Rome took on the air of a grand bazaar on Monday when Iran, a country desperate to buy everything from passenger planes to pipelines, found eager sellers from the European Union, a region desperate for export sales to lift it out of an eight-year economic slump.
The chief buyer was Iranian President Hassan Rouhani, whose arrival in Rome marked his first state visit to the EU since the West lifted most of the financial and economic sanctions against Iran earlier this month. It was the first state visit to the EU by an Iranian president in nearly two decades.
Mixing diplomacy with business, though apparently far more of the latter, Mr. Rouhani and the 100 or so ministers, officials and business leaders who came with him went a shopping spree that should be worth tens of billions of euros as Iran tries to modernize its sanctions-battered economy. In Italy, traditionally one of Iran’s strongest trading and investment partners, €17-billion of deals were to be signed, or more or less agreed on, by the time Mr. Rouhani, after a visit with Pope Francis on Tuesday, leaves for Paris. In France, he is expected to firm up an order for 114 Airbus passenger jets.
Just before his trip to Europe, Mr. Rouhani, in a report carried by Iran’s Fars news agency, said the “expansion of ties between Iran and European Union countries is among Tehran’s policies. We should take advantage of the post-sanctions climate to develop the country and create jobs.”
Iran needs just about everything to drag its economy into the 21st century, including new airports, car factories, public transportation systems, oil refineries, ships, aircraft of all types and medical equipment.
The country has been struggling since the first sanctions were put in place after the fall of the Shah in the 1979 Iranian revolution. In recent years, the sanctions were progressively tightened to the point at which the economy was in near free-fall while inflation soared. Oil exports – the country sits on the world’s fourth-largest reserves – plummeted to as little as one million barrels a day from two and a half million in 2011, and falling prices intensified the pain. Before the revolution, the figure was close to six million and Iran was an economic powerhouse in the making.
After two years of fraught negotiations, the sanctions were mostly lifted in exchange for Iran’s pledge to wind down its nuclear ambitions. But even before the sanctions were erased, Iran and some of the EU’s biggest companies were scrambling to lock up Iranian orders.
For instance, the Islamic Republic News Agency reported in November that Fiat Chrysler Automobiles, led by Canadian-Italian CEO Sergio Marchionne, had held talks aimed at building commercial vehicles in Iran. In dogged pursuit of a deal, Mr. Marchionne attended a ceremonial dinner (where no wine was served, at Iran’s request) in Rome Monday night with Mr. Rouhani and Italian Prime Minister Matteo Renzi.
Part of Western companies’ attraction to Iran is its sheer size and consumer potential as some of the high-growth emerging market countries – China, Brazil and Russia among them – lose momentum or fall into outright recession. Iran has a population of 80 million, more than double Canada’s; a low average age; a big middle class; and an extensive (and free) education system. It theoretically represents the equivalent of a Group of Seven country and has huge pent-up demand. A Boston Consulting Group study placed Iran third in auto-market potential among developing economies, with expected car sales of one and a half million in 2020, which is not much less than Canadian auto sales in a typical year.
Western companies’ other motivation is, apparently, to prevent China from locking up the Iranian market. As the West’s sanctions bit into the economy, Iran turned to China for investments in everything from steel mills to public-transportation systems.
China’s President Xi Jinping has been trying to extend the economic links between China and Iran and, last week, became the first foreign leader to visit Iran since the sanctions were lifted. “We are Iran’s biggest trading partner for six years in a row,” Mr. Xi wrote in an open letter to the Iranian people before his Middle East tour, which will also take in Egypt and Saudi Arabia.
The widely anticipated Airbus order is expected to be the showpiece sale this week and is potentially worth several billion dollars. The first of the 114 Airbus passenger jets for Iran Air reportedly will be delivered in March, the Mehr News Agency reported. That’s an unusually quick delivery time, suggesting the early deliveries will come from aviation leasing companies or are surplus planes owned by an Airbus-equipped airline.
Iran’s 250 or so commercial passenger jets are, on average, 20 years old and 40 per cent are grounded, according to Iran’s civil aviation authority. Sanctions meant that airlines had trouble getting spare parts; the safety record of commercial aviation in Iran, as a result, has been among the world’s worst.
Boeing, Airbus’s archrival, is also bidding for orders. Canada’s Bombardier, maker of the ubiquitous regional jets and the new mid-sized C Series jet, which has been a slow seller, has made a presentation to Iran Air. According to a Bloomberg report, which cited Iran Air chairman Farhad Parvaresh, Iran Air wants to buy 20 regional jets, with 50 to 100 seats. Bombardier, however, is not yet free to operate in Iran. It would need approval from Transport Canada before it could sign an export order.
Canadian companies might be at a disadvantage as Iran swings open its doors. In September, 2012, then-prime minister Stephen Harper closed the Canadian embassy in Iran and called Iran “a clear and present danger.” Relations between the two countries have been essentially non-existent since then.
American companies are also at a disadvantage, or will be for a while. That’s because some U.S. sanctions remain in place, ensuring that American banks remain fearful of arranging any trades with Iran that are processed in U.S. dollars. European banks do not face the same restrictions.
Italy seems poised to emerge as the big winner during Mr. Rouhani’s European tour. The Italian news agency ANSA reported that some of Italy’s biggest companies are on the verge of ringing up a total of €17-billion of orders. The Italian companies on the sales list include pipeline company Saipem; energy giants Eni and Enel; and engineering, defence and aerospace company Finmeccanica, the maker of AgustaWestland helicopters.
Iran seems intent on attracting European companies, such as Saipem, that are capable of quickly overhauling Iran’s oil infrastructure as it prepares to make a splash in the oil-export market. The inevitable surge in Iranian oil exports has been one of the main factors behind the oil-price plunge in recent months. Olivier Jakob of the Swiss energy consultancy Petromatrix recently said that the “accepted neutral consensus” sees Iran boosting its exports by about 500,000 barrels a day in 2016.Report Typo/Error