Following the signing of a historic nuclear deal earlier this year, which could result in many of the international sanctions against Iran being lifted, the country looks set to offer tremendous growth opportunities on a number of frontiers.
This update aims to provide a brief overview of key developments which have occurred in Iran during the past month and to highlight areas of future interest. In particular, the update covers notable developments in both the political arena and key economic sectors.
1. POLITICAL DEVELOPMENTS
A number of key political events involving Iran have occurred recently:
- First meeting since signing of nuclear accord - Foreign ministers from six world powers met in New York on 28 September 2015 to discuss issues relating to the implementation of the nuclear deal signed on 14 July 2015 (for further details please see our earlier briefing "Iran sanctions – agreement announced regarding nuclear program and sanctions relief". The meeting was the first since the deal was signed and saw all involved parties continuing to adopt a conciliatory tone and renewing bids to work together in good faith towards implementation.
- Adoption day – 18 October 2015 ("Adoption Day") marked the day on which the Joint Comprehensive Plan of Action ("JCPOA") relating to Iran's nuclear programme began to be implemented. Statements from Iran, the EU and the US confirmed that the parties to the deal are proceeding, as planned, towards eventual lifting of sanctions.
- Statement from Iran: Foreign Minister Javad Zarif confirmed that Iran would begin the implementation of its commitments to curb nuclear activity, with the International Atomic Energy Agency ("IAEA") making preparations to monitor and verify the same.
- Statement from the US: The President issued a memorandum to US government agencies directing them to take all measures necessary to ensure that US commitments can be met on "Implementation Day" i.e. the point at which the IAEA verifies that Iran has implemented its required measures, expected in early 2016. It was emphasised that Iran will only receive actual relief from sanctions following Implementation Day.
- Statement from the EU: The EU has adopted the legislative framework required to give effect to the lifting of sanctions. These legislative measures, like the contingent waiver of sanctions issued by the US, will not take effect until Implementation Day.
The Adoption Day measures represent an additional step towards significant changes in the sanctions imposed against Iran. However, it is important for firms wishing to do business in Iran to note that all the relaxations anticipated as a result of sanctions being lifted are conditional upon the IAEA's confirmation that Iran has met its commitments under the JCPOA. No changes have yet come into force and so there remain very broad restrictions on dealing with Iran. It is therefore very important to be careful in relation to any discussions about possible transactions to take place after Implementation Day and specific advice should be sought. For example, the US Department of the Treasury's Office of Foreign Assets Control has emphasised that it will continue to vigorously enforce all sanctions currently in place, and has also made it clear that "secondary" sanctions may be imposed against non-US persons who enter into contracts with Iranian persons prior to Implementation Day even where the contracts are contingent on the implementation of sanctions relief under the JCPOA.
Companies should also continue to monitor the situation closely post Implementation Day since there remains a possibility that sanctions could be re-imposed at short notice should Iran fail to meet its commitments. For further details please see our recent e-bulletin "Adoption Day under the Iran agreement – US and EU publish details of changes to their sanctions regimes".
- Iranian parliament passes bill to implement nuclear deal – In line with the above, on 11 October 2015 Iran's Parliament approved an outline bill which will allow the Iranian government to implement the nuclear deal reached in July.
2. DEVELOPMENTS IN KEY ECONOMIC SECTORS
Last month saw various announcements in relation to the future of the oil industry in Iran.
- Efforts to increase production capacity – Iran’s Deputy Petroleum Minister vowed, last month, that within six months of sanctions being lifted, Iran would double its current output of oil to 2 million barrels per day. Such claims gain credibility from efforts by Iran to build its oil production capacity eg through implementation of plans to install a further twelve drilling rigs to the existing South Pars oil field. Exploration and production efforts may also be furthered through talks of a planned deal with Lukoil, a leading Russian oil company.
- Opportunities for foreign investors – Last month also saw confirmations from Iran's Ministry of Petroleum that conferences on new oil contracts are to be held in Tehran and London on 21 - 22 November 2015 and 22 - 24 February 2016 respectively. It is expected that details of the new Iran Petroleum Contracts, which recently received approval from the Iranian government, will be revealed to investors at these conferences. The two day Iran Offshore Projects Outlook Seminar, which took place in the Netherlands on 27 - 28 October, also discussed ways to engage in Iranian projects.
