Ostracized as a pariah for almost four decades, Iran is back in business in a mere ten days—and with both East and West. On Saturday, the Islamic Republic welcomed Chinese President Xi Jinping—and a delegation of three deputy premiers, six cabinet ministers, and a planeload of business executives—with much pomp and publicity. The two countries announced plans to resurrect the ancient Silk Road that once defined trade across Asia, this time with high-speed trains. They also agreed to increase trade to six hundred billion dollars over the next decade. Xi, on his first trip to the Middle East, said the deals marked a “new chapter” in relations. “China and Iran are two important developing countries that must continue regional and international coöperation,” he said. The leader of the largest atheist nation was even afforded a rare audience with Iran’s top theocrat, Supreme Leader Ayatollah Khamenei.
Then, on Monday, Iranian President Hassan Rouhani arrived in Europe, for four days of talks with his Italian and French counterparts, as well as Pope Francis. “Landed in #Rome. Looking forward to deepening bilateral ties & exploring opportunities for #ConstructiveEngagement,” Rouhani tweeted. At Quirinale, the Presidential Palace, he was greeted by an honor guard, and the Iranian national anthem was performed—in a country where, less than two weeks earlier, business dealings with Iran had been a crime.
Despite Tehran’s ongoing human-rights abuses, missile tests, and ties to extremist groups, Iran is a prize catch for Europe, with its sagging markets. Rouhani, the first Iranian President to visit Europe in sixteen years, is expected to sign big deals. The government already leaked plans to buy more than a hundred passenger planes from Airbus, during Rouhani’s stop in Paris. The deal, worth an estimated ten billion dollars, would begin to update one of the world’s oldest fleets; many of Iran’s planes were acquired before the 1979 revolution. Tehran claims that it needs another four hundred civilian aircraft over the next few years.
The Great Race—for what a Western ambassador in Tehran described as “the last gold mine on Earth”—has begun. With eighty million people, Iran is the largest economy to return to the global marketplace since the Soviet Union’s demise, a quarter century ago. It urgently needs to refurbish its crumbling infrastructure. Unlike Eastern Europe, however, Iran is flush with cash, after gaining access to a hundred billion dollars in oil revenues that had been locked in foreign banks during sanctions.
“The legs of Iran’s economy are now free of the chains of sanctions, and it’s time to build and grow,” President Rouhani tweeted on January 17th, a day after international sanctions were lifted.
Countries that long confronted and sanctioned Tehran are now courting it. Britain went through a decade of crisis after the 1989 fatwa by Ayatollah Khomeini condemning the novelist Salman Rushdie to death. In 2007, fifteen British sailors in the Persian Gulf were captured and held for two weeks by the Revolutionary Guards for allegedly straying into Iranian waters. London closed its Tehran embassy after it was ransacked by a mob, in 2011. And, over the past decade, Britain repeatedly championed international sanctions on Iran at the United Nations. But last week London heralded Tehran’s return to the fold.
“I hope British businesses seize the opportunities available to them through the phased lifting of sanctions on Iran,” British Foreign Secretary Philip Hammond said when the nuclear deal went into effect, on January 16th. “The future is as important as the landmark we’ve reached today.”
Iran’s return has the potential to change the balance of both power and profits in the Middle East, especially between the Shiite theocracy and the rival Sunni monarchies in the Gulf. Iran’s savvy and consumer-starved market—larger than all the Gulf sheikhdoms combined—is a huge commercial attraction. Over the past eighteen months, dozens of foreign delegations went to Tehran to explore trade potential as diplomacy inched closer to a nuclear deal. Now they can legally sign.
Iran’s return could impact oil markets, too. On the first day that it was open for business, the National Iranian Oil Company announced that it would increase oil production by half a million barrels a day—and by a million barrels within a year. Iran has the world’s fourth-largest reserves of crude oil and the second-largest natural-gas reserves, much of the gas untapped. It has almost forty million barrels of oil in floating reserves ready to sell. Putting its petroleum products back on the market, even at depressed prices, is an income gain for Iran—and a potential loss for the Sunni monarchy in Saudi Arabia, which has already been forced to tap into its financial reserves to compensate for plummeting oil prices.
Iran is now free to game those assets politically, too. The European Commission, the executive wing of the European Union, announced this week that it is exploring energy ties with Iran as an alternative to Russia. Europe gets roughly a third of its oil and gas from Russia, which Moscow leveraged diplomatically, notably on Ukraine. Largely because of dependence on Russian energy, the European Union was divided on punitive action after Moscow seized Ukraine’s Crimea region in 2014. A European team is due to visit Tehran next month.
“Iranian government policies in the post-sanctions era will focus on attracting foreign investment, expanding non-oil exports, and making the best use of financial assets,” Rouhani told parliament, on the day after sanctions were lifted. Tehran hopes to attract up to fifty billion dollars of foreign capital, annually, over the next five years.
Iran’s return represents an opportunity for nearly every nation except the United States. The two nations show no signs of renewing diplomatic relations, despite intense diplomacy between Secretary of State John Kerry and Iranian Foreign Minister Mohammad Javad Zarif over the past two years—and more to come on Syria. The United States still sanctions Iran—barring most sales and all investments—for its human-rights violations and its support of terrorist groups. Leaders of the Revolutionary Guards, judiciary, and intelligence community are personally sanctioned.
“The United States will always stand with those in Iran who aspire to have their voices heard,” the White House said, in 2010, when sanctions were imposed for human-rights abuses. “We will be a voice for those aspirations that are universal, and we continue to call upon the Iranian government to respect the rights of its people.” Washington has not deviated, although the Obama Administration this month did lift the ban on selling American aircraft, and Tehran has indicated an interest in buying some Boeings.
But there’s a big difference between taking Tehran’s money from big-ticket sales today and investing in its future. The Islamic Republic still faces hurdles because of past behavior and ongoing practices. It still has to prove itself long-term to Western banks and businesses that fear sanctions will “snap back,” as stipulated in the nuclear deal, if Iran cheats. Tehran fully complied with an interim agreement for two years, as diplomats from the world’s six major powers brokered final terms. It then dismantled parts of its program far faster than expected. But it takes years to build credibility. Then there are the practical and physical considerations facing businesses returning to Iran, a country where foreigners from many nations (not to mention its own former officials) have been imprisoned and the Saudi embassy was set on fire by a mob earlier this month.
Big-name banks are particularly wary. Several—including HSBC, Barclays, Credit Suisse, Deutsche Bank, ING, and BNP Paribas—paid millions of dollars in penalties to U.S. regulators for violating Iran sanctions. They’re concerned about further “reputational risks.” And multinational businesses do not want to engage with Iran if it jeopardizes doing business in the United States. Under a new U.S. visa law, visiting Iran already makes it harder to gain entry to the United States. Foreign businesses face additional challenges navigating a complex economy riddled with corruption and badly in need of reforms in business regulations, public subsidies, and the labor market.
So, for now, Iran will be able to buy part of its way back into international markets. The wooing for its riches has only begun. The global appetite to reëngage with the Islamic Republic has already boosted public confidence at home. The day before the nuclear deal took effect, the Tehran Stock Exchange rose by more than a thousand units, setting a record. But persuading investors to fork over billions of dollars to help Iran meet its economic goal of annual growth of eight per cent—it was nearly at zero—and become into one of the world’s top twenty economies will be far harder. The Islamic Republic still has a revolutionary government, with all its inherent uncertainties and dangers.