Frustrated Europe hopes Clinton win can
spur elusive Iran deals
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[November 02, 2016]
By Noah Barkin
BERLIN (Reuters) - After a year of
disappointment, European businesses are hoping a victory for Hillary
Clinton in the U.S. election next week may help break the logjam that
has prevented large-scale Western investments in Iran since the opening
of its economy.
While no one in Europe is predicting a flurry of new deals should
Clinton defeat her Republican rival Donald Trump on Nov. 8, a win for
the Democrat would remove some of the political clouds hanging over last
year's nuclear deal between Iran and world powers.
Business groups say this could help fuel a more aggressive push into the
Iranian market in 2017, especially in the second half of the year, if a
Clinton victory is followed by the re-election of moderate Iranian
President Hassan Rouhani next May.
"If Clinton and Rouhani win, then we will have a political window of
opportunity that is much bigger than we have now," said Matthieu
Etourneau, who advises French firms on the Iranian market for MEDEF
International, the French employers group.
"This is what the European banks and companies are waiting for," he
said.
Back in January, when the United States and Europe lifted sanctions
related to Iran's nuclear program, the excitement in Europe's business
community was palpable.
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With a population of 78 million and annual output higher than that of
Thailand, Iran was the biggest economy to rejoin the global trading and
financial system since the 1991 break-up of the Soviet Union.
European politicians flocked to Tehran with dozens of corporate
executives in tow. Rouhani, a pragmatist elected in 2013 on a platform
to reduce Iran's isolation, traveled to Paris and Rome to promote his
country to eager investors.
But within months the euphoria had vanished, replaced by frustration on
both sides.
BIGGEST OBSTACLE
The biggest obstacle for European firms seeking to do business in Iran
has been the reluctance of the continent's largest banks to finance
deals out of fear they could run afoul of U.S. sanctions and incur
massive penalties down the line.
The United States has taken steps to reassure the banks. Last month the
Treasury Department's Office of Foreign Assets Control (OFAC) issued new
guidance to allay concerns about doing U.S. dollar transactions with
Iran.
But Secretary of State John Kerry acknowledged at a think-tank event in
London this week that banks remained skittish. German officials raised
their concerns about the hurdles during a recent visit by U.S. sanctions
coordinator Daniel Fried.
This caution is likely to persist, regardless of who is sitting in the
White House. Beyond the issue of sanctions, the poor state of Iranian
banks after a decade outside the international financial system, the
strong state role in the economy and a lack of clarity about the legal
system are all deterrents to foreigners.
"Everyone knows now that this will be a long, step-by-step process to
build up our economic ties," said Friedolin Strack, head of
international markets at the Federation of German Industries (BDI).
Still, a Clinton victory would be a reassuring signal to Europe. Her
close adviser Jake Sullivan was a key figure in the secret negotiations
in Oman that paved the way for the landmark agreement that curbed Iran's
disputed nuclear activity, and she has defended it during the election
campaign.
Trump, by contrast, has called it "one of the worst deals ever made" and
promised to renegotiate it if he is elected. Bankers say the risk of the
deal unraveling under a Trump presidency has contributed to the
reticence in Europe.
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![](../images/110216PICS/news_u35.jpg)
Democratic presidential nominee Hillary Clinton attends a campaign
rally accompanied by vice presidential nominee Senator Tim Kaine
(not pictured) in Pittsburgh, U.S., October 22, 2016. REUTERS/Carlos
Barria/File Photo
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Recently however, there have been signs of movement.
Smaller German banks, pressed by their clients to support them in
Iran, are beginning to offer limited financing and payment services.
"Medium-sized banks that finance the German Mittelstand have a great
deal of interest in Iran business and are preparing the groundwork
intensively," said Siegfried Utzig, acting head of economic policy
and international affairs at the Association of German Banks (BvB).
"We can see the light at the end of the tunnel but it's still quite
far away."
ENORMOUS POTENTIAL
In June, the German government began offering export credit
guarantees via insurance group Euler Hermes for firms wanting to
trade with Iran.
Edna Schoene, head of German government business at Euler Hermes,
said about 30 formal applications had been received since then with
a total value of about 2.5 billion euros. Nine of them have been
approved.
Add to that roughly 70 non-binding letters of interest (LOIs) that
have been issued and the volumes push up into the double-digit
billions of euros, Schoene said.
"The potential in Iran is enormous and the demand for export credit
guarantees is high, both in terms of formal applications and
expressions of interest," Schoene said. "I expect that we will see
the first large-scale, credit-financed deals in 2017."
Some European firms are already benefiting from the opening of the
Iranian economy. Last week French carmaker PSA Group <PEUP.PA>, once
the market leader, announced it had produced 105,000 cars in Iran
under the Peugeot license in the third quarter, 15 percent of its
total sales volume.
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Etourneau of MEDEF International is also optimistic that Iran's
order of 118 jets from Europe's Airbus <AIR.PA> and a recent joint
venture deal between carmaker Renault <RENA.PA> and Iranian
investment fund IDRO will prove a boon for smaller European
suppliers.
MEDEF International announced last month it was opening an office in
Tehran, its first outside France, to support small and medium sized
French firms seeking to enter the Iranian market.
"We expect that 20-30 billion euros in public contracts to be
attributed by the Iranians before the end of their fiscal year in
March," Etourneau said. "What we are telling companies is that they
need a 5-10 year strategy. The market will open up progressively."
(Additional reporting by Gabriela Baczynska in Brussels, Laurence
Frost in Paris, Andreas Kroener in Frankfurt, Giselda Vagnoni in
Milan; editing by Mark Heinrich)
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