Issue 9 - A Sneak Peek into Iran's Aviation Market

A SNEAK PEEK INTO IRAN’S AVIATION MARKET
IRAN: A READY MARKET WITH HUGE POTENTIAL
A Large Population And Strong Economy, Ready To Take Off
Iran, officially known as the Islamic Republic of Iran, is home to one of the world’s oldest
civilizations. Formerly known as Persia, Iran currently houses a population of 80 million,
which is similar in size to Germany. Iran is the second largest economy in the Middle
East and North Africa (MENA) region after Saudi Arabia, with an estimated Gross
Domestic Product (GDP) in 2014 of US$406.3 billion. It is also the second largest
population of the region after Egypt. Tehran is the country's capital and largest city, as
well as its leading cultural and economic center.
Iran is a major regional and middle power, with considerable influence in international
energy security and the world economy through its large reserves of fossil fuels. It has
the second largest natural gas supply in the world and the fourth-largest proven oil
reserves. Iran’s economy is characterized by a large hydrocarbon sector, small scale
agriculture and services sectors, and a noticeable state presence in manufacturing and
financial services. Economic activity and government revenues still depend to a large
extent on oil revenues.
Lifting of Nuclear-Related Sanctions Presents Business Opportunities
As a result of Iran’s nuclear programs, various sanctions have been imposed on Iran over
the past decade which resulted in the country being isolated from the world politically
and economically. When Iran demonstrated a peaceful nuclear project that met IAEA
standards, a reconciliatory tone began to rise which resulted in United Nations (UN)
nuclear-related sanctions being lifted on 16 January 2016.
The lifting of the international trade sanctions against Iran opened up fresh trade and
investment opportunities. Iran will be able to access about US$100 billion in frozen
funds. It will also allow the country to increase its oil revenue exponentially to the tune
of between US$3 billion and US$4 billion dollars a month by the end of the year even at
the current low crude oil prices. The injection of funds will unleash a strong demand
internally and offer numerous business opportunities for countries that trade and do
businesses with the Islamic Republic such as Airbus and Boeing.
However, a “snap-back mechanism” is in place to impose the sanction should Iran
violate its side of the agreement - if, for example, it failed to keep its nuclear programs
under the agreed strict limits. Meanwhile, terrorism-related sanctions still remains in
place, which impacts entities such as Mahan Air from engaging in international
business as it is still listed as an alleged sponsor of terrorism.
These restrictions, which apply to companies located within the US and international
companies located abroad, continue to present issues for companies seeking to deal
with Iranian entities. For instance, in spite of Airbus inking a US$27 billion agreement
with Iran shortly after the lifting of sanctions, the deal remains unclear as big banks still
refuse to finance Iranian payments due to concerns over existing US sanctions.
Similarly, Boeing is close to concluding a deal with Iran but the politically delicate
agreement would still be subjected to US government scrutiny and approval.
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