In June 2013, Hassan Rohani was elected to the office of President largely on a promise that a more moderate foreign policy and the brokering of a rapprochement with the West on the nuclear issue provided the best route to domestic economic recovery. However, there are a number of reasons to question the extent to which Iran's economic woes are attributable to US and EU sanctions and to what extent the lifting of sanctions will mark a step-change for the better in Iran's economic trajectory.[tag]
The economic reality and associated quality of life for the average Iranian citizen has undoubtedly deteriorated in recent years, with highly fluctuating prices, spiraling inflation and an unemployment pandemic that affects even well-educated members of the Iranian youth.
However, the extent to which this is directly attributable to sanctions as opposed to grossly mismanaged domestic economic policy is unclear. There are widespread suggestions that for years, the Iranian regime helped private Iranian companies circumnavigate sanctions and continue to import foreign goods. There is also evidence of a wealthy, privileged class in Iran which not only did not suffer from the sanctions, but benefited from them.
According to an Iranian businessman with access to some of those profiting from Iran's economic isolation, profits on illegal imports run into the millions and on occasions, billions, of Euros. The transactions are often facilitated by Iranians with relatives and bank accounts overseas. According to the source, the Iranian government is fully complicit in these transactions, which bring foreign currencies into the country.
Three of the figures benefiting from the onerous economic sanctions are Mohammadreza Aghaei, Yousef Zarei Nikjeh and Hassan Afrashtehpour, well known real estate developers inside Iran and directors of the sugar and commodities importing company, Tejarat Aria Gostar Navid Co. The latter was incorporated just six days after the European Union passed key legislation sanctioning the Iranian nuclear program. According to a source close to foreign diplomats in Iran, the company directors are widely understood to have reached an agreement with the regime to assist in the illegal import of goods in violation of OFAC sanctions.
The second reason to question the extent to which sanctions adversely impact the Iranian economy, are figures showing that the shortfall in Western foreign investment in Iran in response to the sanctions was more than compensated for by investment from China, Russia and Turkey. According to the U.N. Conference on Trade and Development, direct foreign investment in Iran has actually risen over the past decade, reaching $5billion in 2012.
Finally, the historic involvement of many Iranian companies and leading business figures in state-sponsored sanctions-busting, regime-linked human rights violations, bribery and corruption, are an obstacle to international corporations adhering to Western codes of compliance doing business in Iran. Fears of reputational and legal consequences - particularly given the likelihood that human-rights sanctions would remain in place even after the agreement on a nuclear deal - could limit the economic upside for Iran to the easing of economic sanctions.
Tejarat Aria Gostar Iranian Navid Co. and its three directors, Mohammadreza Aghaei, Yousef Zarei Nikjeh and Hassan Afrashtehpour, are among those tarnished by associations with all of the above. In addition to the alleged circumnavigating of sanctions in collusion with the regime, the reputation of the company has been tarnished by association with human rights abuses, fraud and embezzlement.
In May 2010, the Iranian State newspaper, Jahan reported that one of the Afrashtehpour brothers was involved with the controversial Akhbar Koshkush in the illegal import of mobile phones from Dubai. The association is of concern because Koshkush is a prominent former member of the Ministry of Information, and was linked to the "Chain Murders of Iran" in the late 1980s and 90s, in which state linked 'death squads' murdered Iranian dissidents overseas and opposition members inside Iran. Elements in the Iranian press allege that Koshkush was involved in ordering these murders.
The reputations of company directors Mohammadreza Aghaei and Yousef Zarei Nikjeh are further tarnished by their association with fellow director Hassan Afrashtehpour's history of alleged involvement in embezzlement and fraud. In November 1997, it was widely reported in the Iranian media and by some foreign press outlets, that Hassan and his brother Davoud had been arrested and subsequently sentenced to 25 and 20 years, respectively, for embezzling $60 million from the state-owned Bank Saderat. In September 2006, according to the Iranian newspaper Aftab, Hassan was again implicated in a $60 million embezzlement scandal linked to the fraudulent import of goods.
Therefore, while Iranian markets hold huge economic potential for Western investors, not least because of the country's vast oil and natural gas resources, they will find that investing in a newly economically liberated Iran requires complex calculations. Furthermore , the lifting of sanctions is far from guaranteed to provide a quick fix either to the country's downward economic trajectory or the deteriorating quality of life for the average Iranian.