European Union and Iran: Turning the Page?

By Elbay Alibayov

On 25 October, the European Parliament passed a resolution on the EU strategy towards Iran. It is a comprehensive document consisting of five sections under a preamble: (a) political dialogue, (b) trade & economy, (c) sectoral cooperation, (d) regional security, and (e) socio-economic issues, rule of law, democracy and human rights. It covers a broad range of cooperation areas and activities (rightfully calling them ‘an ambitious plan’) and envisages the reopening of the EU Office in short term perspective, to facilitate the dialogue and joint activities to the mutual interest and benefit. But it is not only the content of this important document but the timing and contexts in which it occurs make it especially interesting.


Acting in concert? The EU and Iranian Foreign Ministers at a news conference, 2015 (Photo: EUROPEAN PRESSPHOTO AGENCY)


Europe and Iran: mutual interests

European countries and Iran (or Persia) have a centuries-long history of coexistence, where partnership and collaboration have been mixed with competition and rivalry and confrontation, often-time simultaneously. It is only natural, given geographic proximity, shared economic and security interests, and diverse social and cultural ties. They also need each other more than ever today, for various reasons.

For the European economies still struggling to recover after the crisis Iran may offer a golden opportunity. Iran is the world’s largest economy outside the WTO, with high growth potential in many sectors; its GDP was worth 425.33 billion US dollars in 2014. The biggest sector of Iran´s economy is services (such as real estate and specialized and professional services; trade, restaurants and hotels; and public services), which account for more than half of GDP. Oil production constitutes about a quarter of the output, with manufacturing and mining, agriculture, construction and electricity, gas and water distribution being among the largest contributors.

The recent World Bank assessment expects Iran’s growth to rise to 4.2 and 4.6 percent in 2016 and 2017 respectively, as a result of the lifting of the sanctions and a more business-oriented environment. It also stresses the importance of strong capital inflows, including Foreign Direct Investment (FDI) and the repatriation of part of the frozen assets for the economy’s fast recovery.

Iran needs Europe, too. It needs contracts, investment, technology transfers, more jobs—and as soon as possible, as a land awaits rain after a long draught season. Europe can offer, along with investment and technology, its state-of-the-art financial services but also, importantly, facilitate Iran’s faster global economic integration, and thus help getting post-sanctions benefits at higher pace (especially compared how things have been developing thus far—understandably enough but still to disappointment of Iranians) and broader extent. Europe can also add its voice to advocate for the firm place to be secured for Iran in global security and other Middle East related international talks (which is anyways happening, through the Russian and US joint efforts, namely in Syria and Iraq).

This is not all economy for Iran, however. Growth is slower than expected after the signing of Iran Nuclear Deal (Joint Comprehensive Plan of Action, JCPOA) and the economy’s performance is subject to heated debates in Iran. Unemployment rate (Q1 2016) in Iran has grown to reach 11.8 percent, and the inflation rate (as of September 2016) went up to 9.5 percent, with the interest rate making rather modest decline from 22 to 20 percent. That is not enough to overcome the daunting economic and financial problems. Neither is it enough to satisfy the demands of the population, especially youth. The debate and consequent criticism of the reformist government led by President Hassan Rouhani has taken its high pick as of recent, with the next year’s presidential elections approaching.

Today, Iran is still considered a high risk market. It currently is not rated for sovereign risk classifications by private credit rating agencies (CRAs, such as Moody’s, Standard & Poors, Fitch etc), but Iran’s country risk assessment as per the OECD classification of the Participants to the Arrangement on Officially Supported Export Credits equals to 6 (on the scale from 1 to 7; ascending risk), as of 28 October 2016. [To compare with the others in the region: Egypt is 6, Saudi Arabia is 2, while Oman and Qatar both stand at 3.]

The risks notwithstanding, Iran is assessed as a market with potentially extraordinary high return opportunities for investors. It is not accidental that Russia, Turkey and China have tightened their political and economic relations with Tehran, after the sanctions lifted as a result of the nuclear deal. Today, it is pretty much ‘first come first serve’ market, but if everything develops as envisioned in the JCPOA and commitments on both sides kept, it is not going to be like that forever. Competition will be high, and it makes sense to be among the first to take critical segments in the growing economy in distress. The way how Airbus and Boeing pushed their pending approval contracts (combined worth 44.6 billion dollars) with Iran through is quite indicative.

Britain: New (old) rival

Russia, Turkey and China as the Europe’s competitors are ‘known knowns’ in the Middle East geopolitical theatre. But hey, why to look far away? There is a capable rival next door that has just recently emerged out of the Brexit—United Kingdom, with its all advanced financial, legal and other satellite services and an infrastructure for transactions and global operations. Britain may now take its chances and endeavour in setting own deal with Iran, apart from the EU. Ironically, the initial report on which the resolution is based was produced by the British Labour party’s Member of European Parliament (MEP) Richard Howitt back in June this year (before Brexit referendum, to be sure). Britain always has had an interest in Iran and actively involved in political and economic relations (including some notorious interventions, like MI6 in alliance with CIA deposing the elected Prime Minister Mohammad Mossadegh in 1953—something that Iranians have neither forgotten nor forgiven).

