Rising Employment Casts Doubt on IMF’s Grim Forecast for Iran’s Economy

This article is republished from the author’s economics blog.

In October, the IMF downgraded its forecast of Iran’s economic growth for 2019 from -6 to -9.5 percent. The adjustment brought the IMF’s assessment of Iran’s economic performance closer to that of the World Bank (-8.7 percent) and is revising opinion regarding the ineffectiveness of sanctions in forcing Iran to renegotiate the 2015 nuclear deal. It has strengthened the hand of Iran foes who argue that sanctions are about to bear fruit and urge the Trump administration to stay the course and ignore appeals from Europeans to ease pressure on Iran.

The Financial Times, quoting an unnamed Iranian economist, added alarm to the downgrading by suggesting that Iran’s situation may be worse than it was during the Iran-Iraq war or the Anglo-Soviet occupation of Iran during World War 2. The idea that life in Iran is anything like the 1940s or the 1980s is nonsense, and the FT reporter who files her reports from Tehran can (but did not) attest to that. It is easy to dismiss this comparison as silly, but the dire predictions of sharp contraction by IMF and the World Bank for the year should be taken seriously. And by seriously I mean to ask why they are at odds with new employment data from Iran.

Surprising Growth in Employment

Earlier this month, the Statistical Center of Iran (SCI) release the latest results of its labor force (LFS) survey, for summer 2019. The summer quarter of 2019 (third quarter of the Gregorian year 2019) recorded the highest number of people employed ever, 24.75 million people, up by 3.3 percent relative to summer 2018, when sanctions first hit, and 1.5 percent relative to spring 2019. More than 795,000 jobs had been created since summer 2018, reducing the number unemployed by 430,000 and the unemployment rate to 10.5 percent.

Significantly, this was not due to lower participation in the labor force, which had actually increased by 1.1 percent, so this was not the case of discouraged workers leaving the labor force.  Also significant to note is the fact that employment grew in all sectors, especially in manufacturing, where employment expanded by 4.6 percent compared to the same quarter in 2018, even though is was the hardest hit by sanctions (except for oil).

A similar pattern existed after the first wave of sanctions in 2012, when the currency crashed and the economy entered negative growth, but employment seemed steady for a while before the effect of Rouhani’s austerity program to bring down inflation in 2013 began to show itself in employment (manufacturing employment, in particular,  was on the upswing till late 2013).

Divergent Narratives

What explains the strong discord between the international forecasts and employment figures in 2019?

Before answering this question I should first discuss an often-heard concern that Iranian data are somehow doctored and therefore unreliable, more so than data from other developing countries which form the basis of our understanding of the rest of the world. Many analysts (including me) have worked with the raw data for the labor force survey of Iran (LFS), which are all available on the SCI’s data portal. The LFS was designed by ILO experts to bring Iran’s employment data into line with the rest of the world. The old employment survey, which stopped more than ten years ago did not conform to international standards. For example, it classified a person as employed if he or she had worked at least two days in the week prior to interview. The new survey follows the ILO guidelines and defines the employed as those who have worked at least one hour in the past week. It is therefore disappointing that some so-called experts, inside and outside Iran, reject the SCI data for this very reason. On a recent BBC Persian panel, an expert questioned the criterion of a minimum of one hour in defining employment.  Responding to this type of criticism, a while back SCI published a report showing that defining employment more strictly increases the unemployment rate by one or two points only. Lack of trust in official data runs deep in Iran, and is at times quite healthy. However, in the case of SCI this is unwarranted because its surveys are publicly available in unit record and have become the workhorse for most economic research on Iran.

Now, to answer the question, there are two explanations for the difference in outlook offered by the employment data and the revised IMF forecast that seem plausible. First, the main reason for the lower revised estimate may be Iran’s falling oil exports. Since most United States waivers for buying Iranian oil have expired oil exports have dropped below half a million barrels per day—how far below I do not know. Arithmetics dictate to lower the growth projection for the year if the original projection assumed higher oil exports. However, the link between oil and the rest of Iran’s economy involves more than arithmetics and does not extend to employment. The oil sector employs less than half a percent of Iran’s workforce, so its contraction does not automatically bring down the rest of the economy. Had the IMF chosen to report growth of the non-oil GDP, as they should since it measures the level of economic activity in Iran much better than GDP including oil, they would have made a more moderate downward adjustment. On 2018/2019, as I noted last month, non-oil GDP fell by less than half the rate of the total GDP.

The second plausible explanation is that the IMF’s forecasting model, about which I know next to nothing, may fail to capture the possibilities for substitution in the Iranian economy.  The rise of the dollar brings a large change to the price structure in Iran, opening substantial opportunities for profitable production in the non-oil sectors that employ the 99 percent of the workforce. These are the sectors which are overwhelmed by cheap imports when oil income lowers their prices.

