Iran and the West set to resume trade

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EU, US firms set to regain lost Iranian trade on the back of temporary trade relief.

The West may have singled out Iran’s automotive and aviation sectors for temporary sanction relief, but a much wider group of European and U.S. companies are set to regain lost Iranian trade as soon as relief measures are officially adopted next month, according to reports.

Iran_South Pars installations

The firms, ranging from pharmaceutical and medical-equipment makers, to food companies and traders — which had previously been forced to cut back because of increasingly rigid financial sanctions — may now sell their items, analysts say.

Their bottom line won’t see a big boost, but the new trade could help executives restore ties in the Middle East’s largest consumer market, which has about 80 million people and a per capita income far above most developing countries.

Richard Bergström, Director General of the European Federation of Pharmaceutical Industries and Associations, said the recent “easing of restrictions should help.”

Exports from the European Union to Iran fell 45 percent — or USD 4.6 billion in the first nine months of this year, compared to the same period in 2011, according to EU data.

Last month, six international powers decided to temporary allow relief on some goods — like car and plane parts — in return for Iran’s cooperation regarding its nuclear activities. The Western powers also created a financial channel through specific banks to permit payments for “humanitarian trade” specifically food, agricultural and medical products.

When the particulars are clearer, a few firms will resume trade with Iran.

Robin Bew, Managing Director and Chief Economist at The Economic Intelligence Unit in his weekly newsletter said on the Iran breakthrough as : “A big deal, but not for Iran’s economy.”

The six-month interim deal between Iran and the P5+1 countries, aimed at curbing Iran’s nuclear programme, marks a welcome breakthrough for diplomacy. The hard-won agreement, which offers Iran some sanctions relief in return for restrictions on activities such as uranium enrichment and more intrusive inspections of nuclear sites, is only a first step in a long and arduous negotiation process. But it could lead to a more comprehensive agreement, and—most importantly—it vastly reduces the chances of violent conflict. However, our Middle East analysts caution that the deal is no panacea as yet for Iran’s ailing economy. The most punitive oil and financial sanctions will stay in place, hampering the country’s recovery from two years of economic contraction.

Siddik Bakir, Energy Analyst at IHS says Iran’s nuclear deal could support an increase of oil exports to Asia.

Highlights of the report:

  • Under the agreement, the United States will not request current buyers of Iranian oil to reduce Iranian crude imports in the next six months in order to qualify for a waiver on sanctions against financial institutions in those countries doing business with Iran.

  • The interim Iran deal is expected to open the “space and time” – as US officials have put it – for the two sides to build confidence to agree on a longer-term deal. In the meantime, Iran will scale back its nuclear programme in return for limited sanctions relief by focusing on its current oil buyers, and Asia in particular.

  • Enabling Iran’s oil buyers to purchase their current average amounts of crude oil may tempt some consumer nations to increase their imports, as these economies will face less pressure from the US. The key question will be whether the actions on either side will be interpreted within the spirit and meaning of the agreement in the next six months, or whether hardliners will spoil the cautious rapprochement between Iran and the West.

The IHS report further says:

The Iran deal is politically highly symbolic as it has brought the US and Iran together to agree on a deal for the first time since the Islamic Revolution in 1979. In fact, it is remarkable that within three months, two major regional developments in the Middle East were solved diplomatically rather than militarily. Before the recent Iran deal, a US-Russian effort earlier this summer put sufficient pressure on Syria to destroy its chemical weapons stockpile under international observers. It is increasingly unlikely therefore that Israel, which is unhappy over the Iran deal and the US’ more conciliatory approach towards Iran, would conduct any military operation against Iran’s nuclear programme during the next year when Iran and the P5+1 countries will be working on a comprehensive agreement.

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