Iran Pulse

Do Iranian hard-liners really want to stop foreign investment?

Article Summary
Despite criticism and warnings of "infiltration" in the aftermath of the nuclear deal, are Iranian hard-liners really opposed to foreign investment?

TEHRAN, Iran — Ultraconservatives in Iran are stepping up their crackdown on civil liberties in a move to send a message to the West — and the United States in particular — that the July 14 nuclear deal with six world powers does not mean that Tehran will liberalize its political system. To this end, they are using, or as moderate President Hassan Rouhani has noted, “playing with,” remarks made by Supreme Leader Ayatollah Ali Khamenei on likely US political and cultural infiltration of Iranian society.

Infiltration — a term generally referring to the actions of the United States or figures in Iran who seek to repair bilateral relations — has remained a major concern for Iranian ultraconservatives decades after the Islamic Revolution, which led to a split between the once allied countries. But the economic dimension of this matter seems to have long been neglected, and that is seemingly because Iranian conservative leaders see economic infiltration as less dangerous than foreign political and cultural influence.

Many activists and economists believe that economic infiltration has already occurred in Iran, particularly after crippling Western sanctions cut off the country’s ties with the outside world, pushing the Iranian market to meet its needs through the few countries that maintained significant economic relations, such as China and India. Indeed, amid the rising US pressure on the Iranian economy, the two Asian countries remained as major consumers of Iranian crude oil, but were barred from using banking channels to transfer dollars as payment. As a result, billions of dollars of low-quality goods were exported to Iran in exchange for oil in the past few years. In the Iranian calendar year ending March 20 alone, Iran’s imports from China and India stood at $12.73 billion and $3.82 billion, respectively, according to Iran’s Customs Administration.

China and India made large profits in the absence of a normalized relationship between Iran and the outside world. Both policy and economic experts over the past decade constantly complained about the low quality of these imported goods, especially those arriving from China, but their criticisms fell on deaf ears.

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Indeed, the big picture is that cheap Chinese products had come to dominate the Iranian market even before the external pressures on Iran escalated. Between 2005 and 2013, when former President Mahmoud Ahmadinejad was in office, China exported more than $80 billion worth of goods to Iran, through official and unofficial gateways. This trajectory had winners in the Iranian market; that is, certain state-linked companies made astronomical profits at the expense of the public interest.

The chair of the Iranian parliament’s budget and planning committee has pointed out the closed nature of the Iranian market as the cause for this economic infiltration, which has ruined the economy. In an interview with leading business magazine Tejarat-e Farda, Gholam Reza Tajgardoun said the monopolistic behavior and lack of financial transparency — as immediate consequences of a closed state economy — should be addressed in the post-sanctions era, when the Iranian economy will become more open. In Tajgardoun’s view, economic infiltration occurs when the national economy is weakened under external pressure. “When the economy is open and strong enough, market players will have more options to deal with and competitiveness will improve under transparent regulations,” said the lawmaker, who is close to moderate groups. However, how open will the Iranian economy really be after the lifting of sanctions?

In October, the supreme leader called on citizens to “be watchful about irregular imports” and “avoid importing consumer goods from the United States.” Soon afterward, Minister of Industry, Mines and Trade Mohammad Reza Nematzadeh announced that imports of American goods will be blocked. His ministry’s directive, however, did not clarify what will be considered as consumer goods. Wheat, for instance, is categorized as a semi-industrial product by the ministry. The case of Coca-Cola, a well-known American brand, is also striking. The firm is already registered in Iran, and its local factory employs hundreds of Iranians. Yet experts say it is unlikely that the new regulations will have any impact on Coca-Cola’s business in Iran, as the local factory is owned by Iranians who only pay a premium to the American license holder.

Whatever the description of consumer goods will be, the directive of the supreme leader — and subsequently the minister of industry, mines and trade — is said to be more political than economic in nature. One prominent Tehran-based trader has even argued that such directives have no impact on US policies, since the US government has no need to eye Iran’s market. Hamid Hosseini, a member of the Iran Chamber of Commerce, argues that the Iranian market has little attractiveness for the United States, which imported roughly $2.8 trillion worth of goods in 2013 alone. To infiltrate Iran, he said, “The US government may consider security options rather than economic ones. … So the ministry [of industry, mines and trade] directive has only political significance.”

It is apparent that for post-nuclear deal Iran, national security rather than the economy will remain as the top priority. Therefore, it is important to bear in mind that all economic, financial and trade policies are adopted within a context that is heavily influenced by political considerations. Yet these political considerations are complex. Indeed, realities on the ground are likely to soon make Iranian hard-liners, who have harshly criticized the nuclear deal as a gateway that might be abused by the United States and its allies to infiltrate the Islamic Republic, think twice. The Iranian market has to embrace multinational investors as its savior, because any political establishment would be at risk if the economy collapses as a result of corruption, isolation from global markets, the looming credit crunch and a generally inefficient economic system.

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Found in: united states, us-iranian relations, nuclear deal, iranian economy, infiltration, hard-liners, foreign investments, ali khamenei

Alireza Ramezani is a commentator on issues related to the Iranian economy and its business environment. As a strategic communications consultant, he advises financial services firms, startups and automotive companies in Iran. On Twitter: @AlirezaTehran

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