As EU chiefs scramble to implement a “blocking statute” to thwart impending U.S. sanctions on companies doing business with Iran in the wake of President Trump’s May 8 decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA), now is a good time to revisit all those business deals that were signed during the “full” JCPOA.
During the almost three years of “JCPOA-Max” since July 2015, Iranian news outlets trumpeted the signing of a deal between a western firm and an Iranian counterpart once a week, on average.
Big names like BASF, Eni, Schlumberger, and Siemens, all inked agreements. The state-run business press eagerly reported such developments because it indicated an apparent “gold-rush” of foreign investment. And when Western news agencies ran with the stories, they all pointed to one thing: Iran was back and open for business.
Significantly, the vast majority of these deals were Memorandums of Understanding (MOU): the “handshake on paper.”
Usually, “an MOU signals a legal contract is imminent,” and leads to tangible business ties. We would, therefore, expect a heap of MOUs to lead to a similarly-sized heap of full contracts and real business.
Yet — even during JCPOA-Max — this “mountain of MOUs” turned out to be an anthill of real business.
In total, of the 160 MOUs identified in Iranian and Western press reports since the JCPOA was signed, 130 are still languishing in this embryonic state. Only 30 crystallized into more substantive developments, of which a significant portion are not even full contracts. For example, several MOUs signed by Russian oil and gas firms led merely to further “feasibility studies.”
Looking at European companies exclusively, the proportion of MOUs leading to full contracts dropped still further. As the Austrian Ambassador to Iran Stefan Scholz recently conceded in an Iranian news interview, “Europeans have inked a mountain of MOUs but only signed a handful of concrete contracts.”
As early as 2017, there was even an awkward rash of MOUs publicly “suspended” or even canceled outright. A subsidiary of French oil giant Schlumberger signed an MOU with the National Iranian Oil Company (NIOC) in 2016. But in early 2017, Schlumberger notified NIOC that it had decided to terminate the MOU.
Maire Tecnimont, the Italian engineering conglomerate, announced in March that its Iran business was now “on hold,” more than two years after signing an MOU with Persian Gulf Petrochemical Industries Co. Back then, Maire Tecnimont’s CEO said the MOU would signal a “new chapter” of cooperation between Italy and Iran. And POSCO, South Korea’s biggest steelmaker, was forced to pull out of its May 2016 “Memorandum of Agreement,” a more formal variant of an MOU, in January 2018. These are just a few examples.
So, even under most seemingly favorable conditions, including the lifting of almost all sanctions and repeated official government endorsements backed by multiple trade missions and fostered by dozens of pro-Iran trade conferences held in European capitals, CEOs opted to just test the waters, by signing non-binding MOUs and nothing else.
And even with the potential of hundreds of millions of dollars on offer (Norway’s Statoil was pulling in $414 million in Iran business before the JCPOA), boardrooms were still unwilling to pull the trigger.
The low MOU conversion rate shows that for almost three years, European businesses tried to launch Iranian operations but ultimately chose to remain on the sidelines because they found Iran’s domestic business and legal environment sorely lacking.
Executives would have had to weigh up the difficulties in starting and doing business, major market inefficiencies, poor anti-money laundering legislation, lack of minority investor protection, rampant corruption and intellectual property theft, and the economic dominance of the Islamic Revolutionary Guards Council (IRGC), the regime’s terrorist arm.
The trend is clear. Almost three years after the JCPOA was signed and even while the U.S. was a full party to the agreement, the floodgates to Iran business never opened for many sensible businesslike reasons.
With the looming reimposition of U.S. secondary sanctions on every major sector of Iran’s economy, including autos, energy, finance, insurance, metals, petrochemicals and shipping, these firms are now in the fortunate position of walking away from Iran with barely a scratch, while having learnt some valuable lessons about high-risk jurisdictions in the process.
And as we move from JCPOA-Max to JCPOA-Minus 1 and a possible scrapping of the JCPOA altogether, the image of all those MOUs lying dormant in the filing cabinets of corporate archives should serve as a plain reminder to CEOs that doing business in Iran is a massively fraught enterprise even under the best of circumstances, no matter how hard EU heads try to convince their companies otherwise.
Daniel Roth is Director of Research at United Against Nuclear Iran (UANI) in New York. He leads UANI’s business intelligence and corporate engagement efforts.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.