As Iranians and the P5+1 nations try to hammer out an agreement on sanctions and Iran’s nuclear programme, an awful lot is happening in the background.
Although the US is still tightening sanctions, probably in an attempt to force a deal to take place sooner rather than later, it urgently needs to make a cautious ally of Iran as the rise of Islamic State and the behaviour of Russia cause numerous other concerns, either in the politics of the Middle East or around hydrocarbon supplies to Europe.
Iran has a president who wants to engage, and if he’s allowed to do so, Iran could be a stable force in a volatile region. The two sides don’t have to like each other. They probably never will. But there’s a sense of a one-off opportunity to build a useful rapprochement.
And if it comes, what’s in there? After years of sanctions, it’s easy to forget just what a big economy and capital market exist in Iran. So we went to take a look. Our feature in Euromoney magazine's September edition spells out exactly what foreign banks and investors should expect, from the banking system to the stock market to the troublingly widespread corporate presence of that much-loved institutional investor, the Army of the Guardians of the Islamic Revolution.
Scared of reprisals
Iran has vanished from the international financial world to an even greater degree than sanctions may originally have intended; post the $9 billion fine handed to BNP Paribas, western banks are now so scared of reprisals from the US regulators (who kindly take it upon themselves to police European-Persian trade finance) that they typically won’t do any business at all with Iran, even the many bits of it that are actually legal.
Consequently, if sanctions lift from financial services and the banks do start going back in, they are going to be doing so with quite a learning curve ahead of them.
Euromoney magazine's September cover story explains in much more detail, but here is the state of Iran in a nutshell: the economy is a high-inflation mess leavened by extraordinary gifts of resources and high education; the banking system is crippled by bad loans and odd governance but has a nucleus of highly proficient private banks looking outwards in readiness for better days; and there’s a stark difference between the capital markets, equity (large and liquid exchange of surprising diversity) and debt (non-existent in any useful sense).
There are exciting times ahead if the politics can be agreed. Just try to limit the number of times you attempt to cross a road in Tehran.