- Russian firm to invest in Iran's Changuleh oilfield – The Governor General of the western border province of Ilam confirmed that Russian company, Zarubej Neft, has expressed an interest in developing the province's Changuleh oilfield and will be sending a delegation to carry out a field study in relation to this. A Memorandum of Understanding has also been signed between the province and Zarubej Neft in relation to cooperation in the construction of oil and gas refineries.
In addition to improving its oil production capacity, boosting gas production and exports is also high on the list of priorities for Iran. It was announced last month that a number of deals for the export of gas have been signed or are in the process of being agreed.
- Iran to sign deals with neighbours - Iran and Iraq finalised the development plan for construction of a gas pipeline to transport gas to Iraq. The contract is reportedly in the final stages of negotiation with Iran poised to supply Iraq with up to 35 million cubic metres of gas daily. Negotiations for boosting exports of gas to Armenia are also currently underway.
- Iran and Brazil to hammer out LNG deal - Bijan Zinganeh, Iran's oil minister, stated that Brazil has expressed an interest in buying LNG from Iran and the parties have committed to setting up a working group to explore this possibility further. The remarks followed Mr Zanganeh's meeting with Brazilian Minister of Development, Industry and Foreign Trade which explored ways to strengthen economic relations between the countries.
- Iran to enter European gas market - A statement from Iran’s Deputy Petroleum Minister for Gas Affairs revealed that Iran is also considering several scenarios to enter Europe's gas supply market. Iran is reportedly studying a range of schemes to enter European markets through countries such as Turkey, Turkmenistan and Azerbaijan.
- Iran and Russia to partner in gas field projects – Other deals could arise from the planned visit of a Russian delegation from the Chelyabinsk region to Iran to discuss the prospect of partnering in South Pars gas field projects.
The export of petrochemical goods is Iran’s second largest source of income after oil. It therefore comes as no surprise that the Iranian government is also taking active steps to revive this sector. A number of related announcements were made last month.
- Government support for petrochemical firms - The Iranian government, through the Deputy Oil Minister for the Petrochemical Industry, stated that it would provide financial support to competent firms in the petrochemical industry in a bid to develop the industry.
- Expansion into the European market - The Director General of the Association of Petrochemical Industry Corporations revealed that he had been in talks with various European petrochemicals distributors. He referred to a preliminary agreement with a major petrochemicals distributor in Brussels to market and sell Iran's petrochemicals in European countries.
It seems that once initial issues such as insurance limitations, problems with currency transfer and supply of ships are ironed out, and subject to sanctions of course, Iran is set to become a significant player in the European petrochemical market.
Other notable developments over the last month include the following:
- Co-operation with Iran - During a meeting last month, the head of Niedersachsen Chamber of Trade underlined a German interest in long-term investments and cooperation in various Iranian sectors including the auto industry as well as the agricultural and food industries. Similarly, earlier this month a Memorandum of Understanding was signed by Iran and Belgium to expand economic cooperation on bilateral, regional and international issues. It is also reported that Iran and South Africa have agreed memoranda of understanding to enhance economic cooperation and boost links between the two countries.
- Iran remains on FATF blacklist - The Financial Action Taskforce ("FATF"), the leading inter-governmental anti-money laundering standard-setting body, refreshed its public statement on high risk and non-cooperative jurisdictions last month. Iran remains on the blacklist, along with North Korea, in respect of which FATF calls on its 34 member countries to apply counter-measures to protect the international financial system from the money laundering and terrorist financing.
- Iran invited to attend Syria talks – Following a shift in US policy, Iran was extended an invitation to attend Syria talks, held in Vienna on 30 October, which it accepted. The invitation came from Russia, after the US dropped its past objections to the inclusion of Iran, and marks a move away from the US imposed diplomatic marginalisation of Iran. However, a senior Iranian official stated that Iran has yet to decide whether it will participate in the next round of Syria talks taking place on November 14.
- Iran launches mining exploration drive – It was reported this month that Iran has embarked on a drive to explore mines in the resource rich region of Kerman. This is in line with the Deputy Economy Minister's statement of September that Iran plans to attract $15 billion of foreign investment in its mining sector which is still largely underdeveloped.