Perspective: The Impending Economic Scenarios after Iran’s Deal

One of two main economic scenarios is expected to come to pass in Iran in the near future as a result of the recent JCPOA (Joint Comprehensive Plan of Action). The new JCPOA (Joint Comprehensive Plan of Action) was agreed upon by the P5+1 (EU3+3) and Iran after almost 20 months of negotiations and its effects will soon begin to appear. The deal will emancipate Iran from most of the sanctions imposed on it in exchange for a dramatic reduction in nuclear enrichment and activities.  The first anticipated scenario will cover the possibility of an Iranian economic growth while the second will deal with an unchanged, possibly regressed, economy. How will each scenario affect the historical and interrelated commercial ties between Iran and the UAE?

The first scenario is considerable for a number of reasons, the most important being Iran’s access to $50 billion in frozen assets and the numerous international investments it will transact after rejoining the global market. Added to that is the possibility for Iran to attain a higher price for oil, as it is expected that demand might increase as a result of exporting their oil. This economic situation can be considered as an extremely important point for cooperation and improvement of the mutually beneficial commercial ties between the UAE and Iran. Therefore, the UAE’s stock exchange, real estate market and bilateral trade are expected to benefit significantly, considering Iran’s approach for investment opportunities. The UAE’s hubs are among the main sectors to experience growth as most goods of infrastructure, one of Iran’s main interests of development, will have to pass through nearby hubs such as the UAE’s. Lastly, for the reason of Dubai being the host of regional headquarters for major banks and companies, and due to Iran’s crucial need to develop its economy and to diversify its investments, the financial sector in the UAE will also gain advantage. However, the UAE will probably need to further progress and advance in many sectors (i.e. economic, commercial, military… etc.) in an approach to create a progress-balance with Iran’s upcoming economic boost.

As for the second scenario, some crucial indicators suggest an unchanged, possibly regressed economy. It is important to note that the deal is only temporary, also, it is equally important to consider the quality of the provided services in Iran that may discourage investors, and the relatively high level of corruption in Iran as it is perceived to be, according to Transparency International’s latest Corruption Perception Index. Also, it is well-known that very particular requirements are considered by investors, from economic and political stability and ease of commercial procedures to access to resources and quality of provided services, and many speculate that not even the least of these requirements exist in Iran. Additionally, the fact that some of the sanctions will only be lifted after many years may conceivably imply worries of the international community regarding the future Iranian plans and actions. In terms of the Iranian oil production, it is a reiterated notion that the abundance of oil in the international market will seemingly cause a further decrease in oil prices. This scenario, if occurred, may not restore the Iran-UAE commercial relation as it was years ago prior to the sanctions. The Iranian probable incapability of economic development will weaken the possibility of having it as a new rising world power in the region; however, it may also lead to regional and/or international tension.

As the lifting of sanctions will only take place by the spring of 2016, there is plenty of time to keep an eye for the many indicators to come in order to have a sharper view and to further evaluate for which of the two scenarios will the tip of the balance is going to be more likely in favor of.

Khalid Alshimmari