28.01.2016

Open for business

Who will gain most from the lifting of sanctions? Yassamine Mather reports on the latest deals

The last 10 days have been a busy time for Iran’s Islamic rulers. Since the official lifting of all nuclear-related sanctions, Tehran has hosted a visit by the Chinese leader, Xi Jinping, who became the first foreign statesman to visit the country after the lifting of sanctions. It was a visit supported by all factions of the regime, ending with a meeting with the supreme leader, ayatollah Ali Khamenei. The deal signed during this visit means that the two countries’ trade will be worth $600 billion over the next 10 years. Iran and China signed 17 agreements covering a range of areas, from energy to construction.

Soon after the Chinese leader left Tehran, Iranian president Hassan Rowhani travelled to Rome and Paris, accompanied by a 120-strong delegation. This was composed of government officials, ministers and businessmen. Agreements signed on January 25-26 with Italian firms are estimated to be worth around $18 billion. The steel company, Danieli, and Italy’s ministry of health are among two in a long list of institutions signing trade deals.

The Italians did their best to accommodate the requests made by the Iranian president’s office prior to his visit: nude statues at Rome’s Capitoline Museum were covered up, and there was no alcohol at the official dinners and receptions, where no expense was spared. However, for all the precautions taken by presidential aides to avoid Rowhani being photographed alongside embarrassing paintings, a picture emerged on mass media showing the president standing next to pope Francis in the Vatican Palace under a Renaissance painting of three nude angels. Clearly, unlike Italy the papal state had not accepted Iran’s request to remove from view such embarrassing artworks.

On the second leg of his trip - to France - Rowhani is expected to sign a major deal with Airbus. This does not replace, but comes in addition to,plans to buy civilian planes from US manufacturer Boeing. Iran’s civil air industry has been one of the principal victims of western sanctions. Air travellers are used to waiting for hours, as antiquated aircraft undergo last-minute repairs or maintenance. Until last week Iranian planes could not be refuelled in most western European airports and, if it had not been for ingenious efforts by aircraft technicians at Heathrow and other airports, no passenger travelling on national or international Iranian flights would have been safe. So for ordinary Iranian passengers the end of sanctions is good news.

However, we all know what the real message of Rowhani’s trip to Europe is: Iran is open for business. The country will provide cheap, skilled labour, and its repression of labour activists will help guarantee profitable returns. Amongst those benefiting will be French car manufacturers Renault and Citroen, who are poised to make a return to Iran.¹

Rowhani’s visit to Paris was, by the way, met by protests from Iranian exiles - and not just from dubious organisations associated with regime-change funds, but also from genuine leftwing forces opposed to the continued repression and increased exploitation of the Iranian working class.

High hopes

So what can we expect, now that sanctions have been suspended or lifted? One of the most significant aspects of the new era is an end to the embargo on buying Iranian crude oil, as well as an end to restrictions imposed over the last few years on Iranian trade, shipping and insurance.

In continental Europe, business has high hopes. According to Michael Tockuss, managing director of the German-Iranian chamber of commerce,

This is a day we were awaiting for years. There will be big changes. We will also get some 300 Iranian individuals and companies off the [EU] sanctions list. Up to now, we couldn’t do a single business transaction with them - not even selling bread or biscuits.

For Iran, the immediate effect will be an increase in national income. At current prices, the lifting of energy sanctions means Iran could increase revenue from oil exports by $10 billion in 2017.

The director of Iran’s central bank estimates that the removal of banking sanctions will allow $30 billion of foreign reserves - currently frozen in accounts around the world - to be brought back to life. However, this is probably an underestimate, as the US treasury puts the figure at nearer $50 billion. Although Swift restrictions on Iranian banking have already been lifted, banking remains amongst the grey areas of the Iran nuclear deal, mainly because many US-imposed sanctions, unrelated to the nuclear negotiations, remain in place.

Some of Europe’s major banks are reluctant to handle Iranian transactions, as they are still recovering from the heavy penalties imposed by the US authorities following previous dealings with Iran. They had to pay over $14 billion in fines or settlements. Tockuss’s comment was: “When I speak to our big German banks, they say wait until ‘implementation day’, then another 12 months, then you might be able to speak to us again about doing business with Iran.”

