Be Easy on the Easing of Sanctions

Cornelius Adebahr outlines why business has been eying the Iranian market with bated breath.

While Iran continues its global charm offensive, the US government is having persistent trouble explaining its policies to a domestic audience. Far from the technical details of centrifuges and breakout times, the most recent issue is Iran’s economy, or rather its attractiveness for international investors. President Rouhani had a great show speaking to the political and corporate bigwigs’ gathered in Davos in late January, inviting them to benefit from the opportunities that the opening up of his country offers. How different the sentiments when, a few days later, U.S. lead negotiator Wendy Sherman was grilled by the Senate Foreign Relations Committee over why foreign firms are lining up to do business with Iran. After all, isn’t it unfair that after the United States had struck a deal over Iran’s nuclear program, not only does the administration get hell domestically but also American firms are outsmarted by their competitors in the return to the Persian market?

Yet not only is the image conjured – law-abiding U.S. companies vs. greedy European ones – factually wrong, but the idea that business should continue to hold back for political reasons is not viable and could even be counterproductive. Because insisting that “Iran is not open for business yet” shows that many politicians have not yet understood the importance of communication in this conflict, especially towards the Iranian public yearning for an improvement of their lot.

This domestic angle, rightly understood, could actually play into the hands of the international negotiating partners. Far from making deals in this still fragile environment, international companies flocking to Iran are preparing for the moment sanctions are further lifted. All these (preparatory) commercial activities raise the expectations among business people and citizens alike there that soon things will get better (because so far they haven’t, despite Rouhani’s election promises). This would also bolster the President’s standing vis-à-vis his hardline opponents that criticize him for agreeing on a deal. Thus, ultimately, such domestic pressure is an incentive for the Iranian government to honor the current deal and to conclude a comprehensive long-term agreement.

Ultimately, the debate over Iran’s nuclear program is not so much a battle of right vs. wrong – as much as U.S. policymakers like to believe they represent the former – but of the perception of who is right or wrong in the eyes of a world audience. While a robust sanctions regime has contributed to getting Iran to the table, this international coalition would have quickly eroded if Western powers had refused to strike a deal in the face of a new Iranian willingness to negotiate. So the idea that the current level of pressure could be extended indefinitely is fanciful. With a minimum level of trust established by direct talks among foreign ministers and the successful conclusion of an interim agreement, the world awaits a betterment of the situation – not a maintaining of the status quo.

Finally, while one doesn’t have to agree with Milton Friedman’s dictum that “the business of business is business”, it should be obvious in the heartland of free-market capitalism that companies rarely follow the wishes (other than the laws) of their government. The corporate sector’s past compliance with Western government’s policy of discouraging business relations with Iran is thus the exception to the rule, mainly due only to the legal trade bans imposed in the U.S. and their tangible effects on third countries.

That said, as anyone who spent some time in Tehran even before the election of President Rouhani will have noticed, the sheer limitless supply of Western products, from Coca-Cola to iPads to Pampers, is testament to the creativity of companies to legally do business with a country under sanctions (thank you, Dubai). Also keep in mind that the usual sanctions-hit countries – with the exception of Cuba – have much less attractive markets, from Belarus to North Korea to Zimbabwe.

That’s why American companies are by no means sitting on their hands when it comes to the 70-million consumers market at the crossroads of the Middle East and Central Asia. They may not send official delegations but, through intermediary agents, they are actively seeking investment opportunities in sectors ranging from chemicals to food to oil – anything less would be foolish from a business point of view.

It is understandable that policymakers find unsavory the urge of companies, European as well as American, to do business with a country that they still consider being a grave threat to international peace or, to the very least, in non-compliance with its international obligations. Yet those corporations are not there to make deals but to secure their opportunities in a highly attractive market. If things go awry, they can wait – Iranian businesses and Mr Rouhani’s government cannot. That’s why the U.S. administration should be more easy on the effect that the interim agreement has on business with Iran.