Iran Needs Foreign Investment. But They're Not Making It Easy.

Farhad Rezaei, Somayeh Khodaei

Economics, Middle East

Western sanctions and a paranoid government make Iran’s economy a unique challenge.

After Iran’s nuclear agreement, the Joint Comprehensive Plan of Action with six world powers (China, France, Germany, Russia, the United States and the United Kingdom), many outside businesses are enthusiastic to enter the Iranian market. Meanwhile, to boost Iran’s collapsed economy, the country’s moderate forces—a coalition of progressive politicians, intellectuals and pragmatic conservatives headed by President Hassan Rouhani, who advocates reintegrating Iran into the global market—are encouraging foreign partners and investors to invest in Iran.

But the extent of the Iranian market’s readiness for international investment has not been addressed yet. Iran’s autocratic system has unique characteristics that make it different from other autocracies in terms of dealing with foreign investors. This raises the question: how plausible is it to expect a fruitful economic relationship between Iran and foreign investors, and what are the possible uncertainties and obstacles regarding foreign investment in Iran?

While President Rouhani’s administration will not aquiesce to hard-liners, who oppose any Western presence, skepticism over foreign intentions is an age-old feature of the Iranian political psyche. After the 1979 Islamic revolution in Iran, political elites believed that Iran’s economic sovereignty should be protected by limiting foreign capital’s influence in the country as much as possible. Yet they remain in this antagonistic position due to their deep-rooted economic interests, which they believe can be jeopardized by foreign investment. These elites can be found in certain factions of the parliament, at the head of Iran’s state-run industries, and in the business enterprises of the Islamic Revolutionary Guards Corps (IRGC) and revolutionary foundations, also known as Bonyad. These interest groups’ influence is, therefore, substantial.

Iran’s economic relations with the outside world in general, and foreign investment in particular, have been affected by sanctions imposed by the international community due to its illicit nuclear activities. Sanctions have been imposed on other grounds as well, such as Iran’s sponsorship of terrorism and human-rights violations.