Beyond Sanctions: Iran’s Economic Future

by Isabella Freeman

The lifting of nuclear and economic sanctions in Iran allows for the opening of one of the world’s last and largest untapped emerging markets. Iran’s President Hassan Rouhani has stated, “let’s forget the past and start anew” expressing optimism in restoring business relations with the West. Iran has the second largest economy in the Middle East with a GDP of roughly $400 billion annually. The GDP per capita when adjusted for purchasing power parity is $16,500, which is higher than other emerging economies such as Brazil, China, India, and South Africa. Roughly sixty percent of Iran’s population of seventy seven million is under the age of thirty. These economic and demographic facts make Iran an interesting opportunity for foreign investment. Iran was previously unable to trade with the West due to economic and nuclear sanctions. However, the United States has now removed nuclear sanctions; but US economic sanctions remain. European economic and nuclear sanctions have been remove thus allowing for increased business relations with the European community. Iran‘s central bank is projecting annual growth of eight percent per annum until 2020. The ever-conservative IMF foresees annual growth of four percent, and given the nation’s demographics the government projection may be more reasonable. The government is seeking roughly $300 billion in outside investment. Oil plays an important role in Iran’s annual growth predictions. The government expects an increase in oil revenue from oil exports of $10 billion through increasing total exports by 500,000 barrels of oil per day. Additionally, Iran is hoping to increase financial investment through procuring contracts with foreign companies. During a recent trip to France and Italy, President Rouhani secured $40 billion worth of contracts with companies such as Airbus, Danieli, Saipem, Total, and Peugeot. Iran has purchased 73 long-haul and 43 medium-haul planes in an effort to modernize the country’s aviation sector. Airlines such as Air France, Dutch Airline KML, and British Airways have expressed interest in resuming flights to Iran. To facilitate the modernization of the aviation sector the government is expected to use Aéroports de Paris and Bouygues SA to design and build a new terminal at Imam Khomeini International Airport. The opening of Iran’s market, and its potentially increased revenues stream, raises political and ideological concerns. However, the threat of further sanctions pressure, combined with a youthful populace, will keep such concerns in check, and provide opportunities for companies in the infrastructure, pharmaceutical, and luxury goods sectors.