Why Iran shouldn’t get too excited about Brexit

Some Iranians believe Brexit will positively affect trade relations between Britain and Iran, but economists warn against expecting significant changes.

al-monitor The Union Jack (bottom) and the European Union flag are seen flying, at the border of Gibraltar with Spain, in the British overseas territory of Gibraltar, after Britain voted to leave the European Union in the EU Brexit referendum, June 27, 2016. Photo by REUTERS/Jon Nazca.

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united kingdom, trade, sanctions, european union, economy, brexit

Jul 15, 2016

TEHRAN, Iran — Since Britain’s vote to exit the European Union (EU), Iranian media has barely been able to contain its excitement about this historic development. Indeed, many pundits believe the result of the June 23 referendum could positively affect Iran’s dealings with one of Europe’s largest economies.

With the exception of the Foreign Ministry, no top Iranian authority has publicly commented on Brexit. Immediately after the vote, the ministry released a statement affirming Iran's policy of expanding ties with all European countries and asserting that Britain’s decision to leave the EU would not have an impact on its approach. Some middle-ranking officials, however, applauded the leave vote.

Hamid Aboutalebi, President Hassan Rouhani’s deputy chief of staff for political affairs, tweeted that Brexit could be a signal that the EU's collapse is imminent, urging Iranian decision-makers to take advantage of the “historic opportunity” at hand. His comment proves that some, if not all, of the Iranian government sees Brexit as a political or economic opportunity that could strengthen Iran’s position on the global stage.

Indeed, two days after the Brexit referendum, Donya-e Eqtesad, Iran's leading business daily, which is close to the moderate camp, claimed that a more independent Britain would be more beneficial to Iran than a Britain in the EU, especially given that the bloc has been pressing Tehran for years over its human rights record, among other issues. Some Western analysts share this line of thinking. Compliance attorneys at New York-based Sheppard Mullin told International Business Times that Britain could lift human rights-related sanctions on Iran because the country would no longer be bound by EU decisions in this regard.

Donya-e Eqtesad also argued that Iran’s energy sector is in desperate need of the presence of British energy giants BP and Royal Dutch Shell for its overhaul and development. This argument sounds persuasive to many experts in Iran, as the UK economy has come under pressure since the vote to leave, putting the country in a weaker position in negotiations with other countries, possibly including Iran. Indeed, a day after the referendum, the BBC warned that demand for sterling would be weaker, British stock markets would plunge, bond yields would further fall, the housing market would slow and investment in the country would drop as a result of the leave vote.

Despite stock markets rebounding sooner than expected, political analysts and economic experts remain concerned that post-Brexit Britain could negatively affect the global economy, which of course includes Iran. The Tabnak news website, however, says Iran’s economy is too small to be affected either way. The conservative website, which is close to Expediency Council Secretary Mohsen Rezaei, recently urged Iranian officials to not exaggerate the impact of Brexit on Iran while acknowledging that the vote would undermine the integrity of what it called US-European anti-Iran plans.

The question is whether Iran will be a priority on the United Kingdom's post-Brexit economic agenda, given the poor global economic conditions. Esfandyar Batmanghelidj, the founder of the Europe-Iran Forum business conference series, thinks not. He wrote on June 24 that British executives will have “fewer resources to devote to developing opportunities in Iran, especially at the required senior levels.”

Academics Saeed Khalouzadeh and Abdoreza Farajirad, professors of international relations at Tehran universities, also believe that Brexit will have little impact on Iran. Khalouzadeh, a diplomat and senior researcher in European studies, told the conservative Fararu news website that it is too soon to comment on the issue, because the Brexit process could last seven to 10 years. Farajirad, a former ambassador to Hungary, said he is certain that Britain will retain its close relationship with the EU, as the union has been a large market for the United Kingdom.

Indeed, according to Britain’s Office for National Statistics, last year 44% of UK exports of goods and services went to the EU, while 53% of British imports originated in the bloc; UK-EU trade volume was about 500 billion British pounds ($663 billion). Given these figures, if changes were made in Britain’s $8 billion worth of trade with Iran, it would be insignificant in the short run, according to Ferial Mostofi, the head of the investment panel at the Iran Chamber of Commerce. 

Thus, for Iran, it would be prudent to maintain positive relations with both the United Kingdom and the EU, as underlined in the Foreign Ministry’s statement, rather than to celebrate the possible collapse of the “tyrannical rule of the monarchy” and get emotional about Scotland and Northern Ireland potentially seceding to remain in the EU. If anything, it would be a strategic miscalculation for the Rouhani administration to exaggerate its position on Brexit, since a closer relationship with a single European country, even one as prominent as Britain, cannot remedy Iran’s structural economic and political problems.

Indeed, regardless of Brexit, Britain is very likely to maintain its role on the global stage, somewhere between the United States and Europe when it comes to political engagement with Iran. Given as much, in terms of trade, it is likely that Brexit will help reshape economic relations between London and Tehran, but not in the short run. 

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