So, in reverse order, and as economic textbooks read, when oil income drop and prices of imports increase, demand shifts from foreign to home goods, encouraging firms to hire workers and expand production. For example, in the past visits to Iran I might have bought a box of Kellogg’s cereal because it tasted better than the Iranian brand and was only twice as expensive. But this past summer, with devaluation having increased the price ratio to four or five, I decided to buy the Iranian brand. Surprisingly, it tasted better, either because the quality had improved or because prices determine taste for Isfahanis!

The engine of this shift in demand and employment is shown in the chart below, which depicts the dramatic change in the real effective exchange rate (EER) in the past two decades. (EER here is the exchange rate deflated by the difference between the inflation rates of Iran and the OECD). The EER fell by more than half during the oil boom of the 2000s, which saw the oil price rise 8 times. This explains why during this period imports flooded Iran’s markets and employment stagnated. Tellingly, during the five years between the censuses of population 2006 and 2011, the economy produced only 14,000 jobs each year, compared to nearly 800,000 jobs since the return of sanctions over a year ago.

The tightening of sanctions in 2011-2012 lowered oil exports and forced a similar realignment of the rial against foreign currencies in early 2012, which was followed by a modest increase in employment and output, as the graph in this post shows.

Dark Clouds on the Horizon

The World Bank has noted that rial’s depreciation can help with economic recovery, and the Iranian economic press have published stories of how responsive is Iran’s private sector to improved incentives for production. But, I would advise caution in becoming too optimistic.  The biggest improvement in incentives in production has come in producing for export markets (saffron and pistachios prices are pegged to the US dollar), but sanctions limit how far (beyond its neighbors) and how much Iran can export. Even meeting local demand faces limitations as most goods produced in Iran use some foreign-produced inputs. About 45 percent of Iran’s imports are of this type.

Other dark clouds on the horizon that no doubt have influenced the lower forecasts of international organizations include the possibility of the return of UN sanctions and resumption of high inflation in Iran. The return of the UN sanctions would make it harder for Iran’s remaining trade partners to work with it, or at least they would exact a higher price for working with Iran. The current impasse with Europeans over INSTEX does not bode well in this regard.

Even without the return of the UN sanctions, Iran’s narrow window of trade can close if organizations such as FATF downgrade the credibility and security of Iran’s banking system, thus discouraging existing partners from handling money flow in and out of Iran for fear of being penalized elsewhere. Regulations to assure the rest of the world that Iran’s bank are being watched and regulated with respect to money laundering have passed Iran’s parliament but face stiff opposition on their way to become law.

As for inflation, it has been falling in Iran for the past six months, which indicates that, as in the 2012 episode, the economy may be on its way to return to normalcy (meaning below 20 percent!). What threatens this trend is the budget deficit, that the government is running out of ways to pay its workers and for the services it provides (it has given up building anything new). The government appears to have managed well so far, delicately balancing the need to keep its services going and to assure the private sector that inflation is under control. How long it can do this with parliamentary elections approaching and Iran’s polity divided as ever, is anyone’s guess. But, any attempt to increase incomes without producing more goods—i.e., populist money printing—will derail the path to recovery that new employment data seem to promise.

High inflation will destabilize the economy by making the exchange rate volatile and less predictable, which is bad for producers. Equally bad is if the government decided to keep the exchange rate constant in nominal terms, which it to let it depreciate at the rate of inflation, as was done after the currency collapse in 2012 when the EER gradually fell and lost nearly all the gain as a result of the devaluation.

Photo: IRNA

Iranian Women Face Uphill Battle Toward Equal Pay

In recent months, longstanding social issues Iran have taken a back seat to major economic challenges such as a sliding national currency, rampant corruption, and the return of sanctions. But social inequality has an economic cost too as proven by the gender pay gap and disparity in work opportunities for men and women in Iran.

According to data compiled by IranSalary, the country's first specialized online platform for remunerations, Iranian women earned 27 percent less on average than their male counterparts in the previous Iranian year (ended March 2018). The wage gap has widened in recent years, rising from an average of 23 percent three years ago. 

World Economic Forum's Global Gender Gap Report put Iran at a dismal rank of 140 in 2017, only ahead of Chad, Pakistan, Syria, and Yemen. Iran ranked 108 in 2006 among 115 nations. Iran's worst-performing index in 2017 was "economic participation and opportunity".

IranTalent, a leading jobs website and parent company of IranSalary, began collecting and publishing detailed data on Iran's employment market five years ago. Its statistical sample was initially around 30,000 people and has since grown to over 130,000 in its latest report.

"The thing that really spread in the press and in other circles from the very first year was the income gap," Aseyeh Hatami, the founder of IranTalent and IranSalary told Bourse & Bazaar. "Before that nobody had really examined this issue and hardly any awareness had been promoted around it".

"There are no written laws in Iran saying men have the right to earn more than women," she pointed out, but added that at the same time there are no laws that actively protect women's right for equal remuneration.

IranSalary's figures offer interesting insights into Iran's work environment. For instance, the wage gap increases with seniority. The few women who manage to climb their way up to a management position in a male-dominated system find that they earn as much as 47 percent less than male managers.

