Will US Sanctions on Iran Have a Significant Impact on Global Businesses?
British Prime Minister Theresa May and U.S. President Donald Trump have agreed to further discuss the impact of sanctions against Iran on firms operating in the Islamic country.
The leaders previously had a telephone conversation that was dominated by the Iran issue.
After the conversation, May’s spokesman stated that she raised concern about sanctions, and confirmed London’s commitment to the Iran deal, known as Joint Comprehensive Plan of Action (JCPOA).
“The Prime Minister reiterated the government’s position on the Iran nuclear deal, noting that we and our European partners remain firmly committed to ensuring the deal is upheld, as the best way of preventing Iran from developing a nuclear weapon,” a spokesman said.
German Foreign Minister Heiko Maas expressed his worry about Germany’s business interests, saying it would not be easy to protect the interests of German companies doing business in Iran.
“I don’t see any simple solution to shield companies from all the risks of American sanctions,” the minister said during an interview with German newspaper Bild am Sonntag.
Last Tuesday, Trump announced that the U.S. would withdraw from the deal, which was signed by Iran and six major powers in 2015. Trump has been a strong critic of the deal, stating that the agreement fails to address Iran’s capability to launch ballistic missiles.
French President Emmanuel Macron voiced his support for the Iran deal, saying that the commitment to the 2015 nuclear treaty is an effort to maintain stability in the region.
“The Europeans’ decision allows us to prevent Iran from immediately restarting its [nuclear] activities and to avoid escalating tensions. The most important is to maintain stability and peace in the Middle East,” Macron told broadcasting agency DW.
How have corporate giants reacted?
Two major aircraft makers, Boeing and Airbus, are likely to cancel airplane deals worth billions of dollars following the U.S.’ decision to exit the nuclear pact.
The sanction will give companies 90-day and 180-day periods to wind down activities, depending on the sector.
Under the agreement signed in 2016, Airbus agreed to supply Iran with 100 aircraft at a list-price worth $19 billion. Those air carriers included A350s, A330s, and A320s.
Boeing later signed a deal to ship 80 airplanes to Iran’s state-owned airline company. The aircrafts exported included Boeing 777s and 737s worth $17 billion at list-prices. Separately, Boeing signed a deal to supply 30 aircrafts worth $3 billion to Iran Aseman Airlines.
However, both aircraft production giants will abide by the upcoming sanction and assess the full implication of sanction on the industry. Boeing has yet to deliver planes under the deal. Airbus has shipped two A330-200s and one A321 to Iran.
French automaker Renault has yet to comment on the sanction. The company inked a deal to produce 150,000 cars a year in a plant outside Tehran. Fellow carmaker PSA Peugeot Citroen said it is still studying the impact of the U.S.’ decision. PSA Peugeot Citron signed an agreement to produce 200,000 cars annually in Iran.
If sanctions are back, how severe are they to Iran’s economy?
Iranian President Hassan Rouhani reassured his people that the country’s economy will not be affected by the reimposition of U.S. sanctions.
However, experts have voiced different opinions regarding the president’s statement; the sanction will likely slash Iran’s oil revenue as the country’s oil export will be disrupted.
“The sanctions could significantly reduce Iran’s oil revenue, making it hard to have access to its oil revenue in cash and could push Iran to have oil for goods and services deals,” stated Sara Vakhshouri, Head of the Washington-based consultancy SVB Energy.
The sanctions’ impact on Iran’s oil export was also echoed by CEO Claudio Descalzi of Italian energy giant Eni.
“The impact is more for the crude oil price, because Iran now is exporting about 2.6 million barrels (per day), and if we go back to the first sanctions, they were exporting 1.5 million,” Descalzi told CNBC on Sunday.
Richard Nephew, Adjunct Professor at Columbia University, said the prediction that Iran is on the brink of economic collapse is an exaggeration: “The idea that Iran is on the brink of economic collapse is probably overstated, and it is certainly overstated by those who think the result of said collapse will be a revolution that favors interaction and positive relations with the outside world.”