A similar picture is emerging in the UK. According to Justine Walker, director of financial crime at the British Bankers Association, “A number of UK banks have given commitments to US regulators not to increase their Iran exposure.” Following a survey of 10 major banks, The Guardian concluded this week:

The majority were unwilling to disclose whether they had plans to deal with Iran, a few said there was no change in their existing policy, and the London-based Standard Chartered, which was fined £400 million by the US authorities in 2012, issued a statement to make clear it was not dealing with anyone or any entity that had anything to do with Iran.²

According to the same report, an HSBC branch in London was still refusing to open a personal bank account for an Iranian resident in the UK. HSBC later issued a statement, saying: “There are a number of factors we take into consideration when opening a new account and we judge each application on an individual basis.”

The banking sector has good reason to be cautious, for the United Sates is lifting what is often referred to as ‘secondary sanctions’: in other words, those related to non-US individuals or companies. But US ‘primary sanctions’, which prevent US nationals and companies from engaging in business with Iran, are still in force. Banks and financial institutions also remain wary in their dealings with the non-US subsidiaries of American companies - another grey area, adding complications to the start of the post-sanctions era.

Having said all this, according to Rowhani’s vice-president, Eshaq Jahangiri, sanctions have added 15% to the cost of trading with Iran, and so lifting them will save the country some $15 billion yearly in cheaper trade. The International Monetary Fund is also predicting a boost for the Iranian economy, with the country’s GDP growth expected to rise to around 5% in 2016-17. Iran’s current rate of growth is zero.

Iran-China

And, of course, China remains in an advantageous position, having helped Iran circumvent aspects of international sanctions over the last few years. According to Iran’s World Trade Center representative, Mohammad Reza Sabzalipour, “Westerners visiting the capital often wonder how we managed to pull off such ambitious projects during the heaviest sanction regime in history. Well, we did it with the help of our Chinese friends.”³

A European diplomat speaking to the New York Times summed up the frustration felt by the EU establishment during the years of sanctions: “Where we had to stand on the sidelines, the Chinese have been filling the void ... They are way ahead of all of us.” As Khamenei said during Xi’s visit, “The Islamic Republic of Iran will never forget China’s cooperation during the time of sanctions.”⁴

There is an additional reason why China will remain a favoured partner. The mindset of Iran’s supreme leader is stuck in the 1970s. Like many third-world nationalists of that time, he still believes that dealing with China is an integral part of the country’s ‘anti-arrogance’ (his term for ‘anti-imperialism’) stance:

The government and people of Iran have always looked and are still looking for expanding relations with independent and trustworthy countries like China, and on this basis the agreement between the presidents of Iran and China for the establishment of a 25-year strategic relationship is completely correct and wise ...⁵

China’s economic integration into the world capitalist system should be obvious to anyone who has any basic understanding of the global economy. The market fluctuations in response to reduced rates of growth in China over the last few weeks provides ample proof of China’s integration, so Iran’s “strategic relationship” with China will have some political implications. However, in terms of the global economy, far from being immune from capitalist crises, China may be particularly vulnerable.

What does all this mean for the Iranian people? Last week a Spanish reporter, referring to an article I wrote in 2015,⁶ asked whether the lifting of sanctions will lead to a better distribution of wealth or a continued increase in the gap between rich and poor.

I am afraid the answer is obvious. As Iran’s frozen assets are returned, as the burden of economic sanctions is lifted, the beneficiaries of the new economic order - those who, according to the Financial Times, will be “coming out of the cold” - are the privileged sons of the ayatollahs, the leaders of the Revolutionary Guards, the friends of senior clerics and members of various factions of the regime. It is these establishment figures who will gain the most from the new era. Meanwhile, the majority of the Iranian population will by comparison see little financial benefit.

Notes

1. For a review of their employment practices, see ‘Making cars in Iran: working for Iran Khodro’ Critique: www.tandfonline.com/doi/abs/10.1080/03017600701238356?journalCode=rcso20.

2. www.theguardian.com/world/2016/jan/24/europes-big-banks-remain-wary-doing-business-with-iran.

3. www.nytimes.com/2016/01/25/world/middleeast/china-deepens-its-footprint-in-iran-after-lifting-of-sanctions.html?_r=0.

4. www.truthdig.com/report/item/khamenei_lauds_new_strategic_partnership_between_iran_and_china_20160125.

5. www.truthdig.com/report/item/khamenei_lauds_new_strategic_partnership_between_iran_and_china_20160125.

6. ‘The children of the ayatollahs flaunt their wealth’ Weekly Worker April 30 2015.