Five takeaways from the Europe-Iran forum in Zurich
Associate Director of Global Risk Analysis, Henry Smith, who leads Control Risks’ Iran advisory services, spoke in early May at the 3rd Europe-Iran Forum in Zurich. The two-day event is arranged by a private sector organizer and attended by 450 people. The participants are government officials from Europe, Iran and the US; business people from Iranian, European and Asian corporates; professional services companies; and representatives of think tanks and lobby groups. Henry summarises five key takeaways from the event:
1) Banks are limiting the nuclear deal's impact. Corporations trying to be first movers into Iran find that banks will not go with them. It has been well documented that banks' appetite to take on Iran risks is significantly less than their European and Asian corporate clients, creating a gap between the legal space for companies to engage Iran and their practical ability to execute contracts. Government officials and lawyers at the event say the reluctance of banks is more to do with fears of political and reputational risk associated with Iran than with their exposure to the non-nuclear sanctions that remain imposed on Iran. Nonetheless, this gap between theory and practice has emerged as the biggest choke point since the nuclear sanctions against Iran were suspended in January 2016.
2) US government is encouraging business with Iran. Banks' reluctance to engage with Iran runs counter to US foreign policy interests. The nuclear deal signed with Iran is an arms control agreement that gives Iran an economic dividend in return for reducing the scale and nature of its nuclear programme. Iran is not realizing this economic dividend, which jeopardies the nuclear agreement. Consequently, at the event in Zurich and in other fora, US officials have been attempting to inject confidence into non-US banks (and the broader non-US business community) that legally permissible trade and investment with Iran should be facilitated. We expect to see further guidance from the US Department of Treasury over the summer to address this issue.
3) Europe does not fear Trump. The European diplomatic community appears to share Control Risks' assessment that Donald Trump's potential election as US president is not a significant threat to the nuclear deal. A unilateral attempt by the US to cancel the nuclear deal puts the US on a road to another conflict in the Middle East; the very conflict that the nuclear deal is designed to prevent. Any US president will face domestic and international pressure to implement the nuclear deal provided that Iran is meeting its nuclear obligations. Provided that Iran receives an economic dividend, we expect it fulfil the deal in the coming years.
4) US lobby groups have a voice. United Against Nuclear Iran (UANI) was a vocal participant at the event in Zurich, attempting to highlight to both officials and businesspeople that there are other risks for them to consider beyond sanctions. UANI highlights Iran's human rights record and relationships with designated terrorist groups as potential sources of political and reputational risk. We expect UANI to continue using direct action and public relations campaigns against governments and corporates to attempt to limit the extent of trade and investment with Iran. UANI add an additional consideration for corporations considering opportunities with Iran.
5) Optimism remains that business with Iran will increase. Despite the aforementioned challenges with banking, and the need for corporates to carefully manage sanctions, political and reputational risks, it was clear in Zurich – and from our discussions with clients in Europe and Asia – that there is an expectation that trade and investment with Iran will grow into the latter half of 2016. We expect to see in the coming months: further guidance from the US Department of Treasury for non-US banks, improvements in Iran's regulatory environment (for both banks and key sectors of the economy), and potentially also a review of Iran's status as a country with deficiencies in anti-money laundering and terrorist financing by the Financial Action Task Force (FATF). These measures will improve confidence, enable banks to begin executing some trade and investment, and begin to settle some of the nerves for non-US companies considering legal business activity.