A number of European companies recently concluded large investment deals in the Iranian market, an indication that Iran has reaped some benefits from the nuclear deal. Moreover, the development also coincided with President Hassan Rouhani’s landslide win of a second presidential term at the May 19, 2017 elections.

The recent deals sealed with Western states give four key indications. Firstly, the international powers are committed to the implementation of the provisions of the nuclear deal, and the lifting of restrictions on Western companies doing businesses with Iran. Secondly, some Western companies are keen on hunting for potential investment returns in the Iranian market despite existing risks. Thirdly, European countries continue to support Iran’s moderate camp to initiate economic reforms required to encourage foreign investment inflow.

Fourthly, increasing difficulties might face any moves the United States may make to influence involved companies’ commitments towards Iran, especially after several large deals were concluded through bilateral investment partnerships between international powers. 

However, Washington’s recent effort to impose more sanctions on local and international entities and businesses for supporting Iran’s ballistic missile program, and largely enhancing its military capability, may send quite the opposite message that the business climate in Iran will not live up to European expectations. This would slow down the conclusion of investment deals in the Iranian market in the coming period, at a time when this business climate continues to face several challenges such as bad regulations and the Iranian Revolutionary Guard Corps’ large-scale intervention in various economic activities. 

Several Indications
The Iranian market appears to be entering a new stage of recovery spurred by large investment deals concluded between European companies and the Iranian government. This presents several indications concerning the investment outlook for the country’s market. The following indications stand out:

1- Declining Restrictions. In July 2016, the US Department of Treasury gave its approval for aviation giant Boeing to sell 80 airliners to Iran for $16.6 billion. The approval sent a signal that risks of doing business with Iran are already gone, and that many Western companies now have an opportunity to hunt for investment projects in the country’s various economic sectors, at a time when Iran appears to be in dire need for foreign investments that can help overcome economic hardships. 

Moreover, despite US President Donald Trump’s frequent threats that he would order a  full review of the nuclear agreement with Iran - to certify Iran’s compliance and whether the removal of sanctions is in the US national interest- the US has not taken procedural steps in this direction. This did reflect on the conclusion of large investment deals between Western companies and the Iranian government in recent months, of which the deals with Boeing, France’s oil giant Total and Europe’s planemaker Airbus stand out.

2- Seizing Opportunities. Soon after the nuclear deal was sealed, Western companies sought to capitalize on the lifting of sanctions on doing business with Iran. The Iranian market holds significant investment opportunities in various economic sectors, and in the oil and gas industry in particular that have high investment returns. 

Moreover, President Rouhani, on January 18, 2017, affirmed that the country needs annual foreign investment of $30-$50 billion to overcome economic hardships. The oil minister Bijan Zangeneh, stated later on February 9, that the country needs $200 billion of investment in the next five years to increase production and exports. 

For Total, its $5 billion contract with Iran for the development and production of phase 11 of South Pars (SP11), the world's largest gas field is a risk worth taking. That is because that deal is expected to generate $84 billion in revenue over the next 20 years, which is the duration of the contract signed with the National Iranian Oil Company (NIOC). 

Similarly, Western companies operating in other sectors, such as transportation, the auto industry, expect equally large attractive commercial and investment returns from their businesses in the Iranian market. 

3- European Commitment. Due to the continuous restrictions on doing business with Iran and the latest list of american sanctions, European companies compared to the american ones appeared to be more capable of gaining access into the Iranian market. This  disparity enabled the European companies to seize an opportunity to enter the country’s market more easily. However, at the same time, European companies eagerness to pump capital into Iran has sent a message that Europe is serious and committed to the implementation of the nuclear deal regardless of the United States’ position on it.

Of course, Iran’s conclusion of investment deals, such as the contract on development of South Pars gas field, through a partnership between French, Chinese and Iranian companies, means that the Unites States will not be able to convince or coerce all of its allies to give up the benefits of similar deals. Moreover, international banks’ reluctance to fund deals with Iran appears to be useless because interested companies can continue to do business with Iran through reliance on other financial institutions such as Chinese banks. 

4- Supporting the Moderates. European companies’ deals with Iran appears to be a result of some positive domestic developments in Iran, including moderate President Rouhani’s win of a second term in the May 19 elections. This meant that these deals were more like an incentive for the moderate camp to continue its commitment to the provisions of the nuclear deal signed with international powers. 

Moreover, the deals represent part of Europe’s support for President Rouhani’s effort to carry out economic reforms and encourage foreign investment to counter the Revolutionary Guard Corps’ intervention in the country’s economic activities. 

Curbing the Deals
The nuclear agreement with the United States has not prevented new sanctions on international and national entities for backing Iran’s ballistic missile program. The US Department of Treasury, on March 24, 2017, imposed sanctions on 11 companies and individuals accused of transferring sensitive missile technology to Iran. Later on July 18, the Department imposed new sanctions on 18 other companies and individuals for backing the Revolutionary Guard Corps by developing drones and military equipment, producing and maintaining boats, procuring electronic components, and orchestrating the theft of U.S. and Western software programs sold to Iran's government. 

The most recent list of sanctions is limited in scope because it targets specific entities and does not focus on blocking Iran’s oil exports from reaching the international market or blocking Western companies from doing business within Iran. This means the sanctions do not pose a large-scale threat to the Iranian economy due to its limited effect.  

Against this low cost, the US Administration of President Donald Trump may attempt to rectify Iran’s behavior by ratcheting up the sanctions that are likely to include effective bans that can damage the critical components of the Iranian economy. However, this does fuel the fears of Western companies willing to pump fresh investments into the Iranian market. 

Without a doubt, the Trump Administration’s eagerness to ratchet up sanctions against Iran in the coming period will send across the adverse message that Iran’s business climate will not be as easy as expected for international companies. These companies may have to be more cautious about pumping more capital into the Iran at a time when the country's investment environment is facing multiple challenges including, as mentioned above, bad regulations and the Revolutionary Guard Corps’ large-scale intervention in various economic activities. 

It can be concluded that despite the fact that the nuclear agreement represented a new stage in investment partnership between Iran and European countries, the possibility that US sanctions against Iran will be ratcheted up can push European companies to adopt a more cautious policy on pumping investments into Iran. Thus slowing down potential European investments with Tehran in the coming period.