Iran's economy will wake up if sanctions are lifted. More oil exports and a possible influx of foreign investment could see the economy grow by as much as 5.5 per cent, according to the International Monetary Fund (IMF). But after years of isolation that drained its national coffers, the Islamic republic needs foreign capital to modernise its infrastructure. Significant barriers may remain in place even after sanctions go.
For one thing, Iranian companies and their international partners have little or no recent experience of banking transactions. It will take time before capital once again begins to flow through these channels - even if it is permitted. International banks were forced to close down their local branches and some have incurred large fines for dealing with sanctioned Iranians. Re-engagement will probably come, eventually. But international lenders may be reticent about financing projects in Iran, especially if sanctions are lifted in a piecemeal fashion.
Domestic Iranian banks may also struggle to re-establish the overseas presence they need to finance investment at home. The IMF stressed that Tehran needs to strengthen anti-money laundering measures. International fears that Iranian money fuels national and transnational conflict won't disappear overnight.
Iran's inflation rate, meanwhile, is around 14 per cent and that makes it harder for investors to forecast likely real returns. Then there is politics. Iran is at loggerheads with its Arab neighbours across the Persian Gulf. These divisions have spilled over to their participation in Opec and may have contributed to the cartel's failure to agree on a production target on December 4. That has pushed the price of a barrel of Brent crude down almost 19 per cent since. Although Iran wants to attract $30 billion of foreign investment into its oil industry, lower prices will make it harder for international companies to commit their shrinking investment capital.
Iran may soon emerge from its extended period of isolation. The base case assumption, however, is that it will take time. There's plenty of upside potential investing in a country with the world's fourth-largest proven reserves of oil. But while it is good to be hopeful, it's right to be cautious.
For one thing, Iranian companies and their international partners have little or no recent experience of banking transactions. It will take time before capital once again begins to flow through these channels - even if it is permitted. International banks were forced to close down their local branches and some have incurred large fines for dealing with sanctioned Iranians. Re-engagement will probably come, eventually. But international lenders may be reticent about financing projects in Iran, especially if sanctions are lifted in a piecemeal fashion.
Domestic Iranian banks may also struggle to re-establish the overseas presence they need to finance investment at home. The IMF stressed that Tehran needs to strengthen anti-money laundering measures. International fears that Iranian money fuels national and transnational conflict won't disappear overnight.
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Iran may soon emerge from its extended period of isolation. The base case assumption, however, is that it will take time. There's plenty of upside potential investing in a country with the world's fourth-largest proven reserves of oil. But while it is good to be hopeful, it's right to be cautious.