According to Hatami, the private sector is responsible for the majority of the gender pay gap in Iran’s labor market. That is not to say, however, that governments have been champions of equal pay. The reason behind their less significant role in widening the pay gap is that they have simply employed fewer women, especially in the higher echelons.

State-run companies are much less equal in dispersing job opportunities—just 25 percent of employees in state enterprises are women. That rate stands at 34 percent and 38 percent among private sector and foreign firms respectively. 

Another useful indicator in IranSalary numbers was the size of companies. Larger companies in Iran contribute to inequality—only 17 percent of their high-ranking managers are women. These companies are reluctant to admit their failure. "Even in our interviews with the big companies they said [the disparity] is not true and the reason behind the disparity is that men mostly earn more through overtime work since they take it on more than women," Hatami said, stressing that their data clearly signals otherwise.

On the other hand, she said figures show that married people are earning more than single workers, mostly since they employ their negotiating powers more.

On the whole, Iran suffers from a lack of transparent and comprehensive data across all its sectors. The job market is no different. IranTalent has managed to establish its reputation by gathering more than one million profiles from employers and employees.

The firm's CEO says it can help women and all jobskeers, leveraging this data to show them their potential professional trajectory in relation to their educational degree. "One major problem is that people don't even know what they can do in the future with the degree they're holding.”

For example, only 40 percent of people studying law actually become attorneys and legal counselors. Knowing that information will help Iranians—both men and women—carve out a better career path, Hatami hopes.

But what can be done to rectify the situation of the gender pay gap? Hatami does not hold out much hope for a major cultural shift both among officials and private sector employers, at least not in the short term. She points out that some hardliners in Iran still say women should not even be allowed to work.

She has felt the sting herself as well. "Most people are surprised the first time they find out the CEO of IranTalent is a woman." But she says she is sure that as women increasingly enter the work field, they bring positive change with them.

"We must work to create a more open and accepting culture that pays better attention to women's potential. But most importantly, women must start believing in themselves and negotiate for higher salaries when they are applying for a job," Hatami said.

She has not mounted an equality program in her company, but says they have managed parity through holding a simple view when taking on employees. For Hatami, "Talent and capabilities have always been central, not gender.”

As Delays Mount in Iran, Executives and Employers Face Tough Career Choices

In multinational companies, the prospect of promotion is largely tied to the ability to meet targets and hit milestones with speed. Working on Iran-related projects in the present environment makes this difficult to do. When asked to evaluate the pace of trade and investment as part of a recent Bourse & Bazaar survey, commissioned by International Crisis Group, 83 percent of senior managers at multinational companies indicate that companies “are moving slower than they could” to engage in the Iranian market. These delays are not minor: 39 percent of executives report being delayed by six to twelve months, 16 percent report being delayed by one to two years, and 33 percent report delays of more than two years.

Some multinational executives are facing delays equivalent to the total time they have spent in the Iran job role; the majority of executives surveyed have been working on Iran for less than three years. As sanctions-relief neared, new teams and offices were established to handle Iran business, with companies often relocated executives to Iran. For these executives, who arrived in their job roles full of promise, the mounting delays have a personal and career impact. For employers, longer project timeframes make management and staffing more difficult.

Iran can be an isolating assignment within large organizations. Companies are increasingly separating Iran from the management of the GCC in response to regional politics, sometimes placing the country among Turkey or Central Asian markets. But very often, Iran is treated as a kind of an island unto itself, meaning that country managers are even more dependent to demonstrate success within the business unit.

In the assessment of one aviation finance executive, who asked to remain anonymous due to the sensitivity of the issues discussed, delays in aircraft sales to Iran, like other commercial deals, see executives repeatedly hitting “roadblocks out of their control.” The frustrations inherent in working with Iran mean that many of these executives and advisors may opt “to move away from Iran for the benefit of their career path.” For example, business development executives may seek to shift focus to markets where they are more likely to hit their sales targets, “in order to get their bonuses.” Likewise, lawyers working on Iran projects are “often incentivized with success fees. If those fees seem unlikely to materialize, they will move on to other projects.”

When asked whether he is concerned about such attrition within his own team, the aircraft finance executive notes, “I have started thinking about it. If I lose a member of my legal team, or if there is a change in the sales team at one of our client companies, it makes the Iran project really complicated. For the replacements, a learning process starts all over again and in some cases expertise won’t be easy to replicate or replace.”

But in the view of Marc Mulder, who leads Wise&Miller, an executive search firm active in Iran, the importance of succession planning is already a central part of the recruitment strategies of both multinational and Iranian companies.

While nearly half of executives surveyed presently expect to work in Iran for less than five years, Mulder observes that this is “a perfectly normal level of churn for senior roles in such companies.” In fact, many companies are hiring with specific regard to managing employee turnover. For example, Mulder describes how “a company might hire an international CFO knowing that they will spend just three years in Iran. But in that period, they will be expected to train the local finance VP so that they can become the long-term CFO.”

