Mehdi was born and raised in Iran. Coming from a
farming family, he was by all expectations supposed to be a shepherd. However,
going to University in Tehran to study fine art and film changed this path.
Today he is a world-renowned muralist and the artist chosen to present his
large-scale artwork at the World Economic Forum Annual Meeting 2019 in Davos.
Here we discuss his work for the
Congress Centre, the role of the artist in society and how art can be a
catalyst for change in today’s fast-moving world.
Do you think artists have a duty to
Most definitely. I feel our duty is
double that of an average citizen because we have the ability to grab people’s attention
and point it towards specific objectives. We have the skill to magnify
problems, incite feelings (both negative and positive) and really make a point.
This puts us in a privileged position, but it also comes with responsibility.
Propaganda is messaging created by artists, after all.
What is art for?
The role of art has changed. Artists
no longer just make art in the pursuit of beauty or to assist those in
positions of power, such as monarchs or the Church. Today art is very much
mixed with activism. For me, art is a reaction to what goes on around us and is
there to reflect what is happening in the world. For example, we have seen many
artists recently focus on the migration crisis, bringing specific attention to
this issue. Already during the Vietnam war, the work of photographers was
instrumental in raising awareness and galvanising the movements needed to bring
the war to an end.
An artwork the size of yours has
never been presented at Davos. It will be seen by many important influencers
and politicians. How has this influenced the work you will show?
I have never produced work for this
kind of audience. Usually my work is shown in public places, intended to be
viewed by everyday individuals. Thinking about the audience made me feel a
heavy burden of responsibility. I felt challenged to produce work with a
lasting effect. Work of this type and scale is hard to miss. It leaves an
impression on people – whether they like it or not. I knew narrative art would
not work in this context, so I rather focused on creating a thought-provoking
atmosphere that will hopefully affect the context in which discussions take
place in Davos.
Some of the people that may see your
work at Davos may look at your home country primarily through a geopolitical
lens. How does that make you feel?
Generally, I am an artist that
strives to go beyond my own geography and this work is no exception. I have
thus far managed to reach out to different people with different nationalities
in part by distancing myself from country-specific icons and visuals. I try
very hard to use visuals that are globally recognisable. For example, balloons
are used in celebrations throughout the world. I very deliberately attempted to
connect with my audience through a universal language rooted in “feeling”, and
that is something common to us all.
What do you hope to achieve with your
art at Davos?
I feel that currently the health of
planet earth and climate change are at the forefront of all our minds. For
example, water scarcity is a real issue here in Iran. While some still say that
this has not been caused by humans, I feel we are all responsible for the fate
of our planet. Be it those in positions of power or simple individuals, we are
all interconnected. For me, the future of our children is a central concern,
and I hope it will be also for those who see my work at the Davos meeting.
Recently you became a father for the
second time. How does fatherhood affect your work?
I feel a great responsibility towards
my children and towards all the other little ones on this planet. Parenthood
makes one a more responsible, interconnected person with a sharper sense of
urgency for the duty we have to ensure our collective future. My first-born is
a girl and having her showed me the real gender divide that exists in our world
today. I learned to appreciate the importance of feminist movements and the
regrettable endurance of “glass ceilings”. That is why I have chosen a female
figure to be the centre of my work for the Congress Centre. The closed doors in
my work are not accidental. I feel there is really still a long way to go.
Nonetheless, the piece has an atmosphere and message of hope.
Can art change the world?
As I already mentioned, artists
possess a powerful tool. We have a unique and special vantage point – that of
an outsider. Documentary makers, painters, photographers and performers can all
present an “outsider” point of view. This change of perspectives is a catalyst
for change and that’s what I try to achieve with my murals.
Kurdistan is a nation that historically never made it to be a fully-fledged state. The reasons are many and varied. Per The Kurdish Project, the contiguous Kurdish regions of Iran, Iraq, Turkey, and Syria sit in the north central area of the Middle East. Over the millennia, numerous ethnicities have migrated, settled or natively inhabited the area including Turks, Persians, Arabs, Kurds, Armenians, Assyrians, Chechens, Azeris and others. To get a feel of how things are locally appreciated, we reproduce an article of ASHRQ AL-AWSAT written bySalman Al-dossary , former editor-in-chief of Asharq Al-Awsat newspaper, on a real Kurdish Project. Landlocked and spread over large portions of the above-named countries, it will obviously have an uphill development plan.
Meanwhile, the recently held referendum according to many observers, has not helped the cause, on the contrary, it appears that it is only another and peculiar way of the current president to consolidate his hold on the country.
