Iran – Agreement Reached, but Hurdles Remain
In mid-July, negotiators from Iran and the P5+1 (the five permanent members of the UN Security Council and Germany) reached agreement on a framework for preventing Iran from developing nuclear weapons while still enabling the country to make use of nuclear technology for non-military purposes. Under the deal, which was hammered out over a two-year period, Iran will be rewarded for compliance with the conditions laid out in the agreement by the lifting of international sanctions that have impeded both foreign investment and sales of Iran’s oil, contributing to chronic economic weakness and persistent double-digit inflation.
A bipartisan coalition of US lawmakers has approved legislation requiring congressional review of the deal, and with Republicans controlling majorities in both houses of the Congress, a resolution rejecting the agreement is almost certain when the vote comes in September. President Barack Obama has pledged to veto any resolution of disapproval, but it is unclear whether the agreement has enough support to prevent a veto override.
The agreement faces opposition in Iran, as well. The conservative majority in the Majlis has indicated that no vote will be taken until after the US Congress weighs in on the deal, and they have warned that rejection by lawmakers in Washington would prompt an in-kind response in Tehran. President Obama can still implement key provisions of the agreement, notably, the easing of sanctions, without congressional approval, but it is unclear whether Iranian authorities would be willing to proceed on that basis.
Under the assumption the nuclear agreement is approved, and Iran complies with the terms, it will undoubtedly give the Iranian economy a much-needed fillip, which is still urgently required now that a weak economic recovery is at risk from the negative impact of the steep fall in oil prices since mid-2014. However, given the timeline for implementation, Iran’s economy is unlikely to benefit from significant sanctions relief this year.
Looking beyond 2015, economic potential will increase considerably. President Hassan Rouhani’s government has set a goal of contracting out about four dozen oil and gas projects with a projected value of $185 billion by 2020. Officials have touted a new investment model based on an integrated petroleum contract that purportedly will include very attractive terms.
However, details are not expected for several months, and some potential investors have expressed doubt that Iran will drop its claim to ownership of the oil and gas pumped by foreign investors. Eni and Royal Dutch Shell have both expressed interest in developing new fields, but several firms already operating in Iran are tied up in disputes with the government over operational delays, a factor that figures to deter at least some investors, especially given the negative impact of low prices on profitability.Back to Blog