At Night – Corus Radio, Calgary, Alberta, Canada, with Host Dan Riendeau – On-Air Interview, August 5, 2015, 10.35 PM Mountain Time (in the Audio Vault, choose audio date August 5 and audio time 10:00 PM, then pull the bottom red bar to the 35-minute mark; program has commercial interruptions)
The following comments are based on a telephone interview with Bob Hennelly ofCBS News MoneyWatchon July 14, 2015.
The potential for US business to engage with Iran can be summarized in one sentence: Iran exports crude oil but imports gasoline.
This bizarre statement, based on the fact that the Iranians lack sufficient capacity to refine their own oil for domestic use, underscores how, hemmed in by sanctions and the limited worldview of their theocracy, Iranian technology and installed equipment is years, even decades, behind that of the West—not just in the energy sector, but across the board in most industries.
Their economy is already the biggest in the Middle East (except for Turkey)—with a population of 80 million having an average middle-class income of around $13,000 per capita,[1]Iran is a large market, hungry for the latest technology and upgrading of its industries. The investment potential is enormous and will remain so for decades.
But will American firms immediately benefit? Probably not as much as Chinese, Russian, and European companies that will be the first at the gates of Tehran. Why? Faced with a hostile Congress and historical ties to Israel, President Obama has to strike an un-trusting and gradualist stance toward Iran. US regulations can be eased only over time, while Russia and China (two of the five negotiating nations) have already begun to make billion-dollar deals. German and French company representatives are already in Tehran. Moreover, the official opprobrium of the mullahs in charge of Iran is still directed principally against the US as “The Great Satan.”
That epithet should not fool or scare American corporations into staying away from the Iranian market. Recall that 57–62 percent[2](or 45–50 million) of the Iranian population was born after the revolution that brought the mullahs to power. To the under-30 crowd, or approximately 60 percent of the country, the rhetoric of the revolution and anti-American sentiment has the same background presence as the weather or air pollution in Tehran—persistent background static with no great long-term relevance. Under the chādor (the outer garment forced on Iranian women), designer jeans, lacy (and even risqué) underwear, and big-name fashion brands are the rage. (One of the subordinate considerations on the part of the US delegation led by John Kerry may have been the notion that easing sanctions can lead to a greater zeal on the part of Iranian youth to engage with the west and absorb Western ideas.)
From a commercial angle, it is a win-win situation for both the Iranians and the US. Iranian youth is open and eager for western ideas and brands. The Iranian economy badly needs upgrading to bring it up to Western standards. The mega-billions that such industrial revamping would cost can be easily be financed once Iranian oil exports can resume at their normal (pre-sanction) levels.
US companies have a great opportunity, but are likely to be at the back of the queue for a while—unless they can be legally represented by their foreign affiliates and subsidiaries to minimize the “American” association.
_____________
[1] With widely fluctuating exchange rates (plunging in recent years because of sanctions), it is difficult to get a solid US dollar equivalent. However, the $13,000 figure, based on PPP (Purchasing Power Parity) exchange rates, provides a reasonable estimate.
[2] Demographic data from Iran are uncertain, but estimates of the under-35 population range from 57–62 percent.
This archive contains 2014 & 2015 posts discussing international business issues, focused on both economics and culture, in an unbiased manner. Managers, students, policy makers, and educated laypeople will gain insights on current issues, future trends, and historical perspectives.
