31 July 2015

A nuclear agreement with Iran: what does it mean?

On 14 July 2015, after 12 years of negotiations, Iran and the so-called P5 + 1 group of countries (P5: China, France, Russia, the United States and the United Kingdom, - the permanent members of the UN Security Council + Germany) finally reached an agreement that should provide a comprehensive and long-lasting solution to the Iranian nuclear crisis.

What was agreed?

The agreement is called the Joint Comprehensive Plan of Action (JCPOA). It aims to ensure that Iran’s nuclear programme can only be used for non-military purposes. The three main aspects of the deal are:
Limitation /phase-out of uranium enrichment activities– Iran will have to downgrade enrichment activities. It will not be allowed to enrich uranium above 3,67% (weapons grade uranium is usually 85% enriched or higher). It will have to reduce its stockpile of enriched uranium to 300 kg (currently estimated at 15,000 kg);
Redesign/rebuild Arak heavy water reactor -. Iran will have to redesign/rebuild its heavy-water reactor so that it can no longer produce weapons grade plutonium;
Transparency & confidence building measures - Iran has to fully implement the "Roadmap for Clarification of Past and Present Outstanding Issues" agreed with the IAEA (International Atomic Energy Agency) in 2011 and must refrain from developing a nuclear explosive device.In exchange, the sanctions imposed on the country by the UN, EU and US shall be (gradually) lifted.

What’s next?

The JCPOA has set out a detailed timeline for implementation. However, the precise unfolding of events/deliverables is not entirely clear at this stage. The first key deliverable was the endorsement by the UN Security Council which happened on 20 July. In the coming 3-6 months, the parties will have put in place the right legislative/administrative measures to ensure that the JCPOA can come into effect. This will include convincing domestic audiences which could be particularly challenging in Iran and the US, where some conservative members of the Majlis/Congress have already criticised the deal. The IAEA will also play a key role as it is tasked to verify Iran’s compliance with the agreement. No sanctions will be lifted without prior verification by the IAEA. Therefore, it will likely take at least another 12-18 months before sanctions are lifted.

What does this all mean for companies?

Iran is a country with almost 80 million people, a majority of which is under 30 and well educated. It has the world’s second largest natural gas reserves and fourth largest oil reserves. Its (oil & gas) infrastructure needs to be upgraded after years of sanctions, which have also caused a scarcity of (western) consumer goods in the country. The current deal offers huge potential, if it sticks. Although it’s very early days, companies with an interest would be wise to start developing their market entry strategies, anticipating the multiple challenges of doing business in Iran. Being a first mover can of course be an advantage and some are already looking to move in. It is no coincidence that Germany – Iran’s most important trading partner– dispatched a big trade delegation led by its economy minister Sigmar Gabriel to Tehran just days after the agreement was signed. Others are likely to follow soon.

 

Some sources:

EU External Action Service – The Joint Comprehensive Plan of Action, http://www.eeas.europa.eu/statements-eeas/docs/iran_agreement/iran_joint-comprehensive-plan-of-action_en.pdf
Deutsche Welle – ‘German delegation aims to renew trade ties on trip to Iran’, http://www.dw.com/en/german-delegation-aims-to-renew-trade-ties-on-trip-to-iran/a-18594348
 

Related contacts :

Joost Koomen
Director Public Affairs

email: joost.koomen@hkstrategies.com