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ANALYSIS: Rouhani’s trip to Europe about more than big business

With big contracts agreed in Europe, Rouhani hopes to convince Iranians ahead of next month's elections that he can revamp Iran's economy
Iranian President Hassan Rouhani waves during his visit to Rome's Coliseum this week (AFP)

The visit of Iran’s President Hassan Rouhani to Italy and France this week marked the first by an Iranian head of state to Europe in 17 years. The four-day stay, which involved a short stop in capitals of both countries, was originally scheduled in mid-November but was postponed in light of the Paris attacks.

Because of the timing of the visit, which took place only 10 days after the implementation of the Iranian nuclear agreement – known as the JCPOA – was announced, the Iranian delegation mostly held meetings with the business communities in Rome and Paris.

Prior to the implementation of unilateral sanctions against Tehran in 2010, European countries were Iran’s major trading partners. EU machinery, transport equipment, manufactured goods, and chemicals accounted for about a third of Iran’s total imports. Furthermore, up until 2012, when the oil embargo was imposed, EU purchases of Iranian oil amounted to nearly 600,000 barrels per day and constituted about 90 percent of goods the EU imported from Tehran.

Italy was one of the three main importers of Iran’s crude oil (the other two being Spain and Greece), buying slightly more than 10 percent of its crude from Tehran. Italian industrial companies, such as Danieli, Ansaldo, Fiat and energy giant ENI, even maintained a presence in Iran during the first year of sanctions but then decided to pull out.

France, on the other hand, dominated the automotive sector in Iran, with companies like Renault and Peugeot having a strong presence and losing nearly 10 percent of global deliveries when they suspended sales in Iran as a result of sanctions.

It is therefore not by chance that the 120-large Iranian delegation decided to re-engage with the European business community.

Both Italy and France have carefully watched developments on the nuclear dossier, and every time positive signals emerged in terms of the likelihood of sanctions being lifted they sent large trade delegations to Tehran to test the ground for future business opportunities. France was even criticised by the US administration for sending a 116-strong business delegation representing major French international companies, including Total, and Peugeot, right after the adoption of the interim agreement in January 2014.

Back then sanctions relief was only targeted and reversible, while the P5+1 - the permanent five members of the UN Security Council plus Germany - committed to keep the international sanctions regime that was built against Iran in 2010. The US adminstration was concerned that, by giving the false impression that Iran was once again open for business, France - together with those countries sending trade delegations to Tehran - could prematurely dismantle the sanctions regime and thus pressured against any business with Tehran, even when legitimate.  

With the JCPOA fully in force and UN, EU and US nuclear-related sanctions now effectively lifted, Iran could for the first time in six years talk business with Italy and France.

While in Rome, Rouhani met with the Italian head of state, and also delivered a speech to a large Italy-Iran business forum, during which he said that Iran is “ready to welcome investment, welcome technology and create a new export market," aiming at exporting 30 percent of what is produced in Iran. Following his stay in Rome, Iran appeared to have signed some $18.4bn worth of business deals with Italian companies, ranging from a $4bn contract for oil services group Saipem to a $6bn contract for steel firm Danieli.

Similar news emerged after Rouhani's short stay in Paris. Soon after arriving, Rouhani was accompanied to the French business group MEDEF by several of his cabinet members, including Iran’s oil minister, Bijan Zanganeh, who said Total expressed its interest in buying 150,000 to 200,000 barrels a day of Iranian crude.

Then Peugeot announced a joint venture with the Iranian car company Khodro of about $600mn to produce 200,000 cars a year in the country, constituting the first Western company to sign a binding contract with an Iranian group following the lifting of sanctions.

Discussions between the parties also focused on an Airbus contract which would involve 114 aircraft, only a small portion of the new aircraft Iran needs in the coming years. In reference to US pressure against French attempts to re-engage with the Iranian economy, Rouhani said “France doesn’t need any permission from any other country [to enter business with Iran], and it’s not receiving orders from above and that’s very important for us.”

At first glance, the signing of on large contracts would seem the main driver to Rouhani’s trip to Europe. However, the linkage between the deals and Iranian domestic politics also plays a big role. During his electoral campaign in 2013, Rouhani said his main priority would be the resolution of the longstanding nuclear issue. He argued that this step was going to be crucial in improving the Iran’s economy, which was crippled by financial and energy sanctions imposed against the country since 2010.

After successfully closing the nuclear dossier, the president has turned to demonstrating the immediate domestic benefits of the agreement to marginalise those who are critical of the outcome of the negotiations. After the announcements of the JCPOA in July, these groups, which are opposed to Iran opening up to the West, have taken measures to discourage European and American businessmen from travelling to Tehran, presenting serious challenges to Rouhani’s agenda.

The trip to Europe and the announcement of appealing deals with large companies therefore seems to be an administration strategy to gain additional leverage at home. By demonstrating that the trickle down effects of the nuclear agreement are larger foreign investments and trade exchange with European countries and by improving the public image of Iran from Ahmadinejad’s era, Rouhani hopes to convince his constituency that, similarly to the nuclear dossier, he will also be able to improve the country's economy. 

This seems a particularly crucial move, given the elections of the Iranian parliament (Majlis) and Assembly of Experts that will take place at the end of February. 

Despite the deals signed in Paris and Rome, however, whether he will be successful at home remains to be seen.