There is a sizeable Iranian Diaspora in the UK, to advocate for the expansion of relations, too: According to the Office of National Statistics (ONS) estimates the number of UK residents of Iranian origin was about 86,000 in 2015. At the same time, Iran apparently is contributing the largest number of asylum seekers in the UK, and their number is growing:  in the year ending June 2016 there were 5,466 applicants registered (2,920 more than in previous year)—much more than from other top contributors Pakistan, Iraq, Afghanistan, and Eritrea. Britain is making moves to normalise the relations. Along with intensifying the diplomatic ties and reopening the Embassy in Tehran in summer 2015, the Government has removed Bank Saderat Iran (BSI) from its list of sanctioned entities (as of 22 October 2016).

Americans indecisive yet

The United States may not be as eager as Europeans, to engage in business with Iran full-steam and right away, due to various political reasons at home (uncertainty with regards to the new administration’s foreign policy and with ever-strong hardcore politics lobbying for tough stances, including in normalising the relations with Iran) and abroad, with commitments under lasting strategic alliances in the region (with Israel and Saudi Arabia, both being in their own competition with Iran and watching the US warming up towards Iran with jealousy if not resent, and actively lobbying against it) and being occupied at the moment with much less pleasant business of dealing with numerous wars and former allies disintegrating, if not turning back (the recent rhetoric of the Philippines President Duterte is indicative of changing allegiance).

The tag-of-war over the Middle East strategies and particularly those related to Iran is at its high at this point, considering the golden moment opening up to influence the yet-to-be-formulated foreign policy of the new US President. For example, the Atlantic Council’s recent strategy paper while acknowledging the risks involved, calls the United States ‘to prepare for an eventual normalization of relations’ with Iran. To the contrary, the report on new world order commissioned by the Center for a New American Security (a think tank said to be close to the presidential candidate Hillary Clinton), takes a customary hawkish approach towards building future relations with Iran: ‘[t]he United States must adopt as a matter of policy the goal of defeating Iran’s determined effort to dominate the Greater Middle East’ and making it even more clear, ‘Tehran should understand that Washington is not expecting the nuclear agreement to lead to a changed relationship with the government of Iran.’

The truth is that the US needs Iran for economic reasons (such as an oil and gas supplier or for investment of its companies) much less than for geopolitical, security reasons. And even in geopolitical calculations, Iran is not on the top of its agenda (as long as there is no major trouble, beyond the rhetoric). That said, the American companies, strategic investors and transnational corporations headquartered in the US keep a close eye on Iran, weighing the political risks and ready to engage once situation appears favourable.

First reactions

All this being good and promising, the Euro Parliament’s resolution has also quite elaborate statements on the human rights issues. And this is what triggered the reaction, especially of conservatives.

The issues explicitly addressed in the resolution (and this means not only mention but call for action, greater cooperation with international organisations and human rights NGOs, and international periodic reviews) include: death-penalty executions; proper and independent functioning of civil society organisations; human rights defenders; freedom of expression both online and offline, of opinion, of association and peaceful assembly, of thought, conscience, religion or belief; individual, social and political rights without discrimination or persecution on grounds of sex, language, religion, political or other opinion, national, ethnic or social origin, gender, sexual orientation or other status; basic right to equality before the law, as well as the right of equal access to education, health care and professional opportunities; fair trial guarantees; release of all political prisoners and imprisoned EU citizens;  individuals imprisoned from religious minority communities or because of their beliefs; full gender equality to ensure women’s equal participation in the labour market and in all aspects of economic, cultural, social and political life; respecting the rule of law and the independence of the judiciary. Did I miss something?

Unsurprisingly, the establishment felt concerned. But not much threatened if to judge by the scale and intensity of responses. Iranians are known for their diplomatic skill and pragmatism. They know perfectly well that the human rights issues shall be in the EU resolution but hardly they will constitute a mandatory precondition to economic relations (they are well aware of practices; take China or Saudi Arabia, their rival, as an example). Still, they realise that certain concession might be required in this respect, and show readiness to talk. Impositions do not work, everyone knows that by now. The openness to discuss certain issues is already a good starting point and shall not be underestimated (although high hopes on Iran taking any steps immediately, if at all, might be equally misleading).

The language of first reactions (especially comments of broadly quoted Iranian judiciary’s Human Rights Council, Mohammad Javad Larijani who bluntly dismissed the human rights related interventions as corrupt) and the government’s response (the Foreign Ministry’s spokesperson Bahram Qassemi press statement, where he downplayed those demands from the resolution as not correlated to existing realities  and urged the European Parliament to take a more positive attitude towards Iran by passing ‘constructive and realistic resolutions’) points to that.

 *                       *                      *

The Euro Parliament’s resolution and recent hyper activity of the EU institutions and European governments vis-à-vis Iran (including additional aid funding to cope with humanitarian issues) comes at interesting times. On the one hand, the global developments indicate of a new world order emerging: at the very least, it is shaping towards a global governance with more than one power centres acting on the area/region and issue-based power sharing rather than the old-times Cold War and post-communist era arrangements (of the last quarter-century) where global spheres of influence were either distributed between two super-powers or one powerhouse dominating anyone else.

On the other hand, various internal country and region specific and global events and developments coincide and thus create a juncture point offering new opportunities for the parties concerned—to strategically reposition and strengthen their standing, particularly in the Middle East. This means that Europeans may move ahead with expanding the relations with Iran on their own, independently of whether or when (if at all) their strategic partner the United States decides so.



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