Rouhani’s Second Term: Will the ambiguities for doing business in Iran persist?

Foreign investors and MENA executives have been keeping a close eye on Iran’s presidential election that was held on May 19, 2017. The Iranian people voted to extend the term of the current moderate president, Hassan Rouhani. With voter turnout of 74%, Rouhani won with a comfortable margin, securing 57% of all votes, while his main hardliner opponent, Ebrahim Raisi, received just 38.5% of the vote. The results signal that many Iranians support a continuation of further engagement with foreign powers to help revive the domestic economy.

For MNCs considering engaging with Iran, the election results do not necessarily reflect a step forward in improving the conditions and ambiguities of doing business in Iran; rather, the results signify that Iran is less likely to move backwards in its willingness to engage with Western governments and foreign investors.

What to expect from Rouhani’s second term

Prior to Friday’s election, Rouhani was under much criticism regarding the limited economic benefits Iran has received since the implementation of the nuclear deal in 2016. Consequently, Rouhani’s platform focuses on boosting economic growth by attracting foreign investment and technology into the country. He is likely to continue to try to push through reforms, such as unification of the exchange rate and improving Iran’s banking sector. His priorities are outlined in his post-election economic plan; most notably, he plans to combat structural defects to address the issues of chronic unemployment and tax avoidance.

With regards to the nuclear deal, Rouhani will likely safeguard the deal at all costs, as it is the main achievement of his first term in office, and will remain part of his legacy. Rouhani is aware, however, that risks and constraints still exist for MNCs wishing to do business with Iran, so he has promised in his campaign to have all sanctions against Iran removed.

This will be a difficult task to fulfill, as Rouhani faces two main constraints – the deep-state organizations within Iran and the Trump administration. In Iranian politics, the Supreme Leader and the Iranian Revolutionary Guard Corps (IRGC) retain primacy in Iran’s regional and foreign policy. Thus, further negotiations with the US to ease sanctions will need the blessing of Supreme Leader Khamenei, which is uncertain given Trump’s rhetoric toward Iran.

From the perspective of the US administration, outstanding issues still exist with Iran, including its military involvement in Syria and Yemen and its support for US-designated terror groups. The consequence of these remaining issues is that the Trump administration will likely make little active effort in easing restrictions on US companies and financial sector transactions. It may also add additional non-nuclear sanctions on Iran, further persisting the ambiguities that exist for non-US companies wishing to do business with Iran. While an escalation in tensions between Trump’s administration and Iran is less likely with Rouhani as president than it would have been with Raisi, this remains a possibility, while not a highly likely one. This was reinforced by Trump’s statements in Saudi Arabia during his recent trip there.

Takeaways for MNCs

Rouhani’s re-election is unlikely to produce greater clarity for MNCs wishing to commercially engage with or in Iran, though they can be reassured that the efforts made by the Iranian administration to increase engagement with foreign investors are not likely to be reversed, and that Iran is unlikely to implement extreme protectionist policies as advocated by hardliner candidate, Raisi. This is good news for firms already in the market and for European firms in a position to invest and operate in the country; however, it does nothing to alleviate concerns of American companies. As a result, US firms that are not already operating in Iran on export licenses are likely to increasingly fall behind European and emerging markets competitors in securing future access to the market. However these dynamics would also mean that the boost to the economy from attracting FDI is still likely to be very slow to materialize.

For MNCs continuing to assess their Iran strategy, these are the key things to monitor next:

  • Statements from the Trump administration on Iran and the announcement of additional non-nuclear sanctions imposed on Iran
  • Results from the Trump administration’s comprehensive review of the nuclear deal, which should be completed in late July or early August 2017
  • Foreign policy statements from Iran’s Supreme Leader, Ayatollah Khamenei
  • Missile tests by the IRGC, which could increase tensions between Iran and the US
  • The publication of additional guidelines from the Office of Foreign Assets Control (OFAC)

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