Kurdish people protest outside the Erbil International Airport in Erbil
On September 25, the region woke up on a decisive moment with 92.7 percent of Kurdish people voting for independence from Iraq. Then events accelerated and the Iraqi government announced, in coordination with Ankara and Tehran, its willingness to restore control over four cross-borders (two with Turkey and two with Iran) and to impose an air-embargo on flights from and to Iraqi Kurdistan with scenarios of likely armed conflicts in disputed regions especially the oil-rich Kirkuk.
Two days before the referendum, the Iraqi Army advanced to launch an offensive on ISIS strongholds in Hawija – the scene foresees a spark of military confrontation that would break out anytime.
True that the local government in Kurdistan confronted the international community with its insistence to carry out the referendum, but the tension in Iraq and the region wasn’t caused only by it. Announcing the referendum is not something new, its date has been previously set and the Kurds reiterated several times their determination to separate from Iraq.
Kurds attribute this demand to years of abuse that have made them realize that it is time to establish their own state. Where was this international rejection before? (Especially that of the US, European Union, Turkey and Iran) Back then, none of them attempted to reform ties between Kurds and the central state, especially that Kurdistan government has been accusing the central government in Baghdad for years of depriving the Kurds from fair shares in power and resources.
Despite all that, the dispute was neglected and this pushed Kurds to insist on the referendum, whose outcome came as expected. This gives Iraqi Kurdistan a strong card to use in upcoming negotiations with the central government on natural resources as well as reinforcement of its political position as a self-ruled region.
The severe escalation by the Iraqi central government, Iran and Turkey with the unprecedented siege and threats of starving the Kurds, disregard the fact that Kurds announced earlier that the referendum is not an announcement of independence — it only acknowledges the necessity to move to the next step and to negotiate with Iraq and neighboring states in addition to the international community the conditions of separation, if it happened.
Confederation with enhanced conditions and possibly a new version of the current self-ruling which means that Kurds moved on with the referendum after they lost hope in any of the main powers to understand the situation. They moved on with a referendum that enhances their condition and urges European countries to focus on reforming ties between Kurds and the central government.
It should be mentioned that it is difficult for Kurdistan dream of independence to become true amidst this regional and international rejection. Geographically, the anticipated Kurdish state has no navy border and is surrounded by states that reject its independence.
Economically, Kurdistan government economy depends on oil transported via pipes that pass through Turkey or is exported via the central government. Iraqi Kurdistan exports around 550,000 bpd – out of daily produced 600,000 bpd – via a pipe in Turkish Jihan’s Port overseeing the Mediterranean Sea. All these basic-income sources would be hindered if the tension remains. How would Erbil establish a state without the ability to export its oil?
With the referendum card in its hand, the government of Kurdistan has a strong negotiation card that permits it to move on with a confederation that maintains its status, doesn’t marginalize its people -as it is the case now- and ensures that Iraq remains united as everyone wishes.
This would contribute to finding solutions for pending topics, including the disputed regions between Erbil and Baghdad based on the Iraqi constitution and providing joint market and currency as Kurdistan maintains its independent cultural, economic, political and foreign policies.
Iran is at a crossroads in its history; 56.4 million voters are called to the polls to elect their new president. These May 19, 2017 Iran’s presidential elections with a risk of having a high abstention rate happen in a background of a general situation that is much better than in the past, inflation is under control although unemployment is relatively high. For these elections of 2017, it is mainly a duel between Hassan Rouhani, 68, reformer elected in 2013 and a 56 year old conservative Ebrahim Raissi, former Attorney general. Whatever the results, after these elections, the prospects for growth in the medium and long term are dependent on the pace of reintegration of Iran into the global economy, the speed of the reforms as detailed in the new five-year development plan and especially how to apply, to implement and to boost non-oil segments by creating a level playing field between existing players and new entrants, (winners of the reforms of the future are not those of today) but also to work to improve the business environment and the efficiency of the labour markets but also to work to improve the business environment and the efficiency of the labour markets balancing flexibility and fairness and enter the workforce of the informal sphere within the real sphere.
According to the first partial results as per Reuters on May 20, 2017, the Iranian outgoing president Hassan Rouhani is said to be widely re-elected totaling approximately 56%. The results will officially be announced on Sunday May 21, 2017.
Iran’s Geopolitics details
The Islamic Republic of Iran proclaimed on April 1, 1979 has a population that rose from 21 million in 1960 to 80 in 2016 with by extrapolation upto 84 million in 2020 for an urban population in January 1st, 2016 of 73.4% of the total population, life expectancy of 71.15 years and ranked second in 2010, behind Egypt in the MENA’s most populous countries.
Iran has an area of 1,648,000 km² with a density of 48.4 hab per km², and Tehran as capital and Karaj, Tabriz, Isfahan and Mashhad as major cities. It holds the world’s fourth oil reserves with more than 160 billion barrels (13 / 14% of world reserves). In general Iran is a strategic player that could help stabilize the tensions in the region with a definite impact on the supply of oil.
