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By Reese Erlich, VICE News, March 20, 2016

 

Chinese and European companies are scrambling to invest in Iran and bringing home multibillion-dollar deals — while US corporations, barred from doing business with a newly-opening Islamic Republic, are forced to watch as their competitors tap into a market of 80 million people.

 

The nuclear agreement signed last year was formally implemented in January, lifting many economic sanctions and clearing the way for the resumption of trade. But the US government continues a myriad of unilateral sanctions, which prohibit US companies from doing business with Iran.

 

“It doesn’t make sense,” said Nadereh Chamlou, a former official at the World Bank and now an independent economic adviser based in Washington. “Nobody is served by this.”

 

“American companies certainly feel left out,” said Chamlou in a phone interview. At a recent meeting about Iran held in Washington, a businessman told her the policy was “like a tax on corporate America.”

 

Over the past few months, high-level delegations from China, Germany, and France have all visited Iran. A smiling President Hassan Rouhani traveled to Italy and France earlier this year, signing major deals in both countries.

 

China’s President Xi Jinping visited Tehran in January to formalize plans for $600 billion in Chinese investments over the next 10 years. China is building roads, damns and other major infrastructure projects. It has also flooded the Iranian market with low-cost consumer goods, including cheap cell phones in the biggest mobile market in the Middle East.

 

European consortium Airbus, which assembles its planes in France and Germany, signed letters of intent to sell 118 jets to Iran at a list price of $27 billion. Boeing isn’t getting any business from Iran yet, even though Iranian transport authorities have indicated they’d be open to buying dozens of American planes as well. Boeing had to get a special license from the US Treasury Department to even discuss future sales to Iran.

 

During Rouhani’s visit to Rome in January, Italian companies signed memorandums of understanding to invest $3.5 billion to refurbish Iranian oil refineries and $6 billion to provide heavy machinery.

 

Iran’s first, post-sanctions oil tanker set sail to Europe earlier this month. France’s Total plans to pump 150,000 to 200,000 barrels per day in Iran. Meanwhile, US oil companies are still in the exploratory stage of resuming ties to Iran, which has the world’s fourth largest proven oil reserves.

 

The US government continues to restrict investment and sales to Iran on national security grounds. Democratic and Republican hawks never supported the nuclear agreement, and they seek to maintain political pressure on Iran.

 

The Americans and Europeans have lifted some of the most onerous sanctions imposed on the Islamic Republic. Iran may now use the SWIFT system, which facilitates funds transfers among financial institutions around the world.

 

But the US still prohibits all US banks from doing business with Iran. And even some European banks are reluctant to open Iranian accounts, wary of the multi-billion dollar fines imposed by the US for previous sanctions violations.

 

“The European banks are still quite shy,” said economic adviser Chamlou. “Transactions in US dollars are still not permitted. It’s hampering Iran quite a bit.”

 

But sanctions or impediments to trade only help Iran’s conservatives, who oppose all cooperation with the West, according to Chamlou. “The longer the sanctions last, the more hardliners benefit,” she said.

 

Indeed, Iranian conservatives mirror the suspicions exhibited by hardliners in the US. Ahmad Nasirinasab, a small-business owner interviewed recently at Friday prayers in Tehran, opposes any foreign investment, which he says will bring back British and US domination of Iran’s economy.

 

“Before the revolution the country was totally dependent on foreign countries and the West,” he said. “They used to decide for us. But now we are independent.”

 

Iran’s so-called “principlists,” conservatives who say they uphold the principles of the 1979 Islamic revolution, argue that foreign investments will spread decadent Western culture in Iran.

 

But that is “a stupid argument by local conservatives,” said Saeed Laylaz, an Iranian economist and prominent reformist. “It’s a joke in my opinion.”

 

He argues that foreign investments are key to Rouhani’s plans to grow the economy by 5 to 6 percent this year, up from essentially zero growth last year.

 

“The principlists have no choice but to accept foreign investments,” he said.

 

The main arguments conservatives use to attack Rouhani’s economic policies are vaguely populist, and implausible. For example, they argue that buying 118 airplanes from Airbus is a waste of money because ordinary Iranians travel by car and bus, not airplane. (Iran is a huge country, the 17th largest in the world, and domestic airplane travel is both essential and cheap.)

 

But US sanctions have prohibited Iran from buying new planes for decades, or even purchasing parts for its fleet of 1970s-vintage Boeings. According to Laylaz, the principlists are complete hypocrites on the issue.

 

“Every time an airplane crashes,” he said, “the right wing demands the resignation of the minister of transport and even the government.”

 

Modernizing Iran’s passenger plane fleet, according to Laylaz, is key to restoring tourism and diverting to Iranian companies the money now spent by people who fly into and out of Iran on foreign airlines.

 

So far, the proposed foreign investments will mostly benefit Iranian state companies and foundations. France’s Peugeot Citroen has agreed to invest $400 million to resume a joint venture with Iran’s largest car company, state-owned Iran Khodro, which will manufacture 200,000 cars per year.

 

But Rouhani is running into criticism from Iran’s private capitalists, who say foreign investments should do more to help them. Pedram Soltani, vice president of the Iran Chamber of Commerce, argues that the economy needs $200 billion in foreign investment in order to reach Rouhani’s economic growth goals.

 

The president’s economic advisers say the required investment is closer to $90 billion, but in either case, the need for investment and financing is huge.

 

Soltani argues that the private sector can provide more growth and jobs than the state sector, which dominates the Iranian economy, and wants it to have a bigger share.

 

“That is our biggest concern, frankly speaking,” he said. “That is the debate we have with the government.”

 

It remains to be seen if either Iran’s private or public sectors can actually deliver the promised jobs and growth.

 

Meanwhile Iranian supporters of Rouhani hope for increased foreign investment, including from the US.

 

Economic adviser Chamlou says there’s a potentially great fit between Iran’s highly educated workforce and US technology.

 

“The Iranians know how to solve problems,” she said. “Iran is a very good ground for US investment.”

Reese Erlich received a grant from the Pulitzer Center on Crisis Reporting for his Iran coverage. He is the author of The Iran Agenda: The Real Story of US Policy and the Middle East Crisis. Follow him on Twitter: @ReeseErlich