June 23, 2015

CNAS Releases Policy Brief on Iran Sanctions and Economic Reintegration Following a Nuclear Deal

Washington, June 23 – Elizabeth Rosenberg, Senior Fellow and Director of the Center for a New American Security (CNAS) Energy, Economics, and Security Program, and Dr. Sara Vakhshouri, President of SVB Energy International, LLC, have released a new policy brief, Iran’s Economic Reintegration: Sanctions Relief, Energy, and Economic Growth Under a Nuclear Agreement with Iran. The brief lays out how the removal of international sanctions on Iran is likely to proceed and what this will mean for Iran’s economic prospects – most notably, Iran’s energy sector. It also offers recommendations to policymakers on how to clarify and direct the sanctions removal to enhance the credibility of a nuclear deal and give Iran the right incentives to maintain its end of the bargain.
 
The full policy brief is available herehttps://www.cnas.org/Irans-economic-growth-under-nuclear-agreement
 
Please find a summary of the policy brief below:
 
The international community is poised to sign a deal with Iran on its nuclear program, under which Iran would make concessions on its enrichment activities and the United States and others would offer substantial relief from punishing economic sanctions. The removal of the most complex, extensive, and multilateral regime of coercive economic measures promises a windfall to Iran. However, this will be neither immediate nor easy, given the difficulty of reestablishing severed commercial and legal ties between Iran and the global financial system. Removing sanctions will require careful international cooperation and substantial outreach to the private sector. This is critical for the credibility of a deal and for keeping the incentives for Iran’s continued adherence in place. It is also fundamental for the United States and its allies to clearly signal the manner in which relations could deteriorate, and sanctions be re-imposed, if Iran cheats on a deal.

The economic opportunities associated with Iran’s reintegration into the global financial system and broad commercial trade are substantial for Iran and a variety of trading partners around the world. As a significant global energy producer, Iran would be able to at least double its energy trade over the next several years and would likely initiate a major production expansion, focused in the long term on natural gas development and refined petroleum product and petrochemical export. Its banking sector likely would substantially reconnect with the global financial system, and Iran would see a rush of investor enthusiasm in various other economic sectors. Potential partners and investors in Europe, Asia, and the Middle East will be the first to enter Iran, as some U.S. investors would be relegated to the sidelines due to persistent U.S. sanctions restrictions.

Iran’s economic reintegration will not occur quickly or with tremendous ease, and this will test the credibility of a potential deal between Iran and its international negotiating partners – the United States, United Kingdom, France, Germany, Russia, and China, or the P5+1 – as Iran is likely to view its economic opening as insufficiently rapid or substantial. While officials can agree to rescind or suspend sanctions by certain dates, many international investors will remain cautious about engaging Iran, moving slowly to avoid the risk of losing investments or becoming the target of sanctions if a nuclear deal collapses and sanctions are re-imposed.

The private sector sees manifold attractive investment opportunities in the Iranian energy and manufacturing sectors, consumer goods and services, and other areas. However, the risks of a deal unraveling, anxiety about Iran’s involvement in regional destabilization, and corruption in Iran, particularly stemming from the era of President Mahmoud Ahmadinejad, create business risks. The absence of many global companies from Iran during the last several years of most intense sanctions, as well as the development of new contracts, investment protocols, insurance products, or self-insurance schemes, will also call for prudence and ample due diligence among foreign investors. 

This paper summarizes the manner in which the removal of international sanctions on Iran is likely to proceed and the impact on Iran’s economic prospects, with specific attention to its critical energy sector. It discusses some of the key implications of Iran’s economic reintegration following a potential deal and offers recommendations to policymakers on steps to clarify and direct the removal of sanctions to enhance both the credibility of a potential nuclear deal and the incentive structure for maintaining such a deal.
 
Rosenberg and Vakhshouri are available for interviews. To arrange an interview, please contact Neal Urwitz at nurwitz@cnas.org or call 202-457-9409.