Iran's huge potential now open for global investments as crisis-hit nation comes out of sanctions

By MoneyTimes

Aug 23, 2015 06:47 AM EDT

With sanction being waived off, Iran's underdeveloped oil and gas sector is now open to global investors. Six global powers- the US, the UK, Germany, Russia, France, and China- have agreed on a deal to lift sanctions on Iran with conditions.

The new deal will open a new chapter for the ailing Iranian economy, which had been suffering from sanctions for nine years. As part of the concluded deal, Iran will have to dismantle its nuclear infrastructure. The lifting of sanction will give the Iranian oil and gas sector a major boost in taking off the new projects and resuming the halted ones.

These nuclear-related sanctions wouldn't be lifted at one go. It would depend on the way Iran implements its promised measures. 

The lifting of sanctions is subject to the approval of International Atomic Energy Agency (IAEA). IAEA will conduct an examination to confirm that Iran has taken all the necessary measures to curtail its nuclear program. Then only the US, EU and the UN will lift sanctions on Iran.

According to the UN resolution, six layers of global sanctions on Iran would be waived off. However, arms embargo and restriction on missile technology will continue to remain in force. The lifting of sanction will see unfreezing of Iranian assets worth $100billion across the world and this will give an immediate relief to Iranian government and it would take some months for ordinary citizens to feel the benefits. 

It's estimated that Iran oil and gas sector requires $100 billion investment in the next five years. Now, with easing off nuclear-related sanctions, Iran can get the required foreign direct investments (FDI) into the oil and gas sector. 

Iran has second largest gas reserves after Russia. Many global oil conglomerates such as BP, Total, Shell, etc, are in favor of exploring the oil sector. 

So far many oil and gas projects either stopped or getting delayed owing to the US sanctions. As a result, the crude oil production in Iran steeply declined during the past three years. The underdeveloped Iran oil and gas sector offers huge investment potential and growth prospects for the global energy companies. 

Another major challenge for Iran is threat from Islamic State. The adverse conditions in Iran further worsened since June 2014 as the threat of ISIS is looming over the country. Adding to this having no good relations with other nations is also dampening the investor confidence. 

The positive factor worth mention is Iran's policing system. The strength of police has successfully kept the organized crime at low level and protection of foreign workers is considered to be at very encouraging level. Iran has scored 41.7 out of 100 in the BMI Crime and Security Risk Index. This score of Iran is highest among its neighboring countries. 

According to BMI research, Iran is an underperformer in logistics sector within the Middle East and North Africa (MENA) region. Adding to this, bureaucracy involvement is another major hurdle for investors. BMI Research also revised its GDP growth forecast for Iran from 2.1% to 1% for 2015, while it increased growth forecast for 2016 from 3% to 4%.

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