Iran which produced around 2011/2015 more than 2.5 million barrels a day can produce more than 5 to 6 million barrels per day today. These factors are in addition to a production outside OPEC of 67% market share compared with 33% for the OPEC, not counting all those newcomers on the world market. It has also more than 34,000 billion cubic metres of gas or more than 16% of world reserves, not to mention that Iran if agreements are respected, will then access between 50 to 100 billion Dollars in foreign banks, which will increase its exports and attract foreign investment.
Iran has significant resources. It is located on the belt of the reserves of copper in the world and benefits from considerable reserves of other minerals, such as iron, aluminium, lead and zinc and as a country with borders it shares with 15 other countries, making it easily an emergent country, especially as it safely invested in human resources, the elite without which no country can develop.
According to the studies of the OECD and the IMF, its population has a literacy rate of 93% for the 19 to 40 years old.
The head of State is the Supreme Leader of the Islamic Revolution that is named for life by the Assembly of Experts and the President is Hassan Fereidun RUHANI since August 3rd, 2013. The Supreme Leader is the Commander-in-Chief of the Armed Forces and controls all the army intelligence and security operations.
The head of Government is the president elected through universal suffrage for a term of four years. The Council of Ministers is selected by the president, with the approval of the legislature. The president holds control over the executive, but shares power in the areas which are the prerogatives of the Supreme Leader.
Parliament is made up of the Islamic Consultative Assembly, which is a legislature that is unicameral. It has 290 seats, and its members are elected by universal suffrage for four years. Parliament needs to validate the laws by the Council of Guardians, which checks if the proposed laws do not contradict Islamic principles. The Parliament has real power in Iran, particularly regarding removal of a Minister. The president may dissolve the Parliament directly, and can recommend the dissolution of the Supreme Leader.
The entire international community except Israel, had welcomed the lifting of the embargo against Iran once the International Atomic Energy (IAEA) Agency has certified on January 16, 2016, the steps taken by Tehran for not committing to produce a nuclear bomb.
After nearly a decade of diplomatic isolation, Iran has returned to the international community. Since his election in June 2013, president Rohani had expressed the wish to improve relations of Iran with the international community on the nuclear file degraded during previous presidencies, while trying to soothe its relations with regional powers including its relations with Sunni powers, especially Saudi Arabia.
According to many military experts, Yemen, at the tip of the Arabian Peninsula and preserve of Saudi Arabia’s via the USA, is not a strategic priority for Tehran, much less in any case to that of Iraq or Syria, where Iran is a major player in the current crisis. At the regional level, it is an actor as evidenced by its priority, which is the struggle against ISIS. Iran gave its support to the Iraqi regime, but also since the outbreak of the Syrian crisis a full support to Damascus. This is however a position that can evolve according to its strategic interests.
Socio-economic and financial details
With a GDP estimated in 2016 to be $ 412.2 billion, Iran is the second largest economy in the MENA region after Saudi Arabia. Per capita GDP in 2015 was 5306 US dollars. The growth rate as compared to the previous period, was 4.6% in 2015, 4.5% in 2016, thus reflecting some dynamism and should be no less than 5.2% in 2017, 4.8% in 2018, 4.5% in 2019.
According to the IMF, inflation rate was 15.6% in 2014, 12.0% in 2015, 8.9% in 2016, a new figure for 25 years, under the effect of the tightening of monetary policy and a forecast of 8.2% in 2017. Unemployment was 12.20% in 2012, 10.60% in 2014, 11.67% in 2015 and 11.3% in 2016 after Q2 2016, 12.7%, its highest level for three years (or 3.3 million unemployed), is explained largely by the increase in the employment rate of the population, to 40.4% compared to 35.4% in January-March 2014.
Yet, there is the importance given to education where the number of students in universities increased significantly over the past 20 years. In 2015, 4.8 million Iranians have begun university studies, representing almost 6.2% of the total population (from about 3.5% in France).
As to financial indicators, the Iranian Rial (IRR) was quoted at 14777,90 to the Euro in 2011, 15643 a Euro in 2012, 24456 a Euro in 2013, 34653 a Euro in 2014, 32188 a Euro in 2015 and in May 19, 2017 to 36335 IRR a Euro thus showing a strong depreciation of the Iranian currency.
The current balance in 2014 was 3.8% compared to the GDP’s of 0.4% in 2015 and less than 0.6% in 2016 with a forecast of zero in 2017, while the GDP / public debt ratio was 15.6% in 2014, 17.1% in 2015, 17.5% in 2016 with a forecast 17.7% in 2017. The trade balance of Iran with a share of trade in GDP of more than 31% (World Bank, 2015) is structurally positive, oil exports have increased by 70% in 2016 trend which should continue in 2017 with a trade surplus of 1.8 billion US Dollars in 2016.
