Five reasons why Iran is the next China

(3) The price of oil

Here’s one area on which the economists cannot yet seem to reach an agreement. Once the sanctions are lifted and Iran is free to export oil once more, will the price of oil rise or fall?

Some US economists believe that Iran could reduce the world price of crude petroleum by 10 per cent, which would save the US up to $76bn a year. This in addition to the economic boon that would spring from competitive US multinational firms operating in the Iranian manufacturing and service sectors.

However, it’s also been proposed that a powerful Iran could serve to double the price of oil, which would cause the US GDP to fall by up to 2.5 per cent, plunging the country into recession.

It must be remembered that these predictions are based on the notion that Iran might have nuclear weapons. Given that this is expressly forbidden by the terms of the agreement reached with P5+1, such alarmist thinking might now be taken with a pinch of salt – if not dismissed outright.

Yet in any case, whether the price of oil rises or falls once the sanctions are lifted, all seem to agree that things will look very good indeed for Iran. The World Bank believes that Iran’s strong position in the world oil market could cause their economic growth to surge to 5 per cent in 2016.

(4) Fairer trade

The lifting of the sanctions will make it considerably easier and more profitable for Iran to trade internationally – whether it’s oil or other products.

The World Bank estimates that exports from Iran will eventually increase to approximately $17bn, about 3.5 per cent of its GDP.

The countries most likely to see a large rise in post-sanctions trade with Iran include China, India, Turkey, Saudi Arabia, and the UK.

(5) A new goldmine for foreign investors

The sanction relief scheme will allow foreign firms to invest once more in Iran’s many lucrative sectors, including oil, gas, automobile, electronic, infrastructure, and others. 

As a result, European companies are already taking decisive steps to enter the Iranian market. Investors have apparently already fully booked all of Tehran’s hotel rooms for the remainder of 2015 and throughout 2016, and the capital city has already played host to a number of international investment conferences.

Andreas Schweitzer from Arjan Capital even went so far as to describe the lifting of the sanctions as Iran’s “Berlin Wall moment.”

“There’s more Iranian projects than international money to invest,” he says. “Iran now has the characteristics of East Germany in 1989.”

British Foreign Secretary Philip Hammond said he expects Iran’s sanctions to be lifted by spring 2016. So by this time next year, Iran may already have established itself as a new global superpower.  

Peter Westerman is managing director at Westermans International.

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