Iran Deal Can Open The Way To Trade And Peace

Iran remains a pariah state. In the eyes of many Westerners, not least those sitting in the mighty US Congress, there are few more dangerous, untrustworthy states on Earth. It’s incredible, then, that in the wake of an historic framework agreement, which emerged earlier this month after fraught negotiations in Lausanne, long-standing international sanctions against Iran could soon be dropped.

Even in the midst of a general election campaign, to say nothing of the slow-motion-car-crash negotiations that may or may not keep Greece (for now) in the eurozone, this Iran deal deserved more headlines. A country that should rank as one of the truly significant global economies, bigger than South Africa and home to 81m people, could soon return to the world stage.

The five permanent members of the United Nations Security Council – the UK, US, China, Russia and France – have now agreed, together with Germany, to end the Iranian isolation that began in 1979 with the US Embassy hostage crisis.

The stringent trade restrictions, tightened in 2011, reflect fears (not least in Israel) that Iran’s uranium enrichment activities were aimed at building a nuclear weapon. In principle, such sanctions could now be eased in exchange for curbs and further monitoring of Tehran’s nuclear programme.

An end to Iranian sanctions would represent a rare diplomatic ray of sunshine across the Middle East, marking the end of a dangerous and economically debilitating stand-off. The re-emergence of Iran as a major energy exporter could also, by the way, help keep a lid on oil prices. But there’s a long way to go. The details are far from final, and this deal could yet be derailed.

Iran’s resource endowment, often downplayed in Western circles, is nothing short of spectacular. It includes at least 157bn barrels of proven oil reserves – the third or fourth-largest haul in the world, depending on how you count them. Add to that confirmed natural gas treasures of 33  trillion cubic metres – even more than Russia on the most recent estimates – and you have the makings of an energy colossus.

There’s growing market speculation that, with goodwill on both sides, Iranian oil exports could soon rise from 1.1m to 3m barrels a day, the average level during the mid-1990s when sanctions were looser. Back in the early 1970s, in fact, during the days of the Shah when Western oil majors could basically do as they pleased, over 5m barrels of Iranian crude hit global markets daily.

Restoring those kind of flows would make Iran twice as important a supplier as Kuwait – going a long way towards maintaining relatively low global crude prices, so boosting energy-importing Western economies such as America and the UK.

The notion of a Western rapprochement with Tehran has been in play since mid-2013, when Hassan Rouhani replaced Mahmoud Ahmedinejad as president. At a stroke, instead of a firebrand religious hardliner, Iran was represented by a seemingly moderate cleric, English-speaking and with a doctorate in law from a British university.

Within months of taking office, Rouhani was at Davos, Alpine hob-nobbing with the best of them, doing his bit to charm the Western and West-leaning global elite. “Our country has never sought, nor seeks, anything other than peaceful technology,” he opined in early 2014, securing not only the start of this latest thaw in Iranian-US relations, but also an interim agreement to access much-needed foreign exchange reserves. “Iran is open for business,” Rouhani has said, at a string of international summits since, using a near identical text each time. “Come and visit us and see the investment opportunities for yourselves.” Over the last 18 months, the Iranian president has consistently argued that his country, “within the next three decades, could become a top-10 global economy”. Funnily enough, he is right.

In 2012, the year before Rouhani took office, Iranian GDP shrank by over 5pc, the economy gripped by sanctions and enduring its worst financial crisis for at least two decades. Since then, growth has returned, in part because sanctions have slightly eased. Independent Western analysts now estimate 2014 GDP at around $450bn (£304bn), placing Iran comfortably among the world’s 30 largest economies – ahead of both Austria and Taiwan.

But this country is still massively under-achieving. Along with its natural commodities, Iran also boasts a highly-skilled, near-universally literate population, with a vigorous median age of just 28. Its numerous universities, while far from gender-friendly, have long-produced a steady stream of well-qualified scientists and engineers.

In the mid-1950s, real per capita GDP was just four-fifths that of Turkey, Iran’s ancient rival. Over the 20 years that followed, free trade and economic dynamism meant growth was strong, with GDP per head soaring to more than two-and-a-half times that of Turkey. Then came Ayatollah Khomeini’s 1979 revolution, with its theocratic clampdown on enterprise, which sent the economy spiralling downward.

As such, Iran missed the emerging markets revolution that, from the 1980s onwards, ignited the rapid expansion of economies like China, India and Turkey. Iranians are now, once again, much poorer than their Turkish neighbours. Rouhani has pledged to reverse that, stating repeatedly that he wants to “join the rest of the global economy”, positioning Iran as, potentially “the most exciting emerging market on earth”.

Given its natural and human resources, that is by no means a ludicrous claim. The key, of course, is to get sanctions lifted – in particular, the banking restrictions that block international hard-currency transfers. Rouhani will also need to play ball, of course, in terms of granting renewed access to Western oil men.

While a gusher of Iranian crude would lower global prices, I’m sceptical we’ll see it soon. People I trust tell me Iran has some 40m barrels loaded on to tankers, ready for immediate sale, once the embargo is lifted. But that’s nothing – little more than 0.1pc of yearly global crude consumption. Iran’s energy industry, inevitably, has suffered from chronic underinvestment since sanctions first bit. That’s why any sanctions deal will result in just a trickle of extra Iranian oil over the next two to three years, not a flood.

It anyway may not happen. Rouhani certainly isn’t banking on a deal – which is why Iranian officials last week made a high-profile visit to China, where they spoke with oil-importing giant Sinopec about selling more oil eastwards. Beijing, in turn, confirmed Iran as a founder member of the China-led Asian Infrastructure Investment Bank, a rival to the Washington-based World Bank, similarly thumbing its nose at America.

While the specifics of this framework nuclear agreement are due to be agreed by July, that deadline is likely to slip. There are manifest differences between the post-Lausanne communiqués published by Iran, the US and the UK, each side having its own schedule for the sanctions-lifting steps – from the reduction in enriched uranium stockpiles to the modification of Iran’s heavy water reactor. Before sanctions can be lifted, the International Atomic Energy Agency must also certify Iran is complying – which could take many months.

And, of course, there’s the reality that for much of America’s policymaking elite – and a fair few of their British cousins – the very idea of a deal with Iran is a “sell-out”. Yet, while I’ll be criticised for saying so, I want this deal to go through. Bottling up any nation, let alone one that will soon be home to 100m people, is no long-term solution. Trade and mutually beneficial commerce, as has been shown throughout history, are the surest way to restrain military conflict.

That’s why I hope the Lausanne agreement holds – and why you should too.

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