies, to businesses in healthcare, food ingredients, financial and professional services. Iran’s reintegration requires rapid and agile capacity and capability building. Despite all the odds, the country has thrived by developing home-grown solutions, but its make-do resilience is ripe for long-term joint venture plays between international companies and smart domestic players. Think hard, PWC, MasterCard, DuPont, Johnson Controls and John Deere.
5 | Business to Government
Although this may sound far-fetched, one could argue the same was true for China 20 years ago. There will be plenty of opportunities for business with the government and state-owned enterprises, whether in marine, power generation, water desalination and aviation. Iran’s infrastructure is ready for engagement with world-class technology and a proper blend of home-grown expertise. Get ready Bechtel, Baker Hughes, Alcoa, Oracle, Cisco and Boeing.
Conclusion
The reality of future stability for all international economies and players is job creation. With a young population equal to the combined population of Ireland and Spain (65 percent of Iran’s 77m are under the age of 30), the most important imperative for its economy is to create meaningful jobs. The United States must also create new jobs. What might Iran’s market mean for companies in Houston, Alabama or Tennessee and other US states? It would be very interesting to measure the economic dividends of an entente purely through an economic and job-creation lens.
The official deadline for reaching a nuclear deal is now June 30. Imagine if the United States and Iran were to put 35 years of impasse behind them to work towards development of trust, respect and mutual economic growth. Now that’s a headline to look forward to in the coming months.
Ali Borhani is the founder of boutique strategic advisory firm Incubeemea, specialising on MENA frontier markets. Incubeemea.com