Importantly, Iran remains an attractive destination for international managers. Mulder believes that for certain executives, Iran is appealing precisely because of the challenges it poses: “Candidates often move to Iran eagerly. They know it is a complex market, but they like the idea that they will be tested in the role. Working in an emerging market is exciting for them.”

In the current environment, the more difficult aspect of human resource management is not recruitment, but retention. The main risk in succession planning is low employee loyalty. Iranian executives are easily lured away by a salary bump and are even more concerned with career stagnation than their international peers. After all, Iranian employees are less at liberty to look for opportunities beyond the Iranian market. “Retention becomes a problem if the VP you just spent three years training moves away from the company after just one year as CFO. Then you really are starting from scratch,” notes Mulder.

To improve retention, companies are investing in human resources management. Mulder has observed strong interest among Iranian companies “for help in developing the soft management skills that keep people engaged within an organization, such as coaching and team-building. It is part of an effort to make people feel invested in the business.” If companies can develop these competencies, they will be able to better manage the delays, sufficiently encouraging and incentivizing their teams to push through roadblocks.

Overall, companies need to find ways to encourage and reward persistence. For the most experienced country managers, an opportunity to test these qualities of management is often what brought them to Iran in the first instance. These qualities are difficult to pass on, but it is clear that the employees they oversee will have no shortage of opportunities to test their persistence as they advance their careers in challenging Iran.

Photo Credit: Bourse & Bazaar

New Survey Examines Iranian Attitudes Towards Foreign Investment, Multinational Companies

A first-of-its-kind survey on attitudes towards trade and investment in Iran conducted by public opinion firm IranPoll in partnership with Bourse & Bazaar, a business media company, points to strong public support in Iran for greater trade with other countries and related economic reforms. A resounding 85% of respondents feel that “growing trade and business ties between Iran and other countries” was leading to good or very good outcomes for the country.

The results of the landmark survey will be presented by IranPoll CEO Dr. Amir Farmanesh to an audience of over 400 European and Iranian business leaders and policymakers at the 4th Europe-Iran Forum, which takes place on October 3-4 in Zurich, Switzerland.

The survey, which was conducted in August 2017 among a representative urban sample of 700 Iranians has been published at a crucial time when debate over the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran Deal, reaches a fever-pitch. While President Trump has expressed his disapproval with the deal, it remains popular among a majority of Iranians, with 62% of respondents approving. But doubts and frustrations have emerged since the agreement was concluded in 2015. Acutely aware of President Trump’s rhetoric, 77% of Iranians have little or no confidence that the United States “will live up to its obligations under the agreement.” By contrast, public confidence in the European commitment to the JCPOA remains strong, with 57% of respondents believing the Europeans will stick with the agreement.

“Contrary to the reputation and image of the US, Europe’s image in Iran has improved significantly since the signing of the JCPOA and Iranians welcome greater trade and economic engagement with European companies” commented Dr. Farmanesh, the CEO and President of IranPoll. “Yet, only a minority of Iranians believe European producers have a good understanding of the needs and the taste of the Iranian people, which means European companies need to take extra steps not only to familiarize themselves with Iran's business environment but also to demonstrate their appreciation for the tastes, lifestyles, and culture of the Iranian society.”

Against the backdrop of political uncertainty, economic dividends of the agreement remain unclear. While 43% of Iranians report that the “availability of goods made by multinational companies” has increased in Iran since the nuclear deal, majorities say foreign investment and job creation by multinational companies have not increased since the signing of the JCPOA. . However, Iranians do see improvements in the way businesses are operating, with both Iranian and multinational firms making greater efforts towards supporting employee training and technological innovation in Iran when compared to five years ago.

“These findings send an emphatic message to policymakers and business leaders worldwide. Iran may prove to have one of the most receptive populations for a robust agenda of economic engagement,” said Esfandyar Batmanghelidj, founder of Bourse & Bazaar. “The nuclear deal has clearly opened a window of opportunity and encouraged Iranians to think globally and ambitiously. The question remains whether the trade and investment that Iranian have been anticipating will be forthcoming.”

Robust Support for Global Economic Engagement

While public sentiment towards globalization has soured in many countries around the world, Iranians believe that Iran should increase its role in the globalized economy. A majority of Iranians (62%) believe that globalization is having a positive effect worldwide, with just a third (33%)believing the effect is “negative.” Specifically in the case of Iran, a dominant 85% of respondents felt that “growing trade and business ties between Iran and other countries” is leading to good or very good outcomes for the country. Iranians also see positive effects on job creation and wages with 51% of respondents believing that “trade with other countries” creates jobs, and 40% of respondents believing there is an attendant increase in wages (36% see no impact).

As the country reaches out to foreign partners, members of the Iranian public have a strong opinions as to which countries have the most to offer. European countries and Japan are the most desired trading partners among Iranians. The greatest confidence was expressed for German and Japanese investments, with 66% and 67% respondents stating that there is “a lot” of benefit for Iran when these countries invest. French, Swiss, and Italian investments were also seen as highly beneficial. Importantly, European firms have made significant inroads in the Iranian market in the last few months, with notably deals signed by European multinationals such as Total, Renault, Alstom, and Siemens.  

