Should Europeans invest in Iran? No! Even after 2025

After years of international isolation, economic instability, and sanctions, European companies may be tempted to resume business with Iran if Washington and Tehran revive the 2015 nuclear deal. Before they do, chief executives and compliance officers need to carefully consider the severe risks that would come with deliberate exposure to Iran’s money laundering riddled financial system, writes Saeed Ghasseminejad.

Upon the implementation of the 2015 nuclear accord, formally known as the Joint Comprehensive Plan of Action (JCPOA), many European companies rushed into Iran to reap the economic benefits. Fortune 500 companies such as France’s Total, Airbus, and PSA/Peugeot; Denmark’s Maersk; Germany’s Allianz, and Siemens; and Italy’s Eni signed investment deals.

The Trump administration’s decision to withdraw from the JCPOA in 2018 and then reimpose sanctions forced these companies to exit the country, however. Yet the Biden administration is eager to bring back the nuclear deal; negotiations between America and Iran are scheduled to resume on November 29, so European firms may have an imminent opportunity to reenter the Islamic Republic.

They should not. And the key reason ought to be apparent: A renewed JCPOA may last no longer than the original deal – and when sanctions return under a future President, the next Justice Department could hold companies to account.

There is no reason to assume that Joe Biden or his party will win the 2024 presidential election. The next president may be a Republican who favors heavy unilateral sanctions against the clerical regime. European companies may again find themselves in a post-2018 situation. For business planning purpose, 2024 is around the corner.

Moreover, the agreement that the Biden administration may reach with Tehran is highly unlikely to end the Islamic Republic’s nuclear saga. In the best-case scenario, the deal might postpone the crisis for a few years. The regime’s nuclear program has no economic rationale. It is doubtful that any accord, no matter how economically generous, will convince Tehran to end the military dimensions of its nuclear program. The crisis over Iran’s pursuit of an atomic bomb is bound to resurface sooner rather than later. This substantially increases the risk of long-term investment in Iran — unless one thinks the Israelis and the Americans will just accept the bomb as a nuclear fait accompli, which is possible but not the most likely outcome.

A handful of companies may find profitable opportunities despite the risks. An individual company’s degree of exposure to Iran-related risk and adverse events depends on at least three factors. The first is the type of business entering the country. For example, all other things being equal, investment in Iran is more exposed to risk than trade is, since investment puts collateral on the ground. By contrast, trade generally does not or does it to a much lesser extent.

Second, the size and horizon of businesses are important. Companies may be able to wrap up a minor short-term deal before political conditions change. It would be far harder to do so with a massive long-term investment.

Third, the nature of the industry matters. The Iranian economy, after all, is dominated by malign actors such as the Islamic Revolutionary Guard Corps (IRGC). This control potentially exposes European parties to a serious risk of violating American terror financing, money laundering, and human-rights laws and executive orders, which may well remain on the books even under the Biden administration.

Importantly, the Biden administration may suspend US terrorism sanctions on Iran without any evidence that banks and companies have ceased financing terrorism. Knowingly doing business, even short-term trade, with such firms may open European companies up to future prosecution and fines when a future administration rightfully reimposes all terrorism sanctions. Even when engaging in humanitarian trade, which U.S. law exempts from sanctions, those who export goods to Iran must vet their partners carefully.

For European businesses, regardless of their potential degree of exposure to risk in Iran, investing before the 2024 presidential election in the United States would be a mistake. Even afterward, major long-term investment and trade in Iran, especially in industries dominated by the IRGC, could be precarious. For as long as the country remains in the hands of a clerical dictatorship that will not foreclose its nuclear options, the next crisis may be just around the corner.

Iran may declare itself open for business, but for the wise, not all open doors are worth entering.

Saeed Ghasseminejad is a senior advisor on Iran and financial economics at the Foundation for Defense of Democracies (FDD). Follow Saeed on Twitter @SGhasseminejad. FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy.