Report

A Nuclear Deal Might Not Set Off an Iranian Business Boom

Discord between the White House and Congress over any potential deal with Tehran could keep foreign companies from racing back into Iran.

Photo by John Moore/Getty Images
Photo by John Moore/Getty Images

American and Iranian negotiators are racing to cobble together a nuclear deal before a late-November deadline and both sides are signaling cautious optimism that an agreement could finally be in sight. Even if the Obama administration inks a deal, however, many companies will wait to see whether U.S. lawmakers try to derail the agreement before rushing back into Iran.

Reaching an agreement that scales back Iran’s nuclear program in exchange for the United States relaxing some sanctions against the country is a top priority for the White House. But Congress also has a hand in the matter because it imposed some of the sanctions against Iran and has been critical of the administration’s negotiating. The White House can suspend sanctions temporarily, but some measures would need congressional approval to be removed completely. The administration has concluded that it can legally suspend some sanctions against Iran without the legislative branch and avoid seeking approval from a supermajority of senators because the agreement wouldn’t be called a treaty.

But firms considering doing business with Iran will first want to see that lawmakers are at least amenable to the agreement, according to former Treasury Department officials and trade lawyers who advise companies on country sanctions.

"Congress needs to signal that it’s not going to seriously undermine a deal," said former Treasury sanctions official Elizabeth Rosenberg, who is now a senior fellow at the Center for a New American Security.

If enough lawmakers disapprove, they could pass legislation to impose new sanctions, which would force President Barack Obama to stake even more political capital on the deal by vetoing the new measures. So an uproar from Congress right after the deal could make some companies wait to see how the dispute plays out, Rosenberg said.

"That sort of ambiguity about what the sanctions program will look like in the future will have a real chilling effect on business entering Iran," said Rosenberg. "I think it will be pretty contentious — and that’s being polite."

Rosenberg expects a fight because key congressional critics have already signaled their dissatisfaction that a deal could be reached without their input.

"It’s tough to see a solid agreement when Congress, which was critical to putting in the strong sanctions that got negotiators to this point, is so clearly sidelined," House Foreign Affairs Committee Chairman Ed Royce (R-Calif.) said in a statement this week.

Senate Foreign Relations Committee Chairman Bob Menendez (D-N.J.) is ready to pounce on any pact that might come out of the talks, which are intensifying as a Nov. 24 deadline rapidly approaches.

"Congress will closely examine any agreement, should it be reached," Menendez said in a statement this week. "If a potential deal does not substantially and effectively dismantle Iran’s illicit nuclear weapons program, I expect Congress will respond."

Menendez has pushed to up the ante on the negotiations by automatically imposing new sanctions if Iran doesn’t agree to roll back its nuclear program by the Nov. 24 deadline. His bill nearly passed Congress earlier this year, although the White House had furiously argued against it and threatened a veto.

State Department spokeswoman Marie Harf said this week that the administration is in close consultation with lawmakers but doesn’t need them to vote to suspend sanctions as part of a next-stage agreement with Iran.

Many of the sanctions would eventually need congressional action to strike them from the books, but in practice the administration has the authority to temporarily suspend sanctions or draw up new ones without Congress.

That kind of discord may make firms more skittish, even as they eye Iran’s oil fields and potentially lucrative middle-class consumer market.

"I think most Western companies/institutions will be wary of jumping back into Iran if there are uncertainties about the contours and application of sanctions," said Juan Zarate, a former Treasury Department official charged with overseeing the George W. Bush administration’s sanctions program.

It’s still unclear what opportunities will open up in Iran and some analysts are skeptical that negotiators can meet the deadline. Even if an agreement is reached, it likely won’t lift all the sanctions, which could mean that companies wanting to do business with Iran may still have trouble finding banks to facilitate their business.

Financial institutions will have little incentive to transact with Iranian companies and banks as long as sanctions linger because the fines for violating the restrictions can run into the billions of dollars. The U.S. government set another record this summer by exacting a nearly $9 billion penalty from French bank BNP Paribas for violating sanctions against Iran, Sudan, and other penalized countries.

