Doing business with Iran will be smoother for UK businesses, particularly SMEs, when major high street banks come on board to offer their services. This was one of the key points made at the ‘Investing in Iran Briefing’ held by the Middle East Association (MEA) and hosted by full service commercial law firm Pinsent Masons in London on January 20. No major UK banks attended the briefing and the banking arrangements in place as they currently stand are seen chiefly to favour mega-deals.
The briefing came ahead of an MEA trade mission to Tehran in February, with another scheduled for May.
The event was held under the Chatham House rule meaning the content of the discussions can be relayed without attribution to the respective speakers and participants.
The panel of speakers, chaired by Peter Meyer, CEO of the MEA, came from UK Export Finance, Pinsent Masons, Rah Shahr International Group, Afraz Advisers and the Foreign & Commonwealth Office. The delegates at the well-attended event came from a wide range of companies including AMG Alliance, Earth &Marine Environmental Consultants, Seafast Logistics, The Society of Motor Manufacturers & Traders and Worldwide Energy Logistics to name just a few.
During the presentations the scale of opportunities became clear. Development of oil & gas, steel, mining, revitalisation of ports, shipping, construction, warehousing, product processing, logistics, IT, roads, rail and airports, tourism — all flagged up as key areas where there is demand for investment, expertise and development. Private/public partnerships are sought.
With a population of 80mn, predicted to reach 100mn in 2025, there is a huge demand for housing and jobs. 600 mining projects are currently ready to be financed. Entry to Iran is facilitated through the Free Zones. Areas that are recognised as being in need of improvement are the infrastructure of the banks and the legal regulatory framework.
Investors were advised to think long-term and look at 30 to 35 year commitments. Heavy competition is expected from Germany, Italy and France.
It was pointed out that if Iran gets the investment it needs it can add 1.28mn barrels of oil per day to the market. Low lift costs of $45 per barrel are a bonus, though shortage of equipment is a problem that will take time to be resolved.
Companies were advised to ensure that any steps they plan to take are fully compliant with the rules on sanctions. While all EU economic and financial sanctions made in connection with the Iranian nuclear programme have been lifted there are still restrictions in place.
The EU Arms embargo and missile technology sanctions and restrictions will remain in place until Transition Day (October 18, 2023), as well as continuing restrictive measures on certain individuals.
Sanctions imposed by the EU in view of the human rights situation in Iran, support for terrorism and other grounds, will remain in place.
Iranian persons listed under EU terrorism and Syria sanctions regimes or any other EU sanctions regime will continue to be subject to restrictive measures under these regimes.
As of Implementation Day, proliferation-related restrictions including nuclear transfers and activities and associated services are subject to prior authorisation. UK National Controls on Iran (applying to civil aerospace and marine, for example) also remain in place.
Companies were reminded that with regard to the US position, secondary sanctions continue to apply to non-US persons for conducting transactions with any of the more than 200 Iranian or Iran-related individuals and entities who remain or are placed on the SDN (Specially Designated Nationals) List, notwithstanding the lifting of secondary sanctions on certain specified categories and sectors.
The US domestic trade embargo on Iran remains in place. Even after Implementation Day, with limited exceptions, US persons — including US companies — continue to be broadly prohibited from engaging in transactions or dealings with Iran or its government.
It was noted that the US has imposed fresh sanctions on Iranian companies and individuals over a recent ballistic missile test.
The new sanctions prevent 11 entities and individuals linked to the missile programme from using the US banking system.
All in all the key message to companies wishing to engage with Iran was to undertake due diligence, be aware of what sanctions remain in place, be aware of local laws in Iran, including labour and tax laws, be aware of exactly who one is trading with and make sure that funds and goods go to the people they are said to be going to.
It was observed that it is in everyone’s interest that the deal with Iran should succeed, as if Iran fails to reap the economic rewards from the deal, it will no longer have an incentive to commit to refraining from developing its nuclear capabilities.
The position of the UK government is that it fully supports expanding trade relations with Iran, it was stated. UKTI will be offering support to British businesses as they seek to reengage with Iran.
Finding banks to facilitate transactions could prove problematic in the early stages. Many major banks are exposed to the US banking system and it is expected that some of the big banks might take a while to reengage with Iran meaning that companies might need to look to smaller, regional banks. High street banks, with the possible exception of HSBC, are regarded as being not well organised for dealing with Iran. However, that initial reticence is expected to change.
It was noted that payments can’t be made in US dollars. On the upside it is expected that the SWIFT system for transactions should be in place by the end of the month.
UK Export Finance is on hand to share the risks – reducing risk from 100% to 20% - on contracts ranging up to £2.3 billion.
It also is on hand to insure against ‘snap back risk’ whereby sanctions could be re-imposed in the event of a breach of the terms of the deal. However, it was pointed out that there would be a 65 day warning window before any action is taken and that this would be absolutely a matter of last resort and something that would be (no pun intended by the speaker) ‘the nuclear option’ and that hopefully will never have to be used.
At the moment visas for Iran are still being processed through Dublin and Paris though the aim is for Iran to offer visas in London in the next few months.
With regard to the upcoming elections in Iran, the outcome is not seen as being a threat to the deal especially as it has the backing of the Supreme Leader.
Iran now has access to $100bn of its frozen assets.
With regard to the role of the UAE as a conduit for business with Iran, especially in light of tensions between Saudi Arabia and Iran, it was noted that some emirates are more ‘Iran friendly’ than others. Dubai was described as being being ‘closer’ to Iran while Abu Dhabi is seen as being ‘a bit frostier’.
The Middle East Association Trade Mission to Iran takes place from February 28 to March 3.
Meyer: Panel head.