The main customers of Iran are China, Iraq and the UAE. Besides oil and gas, Iran exports are mainly pistachios, carpets, petrochemicals, organic chemicals, aluminium and plastic materials. Its three main suppliers are the UAE (that in fact play the role of Iran’s Center of re-export), the European Union and China. Iran’s imported goods are mainly machinery, iron and steel, electrical and electronic equipment and cereals.
The Iranian economy remains dominated by the public sector that controls much of the economy with a relatively fragile banking sector. Structurally, the economy is dependent on oil revenues, which account for nearly half of all State revenues. So, the lifting of international sanctions in July 2015 allowed the resumption of trade and investment (FDI stock in 2015 has been $45,097 million), while exports of oil have found their level prior to the sanctions.
The agricultural sector, whose main crops are pistachio of which iran is the largest producer in the world, wheat, rice, oranges, tea and cotton all contributed to 9.3% of GDP in 2016, and employing 17.9% of the active population. Oil production, which has seen a drastic fall in 2012 following the introduction of international sanctions, has quickly picked up since their lifting, reaching in March 2017 its highest level in 7 years (3.8 million barrels per day).
The industrial sector employs 33.8% of the active population and contributes to 38.2% of the GDP. The textile industry is the second largest sector after the oil & gas. Sugar refining, the industrial preparation of food, petrochemicals, cement and construction are the other major industries. Traditional crafts, such as weaving of carpets, ceramics, silk and jewellery manufacturing, are also vital for the Iranian economy. The tertiary sector contributes to 52.4% of the GDP using 48.3% of assets.
Prospects for the Iranian economy
In order to diversify its economy, the Iranian Government has decided to launch a plan of privatization and open most of the sectors of its economy to foreign investment.
Thus, in 2016 the projects of FDI in Iran increased significantly. The Iranian Government through the country’s Central Bank intends, in accordance with the recommendations of the IMF, to conduct a recapitalisation of distressed banks. The State should implement new reforms to stimulate the private sector as the public sector no longer has the resources to create the needed jobs.
The Iranian authorities have adopted a comprehensive strategy of reforms based on the market, as declared in a document on prospects in the future 20 years and in the 6th five-year plan of development covering the period 2016-2021. So this plan revolves around three main axes: the development of a resilient economy, the scientific and technical progress, and the promotion of cultural excellence. On the economic front, the plan tables on an annual growth of 8%, with three main priorities for the next five years, e.g.: reform of public enterprises, financial and banking sector, distribution and management of oil revenues, greater budgetary rigour, the fight against waste and corruption.
Because of the important thing for the Iranian Government is to drive the economy out of recession, the goal is economic recovery. Reducing unemployment and control of the inflation to maintain social cohesion, knowing that the economy is highly dependent for its funding on the oil revenues, the Government of Iran with the lifting of the embargo will as a consequence increase the supply of oil, which will allow it to boost its economy and intends to carry out internal reforms to increase tax term revenues.
Thus Iran plans privatizations and disposals of assets that show strong growth as compared to the current budget combined with the reduction of the State’s lifestyle (operating expenditures, salaries of civil servants, etc.). So, the Government of Iran will be facing significant internal challenges that require major structural reforms at three levels:
First, review all un-targeted widespread subsidies, that are wasteful and source of rentier situations and diversions of funds, establishing another cause of this permanent bleeding in the Iranian economy that prevent the channelling of resources into the system of domestic production so as to drive effectively the development of the country.
It is in this context that the indirect subsidies, whose cost was estimated at 27% of GDP in 2007/2008 (approximately $77.2 billion), has been replaced by a program of direct cash transfers to Iranian households.
The second part of the subsidy reform, launched in the spring of 2014, provides a more gradual oil price envisaged before adjustment and a wider targeting of transfers for the benefit of low-income households. Nearly 3 million of higher income households have already been removed from lists of beneficiaries. As expected, the poverty rate declined by 13.1 to 8.1% between 2009 and 2013 (based on a poverty line of $5.5 in parity of purchasing power in 2011.
This evolution according to the IMF is probably attributed to the establishment, by end of 2010 of a universal program of monetary transfers, prior to the removal of subsidies. The program seems to have more than offset the expected increase in the less affluent and contributed household energy bills, doing so to improve the purchasing power of the poorest 40% of the population. This approach would have led to a reduction in the expenses of the targeted subsidies organisation (TSO) of 4.2% of GDP in 2014 to 3.4% in 2016.
