Iranian nuclear negotiators, headed by Foreign Minister Mohammad Javad Zarif, (3rd R) meet the US delegates, headed by Secretary of State John Kerry (3rd L) in the Swiss city of Lusanne, March 17, 2015.[/caption]Between crippling sanctions and plunging oil prices, Irans economy has been under severe pressure in recent years. While the potential for a nuclear deal has caused optimism, entrenched interests of the Revolutionary Guard will likely prevent Iranians from feeling the full benefit of sanctions being lifted.
While still volatile, Brent crude oil prices seem to have reached a floor around $50 a barrel. With renewed hope that a nuclear program agreement with the US could result in the lifting of sanctions, speculation grows over a potential resurgence in Irans energy sector and an influx of foreign inventors.
Holding the worldssecond largest natural gas reserves, there is great potential for Iran to develop lucrative resources and diversify away from oil, which accounts for more than 40% of government revenue.
Aside from exporting gas, Iran has shown a desire to change itsdomestic energy mixfrom oil to gas and free up more crude for export.
However, the sanctions have limited the potential for energy investment and exports, as foreign investors have stayed away from Iran fearful that banking sanctions could lead to the freezing of assets.
Irans president, Hassan Rouhani,has saidthat he is seeking the removal of all sanctions if a nuclear agreement is to be reached. The apparentnearing of a dealby the end of March has led to hope of an imminent removal of sanctions.
Prospects of an agreement have stopped the free fall of theTIPEX Index, a broad measure of Irans stock market.
Easing inflationary pressures have caught on, with the current rate now around 17%, down from 40% in 2013. Add to this the Iranian central banks claims that the economy has grown in the past year, and the end to two years of contraction set the stage for a positive turn in the immediate future.
Then again, such optimism seems excessive. Apart from the fact that Iransyouth unemployment rateis around 24%, the lifting of sanctions may not be a dramatic tailwind. If a deal is reached at all, the lifting of sanctions could be a gradual process spread over many months.
And there is the Revolutionary Guard. Established to protect Irans Islamic system, the role of the Revolutionary Guard has morphed over the years to include deep interests in the nations business activities.
Under former president Mahmoud Ahmadinejad, the Guards influence grew markedly, while the impact of sanctionsadded to the groups power. As foreign energy firms exited Iran, the Guards engineering companies stepped in to take control of oil resources.
It is unlikely that the Guard views the prospect of easing sanctions and return of foreign energy investors as a welcome development. Conservative Iranian hardliners have already beenblamedfor slowing progress in the nuclear talks, and have highlighted the ineffectiveness of last years partial easing of sanctions in alleviating hardships faced by average Iranians.
An inefficient energy sector free from foreign influence is much more desirable to the Guard than a flourishing industry that would benefit the broader economy.
Even if a nuclear deal is reached and sanctions are lifted, it is doubtful that the Guard will immediately give up its clout in Irans business affairs. Foreign companies should not expect a warm welcome back to Iran, despite the efforts of a pragmatic Rouhani to build relations with the West.
By International Policy Digest
