The West must be wary of Iran’s global business ‘diplomacy’

Sep 21st, 2017

First published in the Hill.com

Hassan Dai, September 2017

The Iranian regime uses its relation with Western businesses and especially the oil giants as a leverage to shape European and American policies toward Iran. As Iran continues to pursue its hegemonic policy in the Middle East and uses its proxy militias to dominate the region, it will use these business dealings to shield itself from future sanctions and harsher Western policies toward Iran.

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On July 1, the French oil giant, Total, in partnership with a Chinese and an Iranian private company signed a $4.8-billion agreement with Iranian oil ministry to develop a portion of the vast South Pars offshore gas field which Iran shares with Qatar. This is the first major energy deal that Iran has signed with a foreign company since the 2015 nuclear agreement.

After the Trump administration gave the green light to the Boeing deal with Iran and confirmed the US is committed to the nuclear deal and will continue to waive nuclear related sanctions against Iran, European companies have felt more comfortable entering the Iranian market.

The German carmaker Volkswagen follows French Peugeot into the Iranian market, the Italian company Ferrovie dello Stato (FS) has signed a €1.2bn deal with its Iranian counterpart to build Iranian railways and French Total and Iran have reached a preliminary agreement to build three petrochemical plants in a deal that if finalized, could see the French oil giant investing up to $2 billion in Iran.

The Total deal will boost the Iranian regime’s coffers and produce additional supplies of natural gas for domestic consumption. According to Iranian officials, the deal will provide Iran with $84 billion over the next 20 years. However, these deals have limited impact on helping Iran to exit the economic recession and find a solution for the record rate of unemployment. According to President Rouhani, Iran needs $50 billion in annual foreign investment to overcome economic challenges. The primary source of income for the country is the depleted energy sector and according to oil minister, the industry needs some $200 billion in investments over the next five years.

Moreover, it is not clear whether the Total deal will lead to other major Western companies rushing to invest in Iran as American financial sanctions continue to pose real challenges for foreign investments in Iran and the big European banks are still reluctant to deal with the country. The other major risk factors that prevent EU firms from investing in Iran have been summarized by an Iranian economic expert: “Huge challenges remain within Iran, including a poor regulatory environment and standards able to support international trade, insufficient managerial skills in many local companies, widespread corruption, and questions concerning the rule of law. European officials and business leaders also appear particularly worried by uncertainty regarding the future course of US policy.”

The US Congress is also at the final stage of passing a new round of sanctions against Iran because of its missile activities and military involvement across the Middle East.

Yet, these deals have significant political and diplomatic bearings. Mehdi Hosseini, the head of Iran’s Petroleum Contracts Committee declared that: “This (Total) contract will send a strong political message to the world especially at the time that the Americans have adopted a confrontational course (against Iran). This shows that the world is not following their path”. Hossein Amiri Khamkani, a member of Iran’s Parliamentary Committee on Energy, said the deal “breaks the taboo of American sanctions and opens the way for other companies.”

According to LA Times, “The 20-year contract also offers a vote of confidence for Iran in the business world, especially as President Trump has threatened to try and renegotiate the nuclear accord.”

Similarly, an AP report concludes that: “The 20-year contract also offers a vote of confidence for Iran in the business world, especially as U.S. President Donald Trump has threatened to try and renegotiate the nuclear accord. Tehran-based Energy analyst Ali Reza Soltani said. “The oil deal, in practice, has defused all the moves by international and regional opponents and rivals of Iran. It has a clear-cut message: The leveraging of sanctions against Iran has lost its credibility and effectiveness.”

These business deals impact Western policies toward Iran. Total CEO Patrick Pouyanne said in Tehran that “his company’s cooperation with Iran will help promote Iran’s relations with France and Europe.” Similarly, the Supreme Leader’s foreign policy advisor Ali Akbar Velayati declared that the Total contract plays an important role in improving Iran-France relations.

Since the early 1990s, the Iranian regime has used its relation with Western businesses and especially the oil giants as a leverage to shape European and American policies toward Iran.  In 2013, the newly elected President Rouhani launched an aggressive campaign to lure Western companies back to Iran and use their influence in their home countries to combat economic sanctions and convince their governments to be more flexible in nuclear negotiations with Iran.

In an interview with Iranian news website Asre-Iran in December 2013, Mehdi Hosseini the head of Iran’s Petroleum Contracts Committee explained the Iranian strategy: “I believe that Western oil companies which are interested in working in Iran, are good lobbies for us in our negotiations with the West.  In addition to oil companies, the banks, service sector and legal businesses will also profit from energy deals with Iran. All these companies are negatively affected by sanctions against Iran and they are upset about it and urge the lifting of sanctions. We (Iran) can use their anti-sanction efforts to our advantage. They have done this in the past. I believe that the pressure by these companies on their own governments can help us in our (nuclear) negotiations. Whatever pressure is exerted on Western governments by these companies will help us and we should exploit these opportunities.”

As Iran continues to pursue its hegemonic policy in the Middle East and uses its proxy militias to dominate the region, it will use these business dealings to shield itself from future sanctions and harsher Western policies toward Iran.

But, the supporters of stronger business ties with Iran repeat the same argument that these deals will strengthen the Iranian “moderates” helping them to transform the regime’s domestic and foreign policy.  For example, a Chatham house report claims that the Total deal “carry with it an opportunity to strengthen the hands of the moderates.” The report concludes that “The time is now for European governments and international companies to ignore distractions from Washington and the Gulf countries and encourage economic reform in Tehran. Doing so could open the door to wider political change. Without broader European support, those hoping that Rouhani can bring about an Iranian perestroika will lose out on a unique moment for economic gain with wider consequences for Tehran and the region.”

However, this argument has been proven wrong in the past. In fact, the unprecedented international pressure and economic sanctions that culminated in 2013 and crippled the Iranian economy helped the so-called “moderate” Rouhani to become president.

The argument that the lifting of sanctions and pressure would moderate the Iranian regime was particularly promoted by pro-Tehran advocates during the nuclear negotiations as they claimed “this (nuclear} deal provides the Iranian people with the space to push Iran in the right direction: an Iran that respects human rights and pursues moderate policies internally and externally.”

The lifting of sanctions has in reality provided the regime with more cash to pursue its radical foreign policy and helped the Supreme Leader and his allies in the Revolutionary Guards to solidify their hold on power.

 

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