Second, whilst ensuring its security protection, limit the huge spending on the military because of the regional tensions including the nuclear project for military purposes as per the agreement for nuclear power for civilian use, the colossal ballistic program and interventionist policy at the international level that require significant financial aid are believed to be no more;
Third; it involves adjustments at the level of the Iranian authorities power, the limitation of that of the Pasdaran whose control is an essential part of the Iranian economy, without being subject to the law on taxation, monopolizes all economic activity with colossal revenues in the sectors of oil, gas, petrochemical, telephony, computer, automotive, steel, cement, food, pharmaceuticals as well as roads, banks, insurance. According to analysts, the Pasdaran are among the largest cartels of the world and control more than 50% of imports and one-third of Iranian exports
In summary, the agreement, signed in July 2015, has allowed the lifting of economic sanctions against Iran and the resumption of partnership with overseas while we are witnessing an ambiguous positron of the U.S. president, who seems to take this legacy without ceasing to criticize claiming that in April 20, 2015, Iran was not in breach of the nuclear agreement, but that he violated the spirit. Anyway, the return of Iran into the community of Nations would help defuse the climate of tension that runs across the region and foreshadows a significant geostrategic and energy reconfiguration at the level of the Middle East.
Please address any comments to Dr A. Mebtoul firstname.lastname@example.org
The proposed article of Paul Ebeling’s on Iran moves to opening up for GCC’s businesses would be best to be prefaced by an introduction to a respectable retrospective of modern Iran as it is striving to pick up speed after coming out of the darkness of years of sanctions. Read more in A History of Modern Iran .
In a radical reappraisal of Iran’s modern history, Ervand Abrahamian traces Iran’s traumatic journey across the twentieth century, through the discovery of oil, imperial interventions, the rule of the Pahlavis, and, in 1979, revolution and the birth of the Islamic Republic. In the intervening years, Iran has experienced a bitter war with Iraq, the transformation of society under the rule of the clergy, and, more recently, the expansion of the state and the struggle for power between the old elites, the intelligentsia, and the commercial middle class. The author, who is one of the most distinguished historians writing on Iran today, is a compassionate expositor. While he adroitly negotiates the twists and turns of the country’s regional and international politics, at the heart of his book are the people of Iran, who have endured and survived a century of war and revolution. It is to them and their resilience that this book is dedicated, as Iran emerges at the beginning of the twenty-first century as one of the most powerful states in the Middle East.
In January this year, senior diplomats from around the world formally announced the lifting of sanctions against Iran. In principle this put a definitive end to 37 years of various degrees of sanctions imposed on the country.
Boardrooms of global Fortune 500 companies and regional conglomerates alike have been lit up with debate on what this means for their business over the past 10 months, but two things are certain.
1st, the opening up for the nation to the world is arguably one of the most prolific global business opportunities of our generation.
2nd, the answer to the above question depends heavily on your company’s origin, DNA and risk appetite.
For the majority of the largest European and Asian companies excluding China, this marks a much-awaited opportunity to return to Iran, where many had investments, manufacturing facilities and large-scale operations prior to the financial sanctions made against Iran in 2011.
Chinese and American companies view the current situation as more of a threat, and for different reasons.
Chinese firms have greatly benefited from the international sanctions on Iran over the past few years, which provided a window where an inflow of Chinese products flooded the market without much foreign competition. The lifting of sanctions will see an inevitable curtailing of Chinese dominance in this market.
For American companies, the situation is more complicated.
Although US companies’ foreign subsidiaries are technically allowed to engage with Iran, there is still a minefield of regulatory, transparency and legal challenges that have left many hesitant to take even preparatory steps.
Furthermore, the fact that 2016 is a US Presidential election year, and the mounting layers of uncertainty of the future government’s policies towards Iran have left the majority of American companies unable to decide.
So, what does Iran opening up mean for GCC players?
There are both significant opportunities and many challenges, and to understand the complex nature of GCC-Iran ties we must first understand how Iran fits into the macro-economic fabric of the Middle East.
Iran: what’s the big deal?
The excitement felt by foreign companies can be understood when you look at Iran’s economic indicators.
Iran isn’t a stereotypical sanctioned economy, which might be perceived to be underdeveloped. On the contrary, the economy is more diversified than most emerging economies today, and is substantial in size across various indicators.
Despite the sanctions, Iran has maintained the 26th largest GDP in the world at $425-B, between Saudi Arabia (20th at $646-B) and the United Arab Emirates (31st at $370-B). It generates 1.5% of global GDP and is the only country that exported in every single category of exports, as defined by the IMF in 2012-2013.
Iran also boasts a population of nearly 80-M inhabitants, which is equivalent to the population of all 6 GCC countries combined. With a burgeoning middle class, Iranian consumers increasingly have disposable incomes. Moreover, Iran’s predominantly young population is amongst the most highly educated in the region, with 13.3% of the working population having graduated from university.
