Lifting of Iran’s sanctions: a turning point for the region

Lifting of Iran’s sanctions: a turning point for the region

After watchdogs confirmed that Iran has complied with the deal signed with the US in July 2014, sanctions were lifted last week. Implementation day represents a turning point for Iran’s economy, but also for the region.

Last week, the US lifted its sanctions on Iran, which had been in place for nearly 40 years.

According to the deal signed in July, Iran had to significantly reduce its number of centrifuges and dismantle a heavy water reactor near Arak, which have potential to create nuclear weapons.

After inspectors of the IAEA confirmed that Iran complied with the deal’s agreement, the sanctions were lifted.

The deal will have crucial consequences on Iran and on the Gulf region.

End of sanctions a lifeline for Iran’s economy

The lifting of Iran’s sanctions will enable the country to boost its economy. Iran will be able to regain access to the international financial system and currency markets.

The lifting of the sanctions released around $100 billion of Iran’s assets.

According to the IMF, the lifting of the sanctions could increase Iran’s GDP growth to around 5% in 2017 from almost zero today.

This comes at a crucial time for Iran’s economy, which has been suffering from the recent drastic drop of the oil prices. Iran suffers from inflation and its unemployment rate reaches almost 11%. The IMF predicted that without the lifting of the sanctions, Iran’s economy would continue to suffer tremendously.

President Rouhani is calling to use the new influx of investments to prompt the “economic mutation” of the country, creating jobs and improving the quality of life of Iranians.

Because of the sanctions Iran has been dealing with for the past decade, many Iranians live with a shortage of basic goods and services.

However, according to a study from BMI Research, companies such as Apple and General Electrics have been exploring retail opportunities in Iran for when the sanctions are lifted. The study predicts that demand for computers, games, machines and mobile phones will increase from $9.5bn to $13bn by 2020.

In Iran’s economy, particularly the oil industry will benefit from the lifting of the sanctions. Iran oil minister Bija Zanganeh said “Our exports will be doubled within a short period of time after the sanctions are lifted.”

The deal brings key consequences to Iran’s external affairs.

The agreement includes the end of the European embargo on Iran’s oil. Iran’s international trade, especially in the oil sector, will highly benefit of the lifting of the sanctions. It could increase Iran’s revenues from oil exports by $10bn by 2017. Iran has said it will sell up to 500,000 extra barrels of crude oil.

According to Iran’s Vice President Eshaq Janhangiri, because the restrictions added 15% to the cost of trading with Iran, lifting them will result in Iran saving $15bn yearly in cheaper trade.

The collapse of Gulf stock markets?

Financially, the lifting of the embargo on Iran’s oil will hamper the region’s oil exporting countries, as it has already started. Investors have already reacted as on Sunday, share prices in oil-rich Gulf States have drastically dropped, as the Iran deal started to take effect.

The Saudi Arabia Stock Exchange dropped 5.4% on Sunday, while Dubai’s stocks plunged 4.6% and Qatar Exchange closed down 7%.

Now, Iran is expected to become the main recipient of billions of dollar of new investment from Western countries.  An important part of the money that was previously spent on Gulf nations might now be directed to Iran.

The lifting of the sanctions will send oil prices even lower, as Iran increases its crude exports. For Saudi Arabia, this could create additional pressures on a kingdom that currently struggle to finance its budget.

Tensions between Iran and Saudi Arabia

If EU Foreign Policy Chief Frederica Mogherini said the deal would improve regional peace and security, it seems like it will lead to more rivalry and tensions between the regions’ two adversaries Saudi Arabia and Iran.

If the deal suggests better ties between the West and Iran, it also raises concern on the stability of the Middle East as well as the future relationships between Iran and other regional powers.

Iran’s return to the financial market could trigger a price war with rival Saudi Arabia, and exacerbate tensions in the region.

As the Iran deal takes effect, Iran reaffirms its leadership in the region, but also widens tensions with Saudi Arabia. The concern is that worsening tensions in the region could enable Iranian hardliners to gain more control.

With this deal, Iran will enter an economic mutation, which should place the country as a strong regional power.  However, to be recognised as a regional power it will have to take a step back in Syria and Lebanon and review its support for several armed groups. Iran’s continuous support for the Assad regime does not follow its logic of soft power. In order to be fully part of the international community, Iran has to obey its rules.

About Author

Assia Sabi

Assia Sabi has previously worked in strategic foresight for several organisations related to the Middle Eastern economic and business environment, such as the National Bank of Abu Dhabi and MEC International Ltd. She holds a double degree with a BA in Politics and International Relations from University of Kent and Sciences Po Lille, a master degree from Sciences Po Lille and has just completed an Msc in International Management for the MENA from the School of Oriental and African Studies (SOAS).