Image: the deal is done, Irans negotiator with US Secretary of State, John Kerry.
After the historic deal with western countries Iran could be on the cusp of an economic revolution but, is it all that it’s cracked up to be? The first thing likely to change when sanctions are wound back will be threefold. Firstly we will likely see an upswing in parts and materials to restore or renew Iran’s aging civilian aircraft fleet, secondly the country has a significant reserve of oil that could be bought back onto market and thirdly the car manufacturing industry could receive a significant boost. The implications of Iran’s return to the global economy could be significant for business both at home and abroad.
In the case of the airline industry Iran’s civilian fleet has been locked in time as sanctions prohibited the shipping of parts to the middle eastern country and both Boeing and Airbus known that it is an opportunity not to be missed. Some estimates suggest that hundreds of planes could be refreshed from old Boeing 747’s to the fleet of Russian jets.
"There's no doubt there is huge potential, especially for Airbus and Boeing, to sell a large number of planes," said Adam Pilarski, an economist and senior vice president with Avitas Inc., a Reston, Virginia-based aerospace consultant. The opportunities are not limited solely to new planes but training, education services, consulting and professional services as well as an ongoing supply chain of parts and components. Some analysts have likened the industry to Russia post the cold war which saw a significant upswing in passenger and civilian aircraft sales.
To put things into perspective Iran Air flies A300’s which was the first aircraft that Airbus rolled off the production line as well as Boeing 747-200’s which are circa the mid 1970’s. If the country is to renovate its fleet that they would require 400 new passenger planes which would come at an estimated cost of more than $20 billion and with a dozen carriers the demand could see healthier bottom lines for aircraft manufacturers in the west.
Image: Iran's aging air fleet includings Boeing 747-200's from the mid 1970's
"There's no doubt there is huge potential, especially for Airbus and Boeing, to sell a large number of planes," said Adam Pilarski, an economist and senior vice president with Avitas Inc., a Reston, Virginia-based aerospace consultant.
For entrepreneurs and small business operators who form the backbone of the industry it could also see the rise of discount providers such as EasyJet or JetBlue.
When it comes to oil reserves that have been stockpiled over the period of the sanctions the ability to rapidly flood the market is not lost on some. As of 2014 Iran ranked as the fourth largest oil based country with some 150 billion barrels. Peak production was in the 1970’s but because of unrest, sanctions and a limited sale channel production has declined. A lifting of sanctions could see an increase in production and potentially lower prices at the bowser as more supply comes on line. Like the airline industry the sector will need additional investment as it begins to bring old plants out of mothballs and begin much needed maintenance on others. In many cases production could begin to rival that of many of its neighbours and it could be that Iran returns to the oil markets in early to mid-2016.
"We do think at the end of the day the deal will go through," said Tariq Zahir, a managing member of Tyche Capital Advisors LLC.
"We firmly feel we are going to break $50 and see the lows we saw at the beginning of the year," he said. "We have a lot of oil right now."
"They're going to need international help to get their oil sector nursed back to health," said Jim Krane, an energy research fellow at Rice University's Baker Institute for Public Policy.
In the case of the car manicuring sector there could also be significant opportunities. As many of the heavier industries were impacted by sanctions and the rate of car imports declined the car sector began to grow. Today it employs more than 700,000 people and is the second most active sector in the country. 13 manufacturers accounted for 91% of production with 75% of output being passenger cars. In 2013 it was estimated that Iran was the fifth largest car manufacturer in the world alongside the likes of China and India although more than half of all vehicles in Iran are more than 25 years old. Some analysts believe that the cost of production may also be lower than that of China’s industry which could mean the country is an attractive investment option.
Image: Iran's car manufacturing sector is in the top five producers in the world.
Whatever the case the car industry locally may actually suffer as import restrictions taper off and locals opt for more familiar western brands as was the case with Russia post the cold war and the decline of its automotive industry. This could, though, be an opportunity for an increase in local importers which could pick up some of the jobs decline.
Whatever happens the Iranian economy will likely benefit from a reduction in sanctions and there is no doubt that big business will with time to tell whether or not consumers could benefit from lower oil prices.
It’s now down to the deal being formally adopted by the negotiating countries although it is hard to see how it won’t, given that it doesn’t necessarily mean that a no vote by the US Congress will bring the whole thing unstuck.
Matthew Tukaki is the editor of EntreHub.org. To re-publish this article please ensure you acknowledge the author and prvide a link to the original article.
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