The country has the highest literacy rates in the region and is the 5th largest producer of engineers worldwide.
Like some of its GCC neighbors, Iran is blessed with natural resources, and in abundance. Iran has the world’s 4th largest proven Crude Oil reserves (4% global share) and the world’s 2nd-largest proven Nat Gas reserves (17.5% global share).
Iran is the world’s 12th largest Crude Oil exporter, as of 2015, and is expected to climb as it increases production.
But unlike its GCC neighbors, Iran has managed to build a diversified economy that does not rely solely on its Crude Oil and Nat Gas industry. Though Oil-based revenues still provide 25% of the country’s GDP, the automotive, mining and manufacturing, and agriculture sectors each also command 10% of the economy.
As the national GDP breakdown infers, Iran is blessed with many natural resources besides Oil and Gas; the country holds over 7% of the world’s total minerals. Iran has the largest global zinc reserves and the largest copper deposits and is a large global supplier of iron ore and chromite.
Iran is currently home to the 20th largest automotive manufacturing hub in the world, having produced approximately 1.4-M units in 2015.
Iran is expected to become the biggest market for new car sales in all of the Middle East and North Africa (MENA) by 2020. This translates into big opportunity for automotive manufacturing and automotive aftermarket players in the region.
Elsewhere, the country’s construction sector is still expected to continue at a relatively strong and steady growth rate of 6.1% CAGR from 2016 to 2020.
Driven primarily by residential construction projects, Iran’s construction market is expected to reach $196-B by 2020. Iran is the 13th largest steel producer in the world, and is also the 4th largest cement producer, behind China, India and the USA.
Beyond Iran’s impressive industries, the country’s strategic geographic positioning between Europe, the Middle East, South Asia, and the Far East also works in its favor. And it seems this is more relevant than ever before, as talks of reviving and modernizing the old ‘Silk Road’ trade routes between Asia and Europe have intensified in recent months.
Iran’s large market spells big opportunity for GCC businesses, which have a number of advantages over global competitors.
The 1st of these advantages is geography.
It comes as no surprise that most Fortune 500 companies that are entering Iran are predominantly doing so via the UAE or Turkey – primarily due to proximity and logistical ease, as well as ease of communication, travel and management of business operations.
Secondly, the GCC has already established grey channels into Iran.
Many foreign companies are surprised when they first visit Iran and realize the market is flush with their products and the products of all their competitors. The UAE and the wider GCC have acted as Iran’s unofficial backdoor during the sanctions, and distribution and supply chain channels are already carved out in these markets. The challenge will be to keep these channels open once official channels are developed.
3rd and perhaps most importantly, companies in the Gulf know how to operate in volatile and high-risk emerging markets. This is why many GCC companies have done well in emerging Asia and Africa. Due to the ability of GCC companies to take these risks, regional companies have an opportunity to enter Iran faster than their foreign rivals.
Finally, there are a number of sectors where GCC companies are primed to flourish.
For starters, the bank and financial sectors in the GCC are expected to witness an increase in longer-term business opportunities. The region’s top construction players which may be suffering from the contraction of the sector at home might also find a welcome respite in Iran.
Construction growth in the country is primarily driven by the residential segment – accounting for 45% of the market – due to a severe shortage of housing stock. The demand stands at 1.5-M housing units per year, of which Iran is able to provide less than 50%.
Infrastructure projects and construction of manufacturing plants are also expected to see sharp growth rates that cannot be met with local capacity alone.
Thus, all adjacent industries, from the excavators and heavy machinery sector to the construction materials sector, will be prime growth segments.
Opportunities outweigh the risks in most instances for GCC companies, but there are still risks and restrictions to be aware of.
First and foremost, opening Iran to the world will mean that Iranian industries will begin to compete more fiercely with Gulf businesses. Major industries where Iran and the GCC will compete include Oil and Gas, petrochemicals, aluminum, machines, engines, pumps, and dairy products.
In Oil and Gas exports, for example, Iran will directly compete with Saudi Arabia, the UAE and Qatar to become the energy importer of choice with lucrative Oil-importing nations such as China, Japan, South Korea and India, as well as Europe. This will be an ever-growing challenge, as Iran is the only country in the world as cost-effective as Saudi Arabia in Oil and Gas production.
Secondly, Iran will bring fierce competition for FDI (foreign direct investment).
As the Iranian government continues to develop policies that deter foreign entities from becoming an import-only partner to Iran, many large multinationals may decide to build local manufacturing facilities for their regional operations, instead of bringing this investment to the GCC.