"Now I will read you the names of some countries. As I read the name of each, please tell me the degree to which you think it would be in Iran’s interest for more companies from that country to invest and trade with Iran:"

During the period of economic sanctions, China became Iran’s largest trading partner, surpassing the European Union. However, while 65% of Iranians believe that Chinese investment in Iran is in Iran’s interest, only 19% strongly believe that to be the case. That Iranians exhibit significantly less confidence in the benefits of Chinese investment may help explain why the Europeans have been able to conclude the lion’s share of new commercial agreements following the lifting of international sanctions.

Despite the negative view of Iran in the United States, half of Iranians believe that American investment would benefit Iran (19% strongly).

The level of confidence in a foreign nation’s role as investor generally correlates with the perception of the quality of that country’s products. German and Japanese products were seen as having the highest quality, with 69% and 62% of respondents reporting products from those countries as being of “very good” quality. Chinese products were seen as having the lowest quality, with 61% of respondents reporting the quality as “somewhat bad” or “very bad.”

As Iran begins to modify its laws and policies to help facilitate foreign investment, the domestic debate on economic policy in Iran has become more important. While 56% of respondents believe that Iran should keep tariffs on imports in place, there is clear public support for economic reforms that will help spur foreign investment by major multinationals. An overwhelming majority (86%) of respondents would approve of policies that make it easier for multinational banks to operate in Iran and 87% support policies that encourage foreign investment. The same proportion of respondents would approve of policies to make it easier for “heads of multinational companies” to travel to Iran.

Confidence in the Business Community

Beyond the clear public support for the macroeconomic benefits of globalization, Iranians also have strong opinions about the role of the business community in the process of economic development.

At a time when the Trump administration is threatening to de-certify Iran’s compliance with the JCPOA and re-impose broad sanctions on the country, the pace of multinational investment in Iran has frustrated Iranians, with 70% of those surveyed suggesting that multinational companies are “moving slower than they could” to invest in Iran.  When asked what is causing multinational companies to move slowly, 77% of respondents identified “fear of the United States” as the primary reason.

"Are multinational companies moving as rapidly as they can to trade and invest with Iran now that some sanctions have been lifted, or are they moving slower than they could?"

Moreover, Iranians are ambivalent as to whether Iranian and multinational companies will contribute to job creation in the next year, with just 7% of respondents believing that Iranian companies will create “a lot of jobs.” In comparison, 7% believe that multinationals will create “a lot of jobs.”

While it remains ambiguous whether jobs will be created in the near-term, Iranians do have a clear sense of who they consider to be the primary drivers of economic progress in Iran. Despite the historical dominance of Iran’s state-owned enterprises, when asked to evaluate whether state, private, or multinational companies will be the main contributors to economic improvement, just 31% chose state companies. Iran’s private sector companies enjoy the greatest degree of the public’s confidence, with 41% of respondents believe these firms “can best help to improve economic conditions” in Iran and 21% of respondents see multinational companies having the most positive effect. The confidence in private enterprise demonstrates further public support for Iran’s accelerating efforts of privatization in the post-sanctions period. That support for private firms and multinationals combined outweighs that for the economic leadership of state firms lends support to government efforts to support foreign investment and privatization in tandem.

"Which one of the following kinds of companies do you think can best help to improve economic conditions in Iran?"

Yet, Iranians still do not feel their economy is accountable to the public. A majority of those surveyed, 57%, believe that Iran’s economy is “run by a few big interests” while just 38% believe it is “run for all the people.” One measure of success in the coming years of economic reform will be whether this proportion shifts.

Iranians Leveraging Their Influence

Not merely passive observers of Iran’s economic transformation, Iranians intend to drive economic reforms from the ground-up. Most notably, those seeking jobs have clear expectations that companies to which they are applying for employment respect corporate social responsibility. While 86% of respondents gave job security the highest score for importance when seeking employment at an Iranian company, salary was deemed less important than the reputation of the company, how the company treats its customers, and the company’s commitment to the public health and safety. Similar sentiments were expressed about environmental protections as well, with 58% of Iranians declaring that the environment should be protected, “even if the economy suffers to some extent.”

Importantly, the vast majority of Iranians believe they have “freedom of choice and control” over their direction in life, with 93.4% agreeing with the notion that “people shape their own fate.” Tellingly, 49% agreed with this statement in the strongest terms. These findings suggest that Iranians have a strong individual impulse and a confidence that if afforded the right opportunities they will be motivated to pursue them. The question remains whether policymakers and business leaders both in Iran and abroad will take heed.

Full survey results can be seen here. 

