White Paper: Security in Iran

Shipping’s next big market?

White Paper: Security in Iran

Recognizing that the shipping industry is increasingly looking at Iran as a market, MRQ, the company behind the Octopus PMSC and shipping platform and their intelligence partner, Sicyon, have released the following white paper on the security situation in Iran. For further details on their regular reports, please visit mrquality.de

VIOLENT CONFLICTS SINCE JULY 2015

The south east of Iran is confronted with a low-level insurgency of Balochi separatists that is engaged in clashes with border police and other security forces. Despite their shared goal of fighting the Islamic Republic the presence of numerous ethnic Balochi militant factions encourages rivalry amongst these groups as well. In the north west, primarily inhabited by Turkic Azeris, some minor incidents are also reported. The border strip with Iraq is mostly populated with Kurds. Fears arose that some Kurdish elements of the Iranian society might embark on a secessionist path being emboldened by the successful establishment of Kurdish autonomy in northern Iraq.

GEOPOLITICAL SITUATION

The Islamic Republic of Iran faces various geopolitical challenges. First, it is engaged in a struggle for regional hegemony with Turkey and Saudi Arabia in the Middle East. Iran is a strong supporter of the Syrian and Iraqi governments providing direct military aid, advisors and financial support. To a considerable degree the Syrian and Iraqi civil wars are proxy-wars of this hegemonic antagonism that has internationalized even further with US and Russian engagement. Since the US invasion of Iraq in 2003, Iran has gradually extended its influence in Iraq and has become the most important ally of post-Saddam Iraqi governments.

Second, Iran is under international pressure because of its nuclear program and faces sanctions that, although recently reduced, still cripple large sections of the Iranian economy. The US has imposed various sanctions since 1995, including the nuclear, energy, petroleum and shipping industry as well as the banking, trade and insurance sectors. Since 2007, the EU has joined all US sanction initiatives with the exception of banning foreign firms from conducting business operations in Iran. UN sanctions encompass nine Security Council Resolutions (S/RES/1747; S/RES/1803; S/RES/1835; S/RES/1929; S/RES/1984, S/RES/2049; S/RES/2231) since 2007 limiting the military, banking and shipping sectors as well as uranium enrichment.

Third, as its traditional enemy Iraq has a pro-Iranian government, Iran is faced with a multiplicity of US bases in the surrounding countries that significantly limits any Iranian attempt to extent its sphere influence. Furthermore, on its eastern border Iran concentrates checking any potential advance of the Taliban regime across its border and is faced with illicit trade of weapons and narcotics, smuggling of banned goods as well as human trafficking. Further transnational disputes with Afghanistan include Iranian protests against limitations of the flow of dammed Helmand River.

Finally, disputes over maritime boundaries include a dispute with Iraq over the Shatt al Arab in the Persian Gulf, a dispute with the UAE over the Tunb Islands and Abu Musa Island, which are currently occupied by Iran and a dispute with Azerbaijan, Kazakhstan, and Russia over the delimitation of the Caspian seabed, where Iran continues to insist on a one-fifth of the area.

DOING BUSINESS IN IRAN 2016 AND BEYOND

In July 2015, a breakthrough in negotiations between the P5+1 and Iran was reached leading to a Joint Comprehensive Plan of Action that aims at reducing the effect of sanctions on the economy of Iran in four sectors:

• release Iran’s frozen funds abroad, estimated between $29 and $100 billion
• removal of sanctions against exports of Iranian oil
• allow foreign firms to invest in Iran’s oil and gas, automobiles, hotels and other sectors
• allow trade with the rest of the world and use the global banking system

Iran plans to reinvest its newly released funds into its crippled oil and gas industry that has a shortage of capital investment and will require a significant injection of cash to replace aging machines and upgrade technologies. The brokered deal and the reduction of sanctions seem to offer a great opportunity for foreign companies planning to enter the Iranian market. Despite the current gold rush several risks and challenges remain that require to be addressed by sound business planning. First of all, it should not be expected that all the released frozen funds will be reinvested instantly into the waning oil and gas sector. Iran will keep some funds in foreign accounts as measure of confidence-building to back up the brokered deal. Second, Iran ranks 118th in the World Banks Doing Business Index that examines the regulatory quality and governance efficiency and ranks only 136th in the Corruption Perception Index of Transparency International. Both those indicate that any business operation will face some degree of regulatory barrier or aspects of nepotism and bribery. Despite these shortfalls, conducting business in Iran offers enormous long-term potential as the country is set to become a regional economic and industrial power that will play a major role in the primary resources sector.

If you would like to learn more about violent conflicts, risk forecasts, port security, or corruption in Iran, feel free to contact us anytime under contact@sicyon.de

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