By Salman Parviz

Removal of sanctions major reason for Iran’s signature on JCPOA

December 3, 2021 - 21:42
Sanctions regimes impede investment and infrastructure development

“Chabahar Port is not only a transit port, it is an investment opportunity,” the Iranian ambassador in India said in a recent interview with ThePrint, a Delhi-based online newspaper. 

Ali Chegani pointed out that Indian External Affairs Minister Subrahmanyam Jaishankar has visited Iran twice after the presidency of Seyed Ebrahim Raisi and added that a visit by his Iranian counterpart Hussain Amir Abdollahian to New Delhi is in the pipeline.

The Iranian envoy pointed out the Chabahar Port is not subject to U.S. unilateral sanctions. Pundits believe that an exemption was granted due to the U.S. focus on containing the emerging Chinese influence in the region. The Pakistani Port of Gwadar, which lies 140 kilometers east of Chabahar, is being developed by China as part of the China-Pakistan Economic Corridor.

In May 2015, Iran and India signed a cooperation agreement for the development of Chabahar port. India’s private sector was scheduled to invest in Chabahar in two phases.

The first phase is a $31 billion project that involves construction of two berths in the port, a container of 640 meters and a multipurpose cargo terminal of 600 meters.

In the second phase, India’s Jindal Infrastructure, Essar, SAIL and IRCON will develop the area around the port which involves developing a free trade zone and a railway line connecting landlocked Afghanistan to the Central Asian region.

For India, one of the fastest growing economies in the world, Chabahar Port will provide an alternative route to conduct business with Afghanistan and Central Asia circumventing Pakistan.

Iran has built an alliance with the East, including China, Russia and regional countries

In January 2017, seven agreements valued at over $3bn were signed by Iranian, Indian, Omani, Chinese, and South Korean investors to promote investment opportunities and sustainable development in Mokran coast in Chabahar Free Trade Zone (CFTZ).

However, all foreign investors exited from Chabahar project due to U.S. withdrawal from the JCPOA and imposition of “maximum pressure” sanctions in 2018. In total 1,500 sanctions were legislated during the former U.S. President Donald Trump’s administration. These restrictions make financial transactions almost impossible. Worth mentioning is also that the foreign investors could be subject to “secondary sanctions”.

With the ongoing seventh round of the JCPOA talks which resumed on November 29, the Western powers must keep in mind what kind of economic doldrums the Iranian middle and lower class are going through due to sanctions along with the COVID-19 pandemic. The Raisi administration has emphasized sanctions removal is a prerequisite for revival of the nuclear deal. 

Humanitarian imports were allowed under the “maximum pressure” sanctions instituted by Trump. Due to lack of a stable banking channel for humanitarian work Iran is unable to import drugs, medical equipment, etc. in this pandemic era.

When the U.S. exited the JCPOA in 2018, the so-called E3 (Germany, France and UK) registered the Instrument in Support of Trade Exchanges (INSTEX). However, this special purpose vehicle (SPV) has no engine or driver. INSTEX mechanism was supposed to keep trade flow between Europe and Iran and initially it was announced that this SPV would be used for sectors most essential, such as pharmaceutical, medical devices, and agri-food goods. However, this SPV remains without a driver and engineless.

The Norwegian Refugee Council warned recently that future aid work is at risk in Iran due to the U.S. sanctions. The delivery of aid to Afghan refugees residing in Iran and for the 2019’s severe flooding victims in Iran was at risk because banks are refusing to transfer money to aid agencies due to fear of sanctions, says the Norwegian group.
In April 2019 severe and widespread flash flooding forced 366,000 people from their homes, and killed 76 people in 25 of 31 provinces in Iran. With infrastructure facilities and livelihoods hit hard, immediate and long-term assistance and support for over two million people was hampered due to sanctions.

In an address to the UN on November 9, Iran’s ambassador to the United Nations, Majid Takht Ravanchi, denounced the unilateral sanctions for barring the affected countries from gaining access to financial resources needed for achieving the goals of sustainable development. Ravanchi pointed out that “issues such as exclusion and inequality can act as potential drivers, aggravating factors for conflicts and weaken opportunities in achieving lasting peace.”

When Raisi took office he promised to take action to lift harsh sanctions and bridge the gap with dissatisfied Iranian general public but emphasized that he will not tie the country’s future to the West. Raisi said instead his administration will prioritize regional ties, especially with neighboring countries. 

Iran has built an alliance with the East, including China, Russia and regional countries. Raisi’s promise of prioritizing relations with the regional countries has borne fruit. Iran’s membership of the SCO was one of the limelight, but the process of membership started years ago and it will take another two years for the institution of Iran’s full membership. 

Another example is Raisi’s visit to Ashgabat, Turkmenistan, on November 28. During the trip an agreement was signed for gas swaps between Iran, Azerbaijan and Turkmenistan. Petroleum Minister Javad Owji said the shipments are due to begin on December 22. This happened at the backdrop of the recent rocky diplomatic road between Iran and Azerbaijan.

Meanwhile, there have been several rounds of talks between Iranian and Saudi Arabian officials. Both sides have expressed optimism over the talks and future rounds are in the pipeline which could bring the two main players of the region closer.

The Iran-China Strategic Agreement deal was signed on March 27, 2021, on the 50th anniversary of the establishment of diplomatic relations between Iran and China. Although the details and terms of the agreement originally proposed in 2016 have not been made public, it has been announced that China will invest $400-600 billion into the Iranian economy, reads an article by China Briefing. In return for the Chinese help Iran will provide cheap oil. The two countries also signed defense agreements and conducted naval exercises during the Rouhani years. 

This is the first time that the Islamic Republic has reached such an extensive deal with a major world power. The last one was a 10-year agreement with Russia, which was later extended to 20 years.

What will be the impact of the Iran-China strategic deal on the development of Chabahar remains to be seen.

With the continuation of the sanctions regime, Iran’s so-called shift to the East is inevitable. China and Russia’s role in the development of Chabahar Free Trade Zone is inevitable.

China’s new digital currency e-RMB along with barter trade could play an important role to facilitate Sino-Iranian trade, reducing regional reliance on greenback transactions.
However, returning full-circle back to today’s economic realities, the U.S. dollar remains the most important and influential currency in the current financial market. In 2019, the U.S. dollar made up nearly 90 percent of all international transactions and 60 percent of all foreign exchange reserves. The supremacy of the U.S. dollar gives U.S. economic sanctions their strength, making it nearly impossible for sanctioned nations such as Iran and North Korea to conduct international business.

In a recent telephone conversation, Raisi told his Russian counterpart Vladimir Putin that the “Islamic Republic is absolutely serious about negotiations and we are equally serious about our people rights to have sanctions lifted,” according to a statement published on the presidency’s website.

The moment the sanctions regime vanishes Iran will become one of the most lucrative places in the world to invest. Apart from natural resources, Iran is also a major global producer of steel, cement, cars and well positioned in nanotechnology and stem cell research.

All efforts should be made during the seven round of the Vienna talks to facilitate the legal rights of the Iranian nation to benefit from peaceful nuclear knowledge.

Describing Iran's potential, Sajid Rizvi, editor-in-chief of the London-based EAPGROUP International Media, said, “It's very hard to beat its roll call of assets: a consumer market of more than 80 million, largely well educated people; a human capital mix that is even more attractive than Turkey; and in the all important energy front, a combination of as much oil as Saudi Arabia, as much gas as Russia, and arguably more mineral resources than Australia.”


 

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