Early Delivery of Iran Air’s First Boeing Jetliner in Doubt

On April 10, 2017, news broke that Iran Air was to receive its first new Boeing jetliner nearly one year earlier than expected, with delivery slated for mid-May. This was to be the first aircraft of eighty for which Boeing and Iran Air signed a $16.6 billion in December 2016. Deliveries for the order, which include fifty 737 MAX 8s and thirty 777s in two variants, were slated to begin in December 2018.

The aircraft in question was originally built for Turkish Airlines with the registration TC-LJK. Deemed superfluous to requirements before delivery, the plane was to be sold by Turkish to Iran Air, where it would fly with the registration EP-IQA. Prior to reassignment, the jetliner, a Boeing 777-300ER, would need to be repainted in Iran Air colors. 

This was to take place in Victorville, California, where International Aerospace Coatings (IAC), a Boeing contractor, operates a program painting liveries for 777 aircraft. Initial reports suggested that TC-LJK would fly to Victorville on April 13 for repainting, following a visit by an Iran Air certification team to ensure the Iranians were happy to acquire the jetliner in its current configuration. 

But new reports suggest that the deal has stalled. 

Flight data shows that TC-LJK, operating as BOE549, remains in Everett, and has not moved since a short test flight on April 7.

This suggests that the repainting has not been completed. It might be that Iran Air requested alterations to the configuration of the aircraft, which would be made at Everett and would have delayed repainting. But the more likely explanation is that Iran Air is no longer able to secure the early acquisition. 

An April 22 post on Paine Field News, a blog site which tracks production of aircraft at Boeing’s Everett factory, cites an unnamed source at the manufacturer to claim that the “Turkish-Iran Air deal for TC-LJK is officially dead” and that Turkish airlines has decided to take delivery of the aircraft as originally intended. 

Yet just two days prior, on April 20, the same website cited the same unnamed source to suggest that deal was still alive and that Iran Air inspection teams had visited Everett to view the aircraft. 

Something must have changed in the calculation of Boeing, Turkish Airlines, and Iran Air on or around April 21. 

It is worth noting that an early delivery of the aircraft to Iran Air became much more difficult on April 19, when Secretary of State Rex Tillerson made an extended address to the press in which he highlighted “Iran’s alarming and ongoing provocations that export terror and violence.” The tone of this address, and the reaction it elicited in the media, certainly meant that there would have been a heightened impact on Boeing’s corporate reputation and that of any facilitating banks had the delivery to Iran Air gone ahead in the subsequent weeks. While Boeing has lobbied that its deal with Iran Air supports American jobs, critics of the deal were buoyed by Tillerson’s apparent acknowledge of concerns over the appropriateness of US-trade with Iran, despite confirmed adherence to commitments under JCPOA. 

It may be that Boeing, Iran Air, and Turkish Airlines decided to take a wait-and-see approach on the Trump Administration's rhetoric on Iran. Certainly, even if Iran Air is unable to receive TC-LJK, there remain other "orphaned" jetliners on the market which Boeing can help direct to its Iranian client. An acquisition during the summer remains possible. Given the importance of the Boeing-Iran Air deal as a landmark contract for Iran's post-sanctions trade, the race will be on to make a successful delivery. 

Photo Credit: Wikicommons

Boeing, Iran, and American Jobs

This article was originally published in LobeLog.

New reports suggest that Iran Air’s first new Boeing jetliner could be delivered within the month.

According to Reuters, Boeing is reallocating a 777 originally designated for Turkish Airlines. This would be the first aircraft of eighty for which Boeing and Iran Air signed a $16.6 billion in December 2016. Deliveries for the order, which include fifty 737 MAX 8s and thirty 777s in two variants, were originally slated to begin in December 2018.

The early deliver will be a boost to President Hassan Rouhani’s reelection push, and follows Boeing’s announcement last week of its second agreement to sell passenger airplanes to an Iranian airline—a deal to sell thirty 737 MAX 8 airplanes to Iran Aseman airlines, valued at $3 billion.

The Iran Air and Iran Aseman deals are among Boeing’s largest open orders and come at a time of softening demand for commercial aircraft among the world’s airlines.

Expectations are also high for the deal within the Iranian business community. Many business leaders in Iran, as well as their European peers, see the Iran Air and Iran Aseman contracts as important bellwethers of the willingness of the United States to continue to implement sanctions relief commitments under the Joint Comprehensive Plan of Action (JCPOA) nuclear deal. Specifically, the deals are a test of whether the US Treasury’s Office of Foreign Asset Control will continue to provide licenses to both American and European companies that seek to engage opportunities in Iran. Athough Iran Air and Boeing were able to proceed from a memorandum of agreement to a full contract on the back of an OFAC license issued for the relevant transactions, the license was granted in the final months of the Obama administration. The Iran Aseman deal, which is currently limited to a memorandum of agreement, will only be able to proceed to a full contract when the Trump administration issues an OFAC license.

Trump has called the Iran Deal the “the worst deal ever negotiated.” The question is whether he will see Boeing’s opportunity as a redeeming feature.

When Iran Means Jobs

Boeing’s engagement with Iran pits the Trump administration's skepticism of the value of the Iran nuclear deal directly against an avowed commitment to support American jobs, particularly in the manufacturing sector.