Another challenge facing Gulf companies planning to operate in Iran has to relate to the marketing and origins of their products. Though Iranians have a strong demand for European, North American and Japanese products, there is little to no consumer affinity towards products produced in the Gulf or products with Arabic content. This may require many Gulf companies to invest in re-branding their products entirely to enter this promising neighboring market.
Iran’s regional gateway
The UAE has the highest trade exchange with Iran amongst its GCC peers, earning over $32-B in export value in 2014, and over $8.7-B in Q-1 of 2015 alone. The emirates accounts for more than 80% of Iran’s trade with the whole of the GCC.
Oman is the 2nd major GCC trade partner.
Many analysts suggest that the removal of sanctions on Iran will have a positive effect on the UAE economy over time, with trade between the countries likely to increase between 15-20 per cent. The International Monetary Fund (IMF) forecasts that $13bn will be added to the UAE’s economy as trade between the two countries steps up between now and 2018.
Some have argued that Iran opening up could see jobs move from the UAE directly to Iran, but the majority of Iran’s imports are likely to continue to go through Dubai’s Jebal Ali Free Zone Port.
Furthermore, Iranian businesses have a major presence in the UAE, with around 8,000 Iranian traders and trading firms registered in the emirates, according to the Iranian Business Council. Ethnic Persians are estimated to account for roughly 10 per cent of Dubai’s population of two million. The UAE also has a strong commercial presence in Iran, with leading companies such as RAK Ceramics, Majid Al Futtaim Group and Mammut Building Systems operating there.
Diplomatic and commercial relations
Iran and the GCC countries have economic incentives to expand their trade relations, but diplomatic and geo-political concerns are likely to play an important role as well.
Looking specifically at relations between Iran and the UAE, there exists one major unresolved conflict between the two countries. The UAE has challenged Iran’s sovereignty over three islands in the Arabian Gulf. In addition, the UAE’s close economic and political ties with Saudi Arabia led to the emirates downgrading diplomatic ties with Iran following the storming of the Saudi Arabian embassy in Tehran in January of this year.
Oman and Iran share close diplomatic, economic and military ties, upholding a tradition of cooperation that dates back to the Shah of Iran’s regime. The sultanate played a key role in the 2013 secret talks between the US and Iran, which paved the way to the current removal of sanctions.
Oman also signed an accord with Iran in early 2014 to construct a $1-B Nat Gas pipeline from Iran to Oman.
Qatar and Kuwait also have close relations with Iran; all three are members of OPEC, the Non-Aligned Movement, and the Organisation of the Islamic Conference. The two countries also generally refrain from criticizing Iran’s domestic and foreign activities.
Bahrain and Saudi Arabia are the two GCC states that have the most strained relationship with Iran. Bahrain-Iran relations have been under pressure since the Iranian Revolution and the 1981 discovery of a planned Iran-sponsored coup. However, in recent years, Bahrain has begun taking steps to improve relations.
Its relations with Saudi Arabia’s have been troubled, as both countries aspire for a leadership role in the Islamic world. The political differences between Riyadh and Tehran are stark, with little sign of rapprochement in the near future.
That said, there has been some economic activity between the two rival countries. Trade stood at a mere $215-M in 2015, mainly comprised of Iranian exports, but look closely and you can find a small number of notable Saudi businesses either directly or indirectly established in Iran via official distribution channels.
These include strategic investment holding group Savola Group, SABTEC, a subsidiary of Saudi Arabia’s largest public company SABIC, fast food chain Al-Baik, Saudi Ceramics Company, and Al Abdulatif Carpets.
While entering Iran might not necessarily be straight-forward, right or possible for every business in the GCC, its opening up to the world is one of the most significant global business opportunities of our generation, it is one many businesses in the Gulf should at least consider.
Erika Masako Welch, business development director for the Middle East at Solidiance
A piece of information as reported by Reuters yesterday Saturday August 27, 2016 regarding an OPEC member oil producer of importance. That is Iraq set to get back to its pre-war Market Share. Its sight is on expanding its production and would not hear of reducing it at the forthcoming September meeting of Algiers.
A general view shows a lake of oil at Al-Sheiba oil refinery in the southern Iraq city of Basra, in this January 26, 2016 file photo. REUTERS/Essam Al-Sudani/Files
Flames emerge from a pipeline at the oil fields in Basra, southeast of Baghdad. (Image: Reuters)
Iraq is willing to play an active role within OPEC to support oil prices but will not sacrifice its goal of expanding market share and will continue to ramp up output, its oil minister said on Saturday.
Jabar Ali al-Luaibi, on a visit to the southern oil city of Basra, renewed calls for local and international oil companies in Iraq to increase production and announced plans to double crude storage capacity at the country’s southern export terminals to 24 million barrels in the “coming years” from 12 million barrels currently.
