Question Luke Finance & Economics

how might the UK benefit from economic re-engagement and investment in Iran

With Germany currently investigating a 3 billion euro investment into different industries in Iran, how might the UK benefit from economic re-engagement and investment in Iran?

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Answer Expert #27321

Recent assertions from the UK indicates that they are seeking to re-engage economically with Iran, with a large amount of British Companies showing interest in business with Iran (British Foreign and Commonwealth Office, 2016; Sepahvand, 2016). However, with many stakeholders showing a preference of seeing how well the reforms fare before investing in Iran (Barbaglia, 2016), just how can Britain benefit from opening the door to Iranian trade?

Perhaps an obvious answer to this question can come in the recent ‘Brexit’ vote of the UK, with the threat of a substantial economic shock looming for the UK if free trade within Europe is abolished (Dominiczak, 2016). In light of this, the UK should look to cement alternative sources of foreign trade to help absorb the economic shock. Whilst a member of the EU, the UK is subject to EU imposed rulings and sanctions on trade with Iran. However, Britain can determine their own foreign policy post ‘Brexit’, and should this include strengthening trade with Iran, benefits could include importing crude oil and natural gas from the country (Banco, 2016).

Iran is also the second largest economy in the Middle East, and has a large consumer market (Reuters, 2016). Whilst around 50,000 students from the country study abroad, only 3372 of these study in the UK, which could be down to the countries deep-rooted mistrust of the UK (Coughlin, 2013; Bridgestock, 2015). However, opening the door to trade with Iran will go some way to repairing the misgivings of the past, and encouraging students, as well as tourists, into the UK, thus boosting the British Economy and potentially creating jobs in Britain, as per the multiplier effect.

In the tourism industry, UK firms can benefit from investment in Iran with a five year tax exemption permit, which can be seen as even more appealing given the countries goal of investing in its airports and transportation links to turn the country into the Middle East’s ‘regional hub’ (Fitch, 2016; Tehran Times, 2016). However, a lack of financial services (i.e. banking), currently makes economic business deals problematic, with large banks being wary of involvement with Iran (Sepahvand, 2016). To conclude, although there are some risks to trading with Iran, the essence of profitable business is about taking an educated risk, in order to reap large rewards. Re-establishing trade between the UK and Iran can thus provide mutual economic benefits.

References

Banco, E. (2016) ‘Brexit Impact: UK Could Drop Sanctions to Trade with Iran.’ International Business Times. [Online] 29th June [Accessed on 4 October 2016] http://www.ibtimes.com/brexit-impact-uk-could-drop-sanctions-trade-iran-2388271

Barbaglia, P. (2016) ‘Iranian expats hard to woo as Western firms seek foothold in Iran.’ Reuters. [Online] 29th March [Accessed on 4 October 2016] http://uk.reuters.com/article/uk-iran-diaspora-idUKKCN0WV15X

British Foreign and Commonwealth Office. (2016) ‘Iran trade guide and frequently asked questions on doing business with Iran.’ Gov. [Online] [Accessed on 4 October 2016] https://www.gov.uk/government/publications/doing-business-with-iran/frequently-asked-questions-on-doing-business-with-iran

Dominiczak, P. (2016) ‘Britain will suffer 'economic shock' if there is no free trade deal with the EU after Brexit, minister suggests.’ The Telegraph. [Online] 26th September [Accessed on 4 October 2016] http://www.telegraph.co.uk/news/2016/09/25/britain-will-suffer-economic-shock-if-there-is-no-free-trade-dea/

Fitch, A. (2016) ‘Iran lays Groundwork for Regional Airport Hub in Tehran.’ The Wall Street Journal. [Online] 4th October [Accessed on 4 October, 2016] http://www.wsj.com/articles/iran-lays-groundwork-for-regional-airport-hub-in-tehran-1475573401

Press TV. (2016) ‘Germany eyeing €3bn investment in Iran.’ [Online] 2nd October [Accessed on 4 October 2016] http://www.presstv.ir/Detail/2016/10/02/487338/Germany-eyeing-3bn-investment-in-Iran-

Reuters. (2016) ‘UK/EU trade post-Brexit should be at least as free as it is now –Fox.’ [Online] 29th September [Accessed on 4 October 2016] http://uk.reuters.com/article/britain-eu-trade-fox-idUKU8N10802F
Sepahvand, M. (2016) ‘UK wants to engage with Iran to find ways forward: ambassador.’ Tehran Times. [Online] 4th October [Accessed on 4 October 2016] http://www.tehrantimes.com/news/407027/UK-wants-to-engage-with-Iran-to-find-ways-forward-ambassador

Tehran Times. (2016) ‘Tax exemption to incentivise tourism investment in Iran.’ [Online] 3rd October [Accessed on 4 October 2016] http://www.tehrantimes.com/news/407004/Tax-exemption-to-incentivize-tourism-investment-in-Iran