Amir Ali Amiri is the founder of ACL, a firm established to help promote investment in Iran. He told the BBC earlier this month that not much has changed for Iranian businessmen this year.

"Financial intermediaries around the globe self-opt out still for the fear of reprisals by the U.S. Treasury," he said. "If those financial intermediaries on the whole do not partake in any scheme, allowed or not, it cannot happen."

Indeed, French carmaker Renault said this summer it was in talks with the U.S. and French governments in its efforts to convince a bank to work on the company’s Iranian business. Renault resumed shipping auto parts to Iran this year. Now, the corporation is negotiating new contracts with domestic automaker Saipa to ramp up its business in Iran, according to local news reports.

Although some companies, like Renault, have been vocal about their interest in going back to Iran, many more companies are hesitant to talk about the prospects until it becomes clear that sanctions will be lifted. That makes it hard even for officials to gauge how much business would rush into Iran if a deal were reached.

Many U.S. officials expected a rush of interest from foreign companies after sanctions against Myanmar (previously known as Burma) were suspended starting in 2012. But the uncertainty created by the remaining sanctions and the difficult reality of simply doing business there has caused many companies to either stay out of the market entirely or tiptoe in slowly.

Earlier this month, Myanmar’s government awarded nine banking licenses to a list of mostly Japanese and Chinese institutions to operate in the country. American financial firms are still restricted because the United States stands alone in maintaining some sanctions against the country. Although the U.S. government allows American companies and banks to do business with a handful of banks there, many Myanmar companies and businessmen remain on the U.S. blacklist.

But Iran offers a much more developed economy, one that many European companies operated in before sanctions were ramped up in 2010. Depending on the terms of a deal with Iran, some companies will find the opportunities too good to pass up. Rosenberg said lease sales for oil and gas that only come up every 30 years, for instance, would be hard for energy companies to sit out, no matter what uncertainty lingers.

"There are certain companies for whom getting the first-mover advantage will be so valuable that they’ll be willing to tolerate a lot of risk," Rosenberg said.

Even a modest deal with a short timeline for re-evaluation like the interim pact reached last fall would present opportunities for some companies, especially those that can execute one-off sales, rather than enter into long-term contracts.

The agreement reached with Iran last November and extended in July temporarily suspended some sanctions, including restrictions against the auto industry, the trade of gold and precious metals, and petrochemical exports. Tehran was also allowed to import spare parts to upgrade commercial airliners to make them safer. This summer, Boeing struck a deal to sell airplane parts to Iran, becoming the first U.S. aerospace company to do business with Tehran since sanctions were first imposed in 1979.

Tehran has a huge incentive to negotiate a deal because the layers of restrictions from the United States, the United Nations, and the EU have devastated Iran’s economy. Sanctions reduced oil exports in 2013 to their lowest level in 20 years and helped drive down the country’s GDP and sent its currency, the rial, plummeting 60 percent between 2012 and 2013.

U.S. companies, which have been barred from operating in or doing business with Iran for decades, may be kept on the sidelines until a permanent accord is reached later. Many observers expect that negotiators will suspend sanctions that apply to other countries first, but require further proof of Iran’s progress before allowing U.S. companies to go back in.

"I think there are other operators around the world who are going to take any opportunity and run with it, but U.S. and EU companies are going to be much more cautious, if they even entertain the idea," said Katrina Carroll, a former Treasury Department attorney who now works for the law firm WilmerHale in Washington, D.C.

Still, any agreement reached by the November deadline will likely leave many questions for companies wanting to make investments in the Iranian market in the future.

"You’re going to have this period of uncertainty, even assuming there’s a deal," said Doug Jacobson, principal of the international trade law firm Jacobson Burton. "There’s still going to be this transition period that is going to make it hard to operate long-term."

Though there may be a rush of short-term or one-off deals such as sales of airplane and auto parts, Jacobson said, "Making the investments necessary to build a factory or hire employees — most people are going to say we need some sort of track record before they’re willing to do that."

John Hudson contributed to this report.

 Twitter: @jtrindle

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