The idiom “politics makes strange bedfellows” is certainly true when it comes to the opposition to the proposed Iran nuclear deal: the hard-liners in Iran, Saudi Arabia, Israel, and the United States.
The Iranian opposition still thinks of the United States as the “Great Satan” that Iran shouldn’t have dealings with. And, of course, much of the Revolutionary Guard is in opposition because they’ve made a fortune on moving goods around the sanctions.
The hard-liners in the United States seem to be trapped in a time warp, not realizing the real dangers in the region from ISIS and Al-Qaeda. And the fact that Iran is one of the few parties in the region actually fighting the extremists.
Saudi Arabian hard-liners don’t want to see Iran, their strategic rival in the region, getting ahead, nor selling more oil.
And poor Israel is caught in the middle: not trusting the Iranians or the Obama administration.
But while the politicians bicker back and forth, one institution is set to lose big…
No Lunch for Us
Everyone knows that sanctions on Iran will be lifted eventually.
That’s why European and Asian companies are already in discussions with Iranian officials and businessmen to establish new relationships or to reignite old ones.
But American corporations are being held back by strict, decades-old restrictions on doing business with Iran. Foreign subsidiaries of U.S. companies may be allowed to invest in Iran. But, understandably, executives are wary of running afoul of the politicians.
So, while our top companies stand on the sidelines, our competitors will eat our lunch in Iran.
And it will be quite a tasty lunch, too. China is now Iran’s largest trading partner. And German exports to Iran are expected to quickly grow four-fold from 2.4 billion euros last year to 10 billion euros. Plus, Tehran already said that it will need in excess of $200 billion in investments for its oil and gas industry.
There’s a lot more than energy at play here, too. Iran is also an industrial powerhouse in waiting.
The country is the world’s biggest exporter of cement, and ranks in the world’s top 15 for both steel production and auto production. Iran is also recognized in the global medical community for its work in stem cell research and nanotechnology.
In other words, Iran isn’t a run-of-the-mill emerging market.
The country has little debt, unlike other emerging markets, and has a stock market with a market capitalization of about $110 billion. The Iranian market soared last year in anticipation of a deal, rising a record 130%!
Iran has great demographics, too – 80 million citizens, 60% of which are under 30. Internet penetration is at 53% (77% in Tehran). The market for technology products and services is already at $4 billion per year. And its consumers have a great affinity for Western brands, like Coca-Cola.
Overall, research firm Euromonitor International estimates consumer expenditures to be about $176.4 billion in 2015. The annual disposable income is estimated to be $287 billion.
U.S. Businesses in Handcuffs
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But American industry will probably miss out on this gravy train. Domestic policies will likely hurt two particular U.S. industries deeply: aerospace and automotive.
Iran has one of the world’s oldest airplane fleets with an average age of 20 years. Iranian airlines have indicated that they’ll be in the market for 300 or so planes over the next decade. This would be a prime opportunity for U.S. airplane manufacturing giant Boeing (BA). It and Iran Air were once inseparable.
But the company remains hog-tied by U.S. politicians. Instead, it’s likely the vast majority of those orders will go to Boeing’s rival, the European Airbus (EADSY).
Iran is also the largest vehicle market in the Middle East, building and selling nearly one million cars last year. The investment bank Rothschild told the Financial Times that the vehicle market there could explode, too. Possibly as many as four million vehicles could be sold within a decade on the back of pent-up demand from Iran’s middle class.
It would be nice to see American car companies get a piece of the action. But, again, politicians will likely hold back companies until it’s too late to gain market share. The leaders in the automotive sector before the sanctions were the French companies Peugeot (PUGOY) and Renault (RNLSY).
However, those two automakers now face new competition from the Chinese. Iran was the top destination for exports for Chinese vehicle manufacturers last year.
Nevertheless, the French are ready to battle for the leadership position. Peugeot, for example, is already in advanced talks with local companies to again produce and sell cars.
Not Even on the Field
Once sanctions are lifted in 2016, the Iranian economy will soar. Forecasts expect the GDP, which was $415 billion in 2014, to grow around 8%. That trend should continue for several years, too.
The Iranian stock market will likely benefit, too, as foreign (but not American) investors will be allowed to invest there.
Everyone will be playing in Iran soon. Unfortunately, America will be sitting on the sidelines. Thanks to politicians playing politics.
And the chase continues,