“The ministry has new ambitious plans to develop the oil sector,” he told reporters. “Among them, the most important is to increase crude output to reach a level that suits Iraq’s needs; we don’t want to specify a ceiling for future production like in the past.”
Luaibi, who became oil minister this month, said Iraq wants to “strengthen OPEC’s role in achieving a balance in the oil market,” but his comments on continuing to increase output suggested it was not looking to take part in a possible agreement to freeze output.
“Iraq is seeking to play an active role in order to support oil prices while preserving a share that is proportionate to its reserves,” Luaibi said.
Members of the Organization of the Petroleum Exporting Countries are due to meet informally in Algeria next month on the sidelines of the International Energy Forum (IEF). Russia is also expected to attend the IEF.
Iraq’s production currently stands at around 4.6 to 4.7 million barrels per day for the whole country, including the self-rule Kurdish region in northern Iraq, Luaibi said.
Iraq’s Prime Minister Haider al-Abadi on Tuesday said the country has not yet reached its full oil market share, suggesting his government is not willing to restrain crude output.
OPEC’s second-largest producer, trailing Saudi Arabia, Iraq depends on oil sales for 95 percent of its public spending. Its economy is reeling under the double impact of low oil prices and the rising cost of the war on Islamic State militants.
The government has invited international oil companies to express interest in the country’s plan to expand four of its refineries, oil ministry spokesman Asim Jihad said separately on Saturday.
The government would consider investment offers on a build-own-operate or build-operate-transfer basis for the refineries, which are located in Kirkuk, in northern Iraq, and the southern regions of Samawa, Kut and Basra, the spokesman said.
Sources in OPEC and the oil industry this week told Reuters that Iran, OPEC’s third-largest producer, was sending positive signals that it may support joint action to prop up the oil market.
Tehran refused to join an attempt in April to freeze output at January levels, scuppering those talks because Saudi Arabia said it wanted all producers to join the initiative
Greater Accountability amongst many other things . . .
Stratfor developed this article backed up by a report of which some excerpts are extracted and reproduced here for their obvious intellectual interest. It is the global oil prices slump that created a series of Challenges for Saudi Arabia. The consequent challenges that arose on several fronts, are driving pragmatic decision-making by the country’s leaders.
The downturn in global oil prices has created a series of challenges for Saudi Arabia. . . . . .These challenges on the domestic front, are for Saudi Arabia that is accustomed to energy booms and busts, with a trail of incomplete reform efforts when prices topped $100+ a barrel has a subsidy programme that has grown and developed with each subsequent bust over the decades.
. . . The kingdom as must find a way to carefully re-calibrate its domestic spending, without stirring up a social backlash from a population that has grown to expect such subsidies. Meanwhile, despite facing a supply-side glut in the global markets, Saudi Arabia has pursued a policy of keeping production high. The re-entrance of regional rival Iran to the oil markets will be closely tied to the kingdom’s oil policy decisions in the future. If Iran is willing to embark on a production freeze, Saudi Arabia will consider it, too, but both countries face deficits that require them to continue to produce – and obviously, neither country operates in a global vacuum. Although OPEC states may agree to freeze production at already-high levels when they meet in June, some of the largest producers – including Saudi Arabia – will refuse calls to cut production to stabilize prices, recognizing that Iran is waiting in the wings to build up market share. Iranian production is set to return to pre-sanctions levels as production slowly comes back online, even though much investment is needed in the sector. Rather than scaling back their own output, Saudi Arabia and its Gulf allies have preferred to see a market correction play out in the next few months. For its part, Iran’s government cannot commit the political suicide of reducing production after years of a sanctions-incurred freeze, lifted only when the U.S.-backed nuclear deal – known as the Joint Comprehensive Plan of Action – was signed in 2015. Against this backdrop of market forces, then, we see Saudi Arabia forced into pursuing a hybrid strategy: simultaneously scaling back domestic spending and seeking new sources of funding from state-owned assets and the populace (a program outlined in the National Transformation Plan, announced by Deputy Crown Prince Mohammed bin Salman on April 25), while also emphasizing the Saudi defense industry and the kingdom’s network of alliances with Sunni states and entities in the region. . .
. . . The shift in Riyadh’s policies will be more pronounced on the home front. For decades, Saudi Arabia – government and citizens alike – has operated under terms of a social contract, one that bartered material comfort (or at least satiety) purchased by oil wealth in return for unquestioning support for an absolute monarchy. But in an era of depressed oil prices, far below what Riyadh requires to keep government budgets balanced, it is clear to Saudi leaders that all the terms of this contract are no longer tenable. . . Saudi Arabia must find a way to carefully recalibrate its domestic spending, without stirring up a social backlash from a population that has grown to expect such subsidies.