Numerous American companies are engaged in business with Iran, either via their non-US subsidiaries as permitted under General License H or on the basis of humanitarian exemptions for the export of agricultural commodities or pharmaceutical products. However, it is rare for the products eventually exported to Iran to originate in the United States. Generally, the exported goods of American companies are produced in a non-U.S. manufacturing facility as part of a globalized supply chain. As such, for most American multinational corporations, engaging in opportunities in Iran may deliver shareholder value but won’t unlikely support American job creation on a large scale.

Boeing is an exception to this pattern. For political and practical reasons, the production of airplanes was never offshored and therefore a direct link exists between the orders placed in Iran and American labor at Boeing’s primary production facilities in Bellevue, Washington and to a lesser extent, North Charleston, South Carolina.

Although Boeing is a large, successful American company, it remains politically delicate to pursue business in Iran. Cognizant of this fact, the company has sought to speak Trump’s language when discussing its sales to Iran.

Boeing has highlighted American manufacturing jobs as a fundamental consideration of both the 2016 deal with Iran Air and the recent deal with Iran Aseman. According to Boeing’s official statement on December 11, 2016 announcing the deal to deliver airplanes to Iran Air, the sales will “support tens of thousands of U.S. jobs directly associated with production and delivery of the 777-300ERs and nearly 100,000 U.S. jobs in the U.S. aerospace value stream for the full course of deliveries.” Similarly, the April 4, 2017 announcement of the agreement with Iran Aseman noted “an aerospace sale of this magnitude creates or sustains approximately 18,000 jobs in the United States.”

Boeing’s government relations outreach isn’t limited to public statements. Following Trump’s public lambasting of the company for the cost of a proposed replacement for Air Force One, Boeing CEO Dennis A. Muilenburg has made it a priority to build a direct relationship with the Trump, first meeting with then-president-elect at Trump Tower on January 17. One month later, President Trump visited the Boeing facility in North Charleston, South Carolina which manufactures the 787 Dreamliner. That Trump visited the North Charleston facility rather than the larger Bellevue, Washington facility likely reflected the fact that Trump carried South Carolina in the election, but lost Washington state. Perhaps conveniently, North Charleston is the main manufacturing facility for the 787 Dreamliner, which has not been ordered by Iran Air or Iran Aseman.

After touring the facility, Trump presided over a rally attended by Boeing workers and Muilenberg. “My focus has been all about jobs. And jobs is one of the primary reasons I'm standing here today as your president,” he declared. “I will never, ever disappoint you. Believe me, I will not disappoint you.”

Given the clear parallel between Trump’s speech and Boeing’s positioning of its deals with Iran, it is highly unlikely that Muilenburg and Trump did not discuss Boeing’s Iran business, although there has been no public statement to this effect. It is likewise unlikely that Boeing would have proceeded with the deal with Iran Aseman unless it was reasonably confident in the viability of the deal. Certainly, the executives at Iran Aseman, a privately held airline that has not yet announced a similar deal with Airbus, would have insisted on Boeing’s assurances that the aircraft deliveries were politically viable.

Boeing’s Commitment to Iran

Boeing’s commitment to Iran requires not just political resolve, but also long-term thinking. Not only will these deals take many years to come to fruition—the Iran Air deliveries set to begin in earnest in 2018 and the Iran Aseman deliveries only in 2022—but the full extent of the export opportunity represented by Iran will only materialize over the next two decades.

There are three key considerations that Boeing needs to make. First, the company’s ability to supply aircraft to Iran is of great significance given that it has only one other true global competitor in Airbus. If Boeing is unable to fulfill these agreements it will no doubt lose significant orders to the European giant.  

Second, Iran’s current orders are primarily focused on the modernization of existing fleets and the addition of capacity on existing routes. At the moment, Turkish and Emirates Airlines have significant market share in Iran’s international travel market from Iran because of their ability to operate more flights from destinations in Iran to Europe through their respective hubs in Istanbul and Dubai. European airlines have also made significant inroads in the market in the last two years. For example, although Iran Air only operates flights from Tehran to London three times a week, British Airways now operates a daily service. At the same time, an aging fleet makes Iran Air unappealing to travelers and hurts the airline’s ability to compete with international carriers.

In the next decade, during which time existing fleets would have been modernized, Iran’s economic recovery and its favorable geography should combine to further boost tourist and business travel to Iran from a wider range of international markets. Indeed, the IATA has forecasted that Iran’s passenger volume could rise from 12 million passengers today to 44 million passengers in 2034.

Iran Air currently flies to about 50 destinations worldwide. By comparison, Turkish Airlines, leveraging the geography of its Istanbul hub, now flies to 296 destinations worldwide. It’s unlikely that Iran Air or any Iranian airline has the financial resources and market conditions to become a “mega-carrier”—and indeed these airlines are beginning to struggle. Still, Iranian carriers have significant room for growth, particularly in serving “transit” roles, which means that further orders are possible, especially for long-haul aircraft like the 787 Dreamliner.

