IRAN: Rouhani’s re-election

On 19 May, Hassan Rouhani was re-elected president of Iran, a positive indicator for international business. However, A2 cautions that other institutions in Iran remain hostile to foreign businesses.

Introduction

On 19 May 2017, Iran held its twelfth round of presidential elections. The incumbent president, Hassan Rouhani, won 23.5 million of a total of 41.2 million votes. His closest rival, Ebrahim Raisi, received 15.8 million. Overall, Rouhani took around 58.6 per cent of total votes cast.

The differences between the candidates were stark.

Iranian elections are competitive, and somewhat free and fair, in that there is little evidence of mass vote tampering or institutional fraud. However, the role of unelected institutions in domestic political life, particularly the parallel Islamic Revolutionary Guard Corps (IRGC) military force, and the lack of any presence by international monitors, leaves scope for systemic discrimination. The governing religious council of Iran has complete veto authority over candidates, and does not hesitate to exercise this power to prevent individuals it perceives as overly radical from running.

The differences between the candidates were stark. Rouhani had personally championed the Joint Comprehensive Plan of Action (JCPOA), a deal between Iran and the international community that traded the curtailment of Tehran’s nuclear programme in exchange for the alleviation of most sanctions. A2’s more detailed analysis of the JCPOA is available here.

As a moderate who believes in Iran’s economic reintegration into the global economy, Rouhani has made public statements supportive of women’s rights and the relaxation of censorship in Iran, although the president’s authority over such matters is limited by the religious establishment.

Raisi, meanwhile, is a lifelong hard-liner and a fervent believer in the cultural, political and religious ideology of the Iranian Islamic state, who campaigned on an anti-corruption message targeting the rural and provincial urban populations. Although popular with religious conservatives and those who feel the Iranian economy is overly centred on the capital Tehran, Raisi lacked name-recognition, and previous voting trends suggest that Iranians strongly favour the incumbent president when casting their ballots.

ANALYSIS

Business

Rouhani’s election is a net-positive event for international businesses, which have moved quickly to enter the Iranian market as it opens up for investment. Encouraged by the warming diplomatic and political climate, major international companies have signed provisional agreements with Iran to invest in the country’s oil and gas industry.

These include energy major Royal Dutch Shell plc, which in December 2016 signed a memorandum of understanding with the state-owned National Iranian Oil Company and the petroleum ministry to carry out studies on the south-western oilfields of Azadegan and Yadavaran, with the possibility of further partnerships in the future.

Meanwhile, French-based energy company Total S.A. signed an agreement in November 2016 to develop the South Pars gas field, in the waters of the northern Gulf. Iran has added around 1 million bpd to its crude exports, and future investment could cause this number to rise rapidly.

Although Raisi committed in principle to the idea of the JCPOA during the campaign, his focus on national self-reliance means that it is likely foreign companies would have found themselves operating in a much more unwelcome political environment, not least because of a hostile Western response had he been elected. Rouhani’s election for another four years grants a degree of stability to the political atmosphere, which should reassure foreign companies over the risk attached to potential investments.

Moreover, that the Iranian south-west, home to the bulk of Iran’s energy resources, and the capital Tehran, the country’s commercial hub, favoured Rouhani accentuates this positive, as it decreases the likelihood of local-level activism or protests putting political pressure on domestic lawmakers to block planned investment projects.

A2 assesses that projects in the north-east, an area which voting patterns show preferred Raisi, could face opposition to foreign commercial development. Nationwide, A2 advises companies to consider whether operational budgets allow for the implementation of corporate social responsibility programmes, in order to mitigate this risk.

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