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Interim Iran deal has little impact on Lebanon

BEIRUT: The interim agreement between the West and Iran over the latter’s nuclear program will have limited economic implications for the Islamic Republic and the region, a senior economist told The Daily Star Saturday.

However, a potential final accord with world powers would significantly boost Iran’s economic and trade relations with regional countries including Lebanon, Garbis Iradian, deputy director of the Africa and Middle East Department in the International Institute of Finance said.

“If the interim agreement holds and a final accord on all outstanding issues is reached, including normalization of Iran’s relations with the international community, both the economic and geopolitical implications would be quite significant for Iran and for the region, particularly Lebanon,” Iradian said.

The promotion of Lebanese-Iranian bilateral economic and trade relations hinges particularly on the normalization of ties between Iran and GCC countries, which in turn depends on how the conflict in Syria unfolds, according to Iradian.

While Iran is throwing its full weight behind Syrian President Bashar Assad to help him maintain his grip over the country, regional rival Saudi Arabia remains the main sponsor of rebel groups fighting to overthrow the regime.

The Syrian conflict has fueled tensions in Lebanon, particularly after Hezbollah, back by Iran, sent its members to Syria to fight alongside Assad’s forces, provoking the Saudi-backed March 14 coalition.

A rapprochement between Iran and Saudi Arabia, which exert influence over Lebanon’s rival political camps, would ease domestic tensions and potentially pave the way for Lebanese-Iranian economic cooperation, Iradian said.

Over the past four years, bilateral trade between Iran and Lebanon has been relatively small.

Iranian exports to Lebanon have fluctuated over the past four years around $35 million, while imports of Lebanese goods peaked at $100 million in 2009, representing 2.4 percent of Lebanon’s total exports.

Since then, Iranian imports of Lebanese goods have steadily declined to reach $15 million in 2012 and will most likely stand at about $6 million in 2013, according to Iradian.

This fall in Lebanese exports to Iran is due to three factors, Iradian said.

Those factors include increased political tension between Lebanon’s rival camps, the conflict in Syria that affected exports through land transport and new sanctions imposed by the U.S. and EU on Iran in 2012.

“The extent of recovery of Lebanon’s exports to Iran would depend on the interplay of the above three factors in the period ahead,” Iradian said.

In a bid to promote bilateral trade between the two countries, Lebanon and Iran signed in 2010 a number of trade agreements and memorandums of understanding in the oil and energy fields during a visit by then-President Mahmoud Ahmadinejad to Lebanon.

Two years later, a Lebanese-Iranian joint economic committee headed by Ali Nikrad, then Iranian minister of roads and transportation, met with Lebanese officials in Beirut to discuss the establishment of a free trade area to scrap customs tax and fees on traded goods.

However, efforts to revive economic relations have yet to bear fruit.

“Any normalization of economic relations with the international community and with key countries in the region would most likely also require Iran to reconsider and ultimately reverse course on its present engagements in the region, including in particular Hezbollah in Lebanon and the civil war in Syria,” Iradian said.

The stepped-up sanctions imposed by the U.S. and EU since 2012 have inflicted heavy and palpable damage on Iran’s economy, according to a recent report by the International Institute of Finance.

In 2012, the Society for Worldwide Interbank Financial Telecommunication that handles global banking transactions cut Iranian banks from its system, which made it very difficult for money to flow in and out of Iran via official channels.

The shutout of Iran from the global financial system was also followed by an EU ban on the purchase and transport of Iranian crude oil.

According to the IIF’s estimates, Iran’s real GDP contracted by 5.6 percent in the financial year 2012-2013 as restrictions on a number of crucial imports led to a sharp fall in industrial production and a rise in youth unemployment to 28 percent.

The IIF said the six-month interim agreement that caps both Iran’s nuclear activity and international economic sanctions at current levels while allowing for the release of about $7 billion in frozen Iranian funds would bring some relief to the domestic economy, although limited.

The signing of the interim agreement has already been reflected in some recovery in the local stock market, a tightening of the spread between the official and black market exchange rates and a drop in inflation, the IIF report noted.

“A significant step up in investment, however, would be unlikely until there is greater clarity on the longer term,” the report added.

Though a comprehensive agreement remains highly uncertain with setbacks and delays in the months ahead seeming inevitable, a final accord coupled with domestic reforms would allow Iran’s GDP to return to growth at low to middle single-digit rates, the report concluded.

 
A version of this article appeared in the print edition of The Daily Star on December 23, 2013, on page 5.

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