Finally, Iran’s most commercially successful airline is privately held Mahan Air. Mahan continues to be listed on the OFAC Specially Designated Nationals (SDN) list for the use of its civilian aircraft in airlifting troops and munitions from Iran to Syria. But it’s fleet size of 50 aircraft is significantly greater than Iran Air’s 29 aircraft, and it flies to more destinations with greater regularity and a higher passenger volume. Should Mahan reform its business practices and clarify its ownership, Boeing and Airbus could be competing for another significant set of orders.

Framework for “Business Diplomacy”

For the above reasons, Boeing’s engagement with Iran isn’t about a couple of one-off transactions. It is about a longterm commitment to a market that will generate substantial orders over the next two decades. From a political standpoint, this makes Boeing’s foray into Iran so important.

Whereas US diplomats have no access to Iran and limited direct dialogue with Iranian counterparts, American executives are opening substantial channels of communication. In this sense, leaders like Muilenburg become the unlikely interlocutors between pragmatic commercial and governmental stakeholders in Iran seeking to engage US-Iran relations on a transactional basis, and the American political establishment, most notably President Trump himself.

Boeing’s deals could help build a framework on which to develop US-Iran ties in the coming years. In some respects, Boeing’s situation echoes the aborted Conocophillips oil exploration and production deal from 1995. Likewise heralded as a rekindling of US-Iran ties, the Conoco deal died at the hands of congressional pressure and sanctions legislation. But the Boeing deal may have better prospects for three reasons: it does not require an investment in Iran, the sale of new and safer airplanes principally benefits the Iranian people, and most crucially, it supports American jobs.

The Boeing deals need their own “implementation.” This process will keep critical commercial and political stakeholders engaged in a discussion about what constructive engagement with Iran can achieve. In its first phase, under the auspices of President Trump, the scope of engagement will likely remain limited to protecting aircraft manufacturing jobs. Let’s just hope he doesn’t let the workers down.

Photo Credit: Iran Aseman

The Other "Forgotten Man": A Look at Iran's Blue-Collar Workforce

Iran will soon witness a significant boost in its industrial output. Led by a resurgence in the auto sector, the country’s factories are receiving new investment, as major multinationals seek domestic and regional dominance across market sectors. Volkswagen will be building models in partnership with Mammut Khodro, while Mammut Diesel expands its production of Scania trucks. Renault will manufacture trucks in Iran with local partner Arya Diesel. Volvo has signed an agreement to build trucks in partnership with Saipa Diesel. The finalization of Renault’s long-awaited agreement to establish a new manufacturing joint-venture in Iran is expected soon. Peugeot, Daimler, and DAF are also also exploring local production. As the boom in passenger and commercial vehicle production in Iran picks up steam, a rather simple question remains unanswered—Who will build all of these new vehicles?

Iran boasts one of the largest blue-collar workforces in the Middle East. On the back of a population boom that began following the Islamic Revolution of 1979, Iran’s labor force has surged to reach over 27 million, roughly the same size as the labor force of Turkey, and over twice that of Saudi Arabia. The Iranian economy has struggled to absorb the influx of new workers, and the official unemployment rate remains stubborn at between 12%-14%, although some analysts believe the total is even higher. This simple fact explains two fundamental aspects about the dynamism of Iran's political economy. Firstly, the blue collar working class underpins significant consumer buying power. Secondly, the perseverance of Iran’s political diversity cannot be overlooked, especially not in a region where most such diversity has withered away.

Relief for blue-collar workers was fundamental to the early success of the win-win formula that drove the nuclear negotiations between Iran and the P5+1. The initial sanctions relief provided to Iran as part of the Joint Plan of Action (JPOA) focused on sectors which accounted for Iran’s largest employers, including the automotive sector. This was a direct result of advocacy of deal supporters in Washington, who argued that galvanizing Rouhani’s political base required showing tangible benefits to Iran’s blue-collar workers. As a result of targeted sanctions relief, the production of automobiles and commercial vehicles in Iran rebounded from 743,680 units in 2013 to 1,090,846 units in 2014, with year-on-year growth swinging from a 25.6% decrease to a 46.7% increase. This early success may have been the single-most important factor in validating the Rouhani administration’s gamble on diplomacy.

In the subsequent years, however, the importance of Iran’s blue-collar worker has been largely forgotten by business leaders and policymakers working on the implementation of sanctions relief. These stakeholders remain fixated with the Iran Deal’s role in the “Great Game” of the Middle East, and business leaders are focused on the intricacies of compliance and financing challenges as they approach Iran. In both cases, the international media is happy to play into the blind spots of the respective parties.

What has been lost is an appreciation that the “normalization” of relations between Iran and the international community is as much about elevating “normal Iranians” into a global consciousness, as it is about matters of international commercial, financial, and legal integration. While there has been progress in building awareness of Iran’s young and highly educated elite, whose start-ups and entrepreