Iran: a year of changes and challenges | Analyst Picks| RiskMap 2021
Iran: a year of changes and challengesNicki Siamaki | Researcher
The main concern for investors interested in Iran this year will be whether US sanctions will be lifted to an extent which allows global companies to do business in Iran. US President-elect Joe Biden’s inauguration will end a volatile period in US-Iran relations under US President Donald Trump. Trump’s 2018 withdrawal from the nuclear deal, reimposition of nuclear sanctions and subsequent “maximum pressure” campaign have prompted significant economic upheaval in Iran. Iran’s GDP contracted by 9.9%, and the rial (local currency) lost over 50% of its value in the past year.
Biden wants to re-enter the nuclear deal in 2021 and use it as a platform for follow-on negotiations. Biden and Iran will likely seek to open a dialogue to try to agree on a phased mutual return to compliance with the deal. These initial negotiations will likely take several months and could stretch beyond 2021. The eventual lifting of nuclear sanctions will, to some extent, ease the business environment for investors interested in Iran. However, to retain the leverage needed to induce follow-on negotiations, Biden will likely refuse to lift some of the sanctions imposed on Iran during the Trump-era, such as those on Iran’s shipping line and financial institutions. The follow-on negotiations to expand the scope of the nuclear deal may not begin this year and could occupy much of 2022.
Only five months after Biden’s inauguration, Iran will have its own presidential election. President Hassan Rowhani, a reformist-leaning figure who supported the nuclear deal, cannot run for a third term. The US’s withdrawal from the nuclear deal and the subsequent decline in the reformist camp’s popularity has made it increasingly likely that a conservative figure will be elected. Despite conservatives generally being more rhetorically hostile to the nuclear deal, the new conservative president will likely engage with the US on resurrecting it. Supreme Leader Ali Khamenei, who ultimately controls Iran’s foreign policy, recognises that reaching a settlement on the nuclear deal will best serve Iran’s security and economic interests.
Amid changes in the US and Iranian presidencies, Iran will struggle to adopt sustainable strategies to contain COVID-19’s spread. While Iran in April had begun lifting most restrictions nationwide, in November it began reimposing some restrictions following a surge in cases. Iran will find these measures difficult to sustain as it does not have the fiscal capacity to offset the impact that restrictions on commercial activity are having on the economy and the population.