SA companies cautious about returning to Iran

A handout picture provided by the office of Iranian President Hassan Rouhani on April 24, 2016 shows him (R) meeting with South African President Jacob Zuma at the presidential palace in the capital Tehran. Photo: HAND OUT/Iranian Presidency/AFP

JOHANNESBURG – It’s been four months since most sanctions against Iran – including a ban on oil purchases – were lifted as a result of the successful Iran nuclear deal concluded last year.

Iran is officially open for business again with most countries in the world, including South Africa.

But South African companies – like those elsewhere – are wary about returning.

Their main concern is that most primary US sanctions against Iran still remain in place. And those would affect dealings between other countries and Iran if the US system is involved, European External Action Service deputy secretary general for political affairs Helga Schmid said in South Africa earlier this month.

Schmid was in the country mainly to lead regular meetings with South Africa’s international relations and co-operation department about the state of international relations. Schmid was also a key player in the nuclear negotiations between Iran and the so-called EU 3+3 group of countries (aka the P5 +1 group).

The European Union is also co-ordinating implementation of the nuclear deal, including the lifting of sanctions, through the joint commission.

And so Schmid briefed the South African government as well as representatives of the SA Reserve Bank, private banks, and energy companies about what business they could do and not do now in Iran.

South Africa had good economic relations with Iran – and bought much of its oil from there – before the EU and US sanctions were imposed a few years ago.

As Schmid said in an interview in Pretoria, there was huge interest from South Africa in the negotiations. “That was why South Africa was one of the countries I’ve kept regularly informed, also when negotiations were still ongoing.”

Now, she said, “Sanctions are lifted. All economic and financial sanctions that are nuclear related from the EU are lifted. And the US has lifted their secondary sanctions”.

The US secondary sanctions hit South Africa hardest because they barred other countries from doing business with Iran – or they would also face sanctions from the US.

But the EU sanctions also effectively prevented South Africa buying Iranian oil as EU companies were deeply involved in the Iran oil business, for instance through shipping and insuring oil transport.

“The US primary sanctions [trade embargo] remains in place, with three exceptions, which are civil aviation, some foodstuffs like pistachios and carpets, and activities of US foreign subsidiaries,” Schmid said.

“Now there was a lot of interest in South Africa – as in Europe – to go back to business, particularly oil. I know that Iranian oil is particularly suitable for SA; the same is true for some of the EU countries. Oil, petrochemical industry, gas, all sanctions are lifted”.

“The difficulties now – and this is what I discussed with the business representatives – is that because the country has been isolated for some time, it needs time before they can rebuild the necessary confidence for business investors.

“But also Iran has to do some homework. They have to put in place the right regulatory framework, particularly on the banking side, adopt the necessary legislation on anti-money laundering and all that.”

And for those countries planning to return to oil business with Iran, the real issue now was financing that business.

“Because US primary sanctions remain in place, particularly major banks tend to be very cautious,” she said, because they were afraid of possible retaliation by US sanctions.

One of the potential pitfalls for foreign companies thinking about investing in Iran was that today most major banks and other companies were multinational. And if they had a US national on their boards and did business with Iran, that could be problematic under US sanctions.

US dollar transactions also remained tricky, but South African companies could deal in euros, she said.

Another hazard was that a few Iranian persons and entities, including banks, remained listed by the US because they were sponsoring terrorism. “Engaging with any of those banks could again trigger retaliation of sanctions by the US.”

Because of these complications, the EU had drawn up clear guidelines to help companies engage with Iran. Schmid said she had provided a copy of these to the South African government and the corporations she met last week. She had also given them access to EU experts if they needed further help.

Some experts have expressed concerns that the Iran nuclear deal could be scrapped by the next US president. The presumptive Republican Party nominee Donald Trump has already said he would tear up all international agreements signed by the Obama administration.

But Schmid said she was not worried because “Europe and many others will protect this agreement. In Europe everyone will support it, everyone of the 28 countries.”

And she recalled that the foreign ministers of the three EU countries which had been involved in negotiating the agreement – Germany, UK, and France – had recently written to the US Congress underlining the transatlantic strategic interest in protecting this agreement.

African News Agency

Discussion Policy would like to send you push notifications.
Notifications can be turned off any time in your browser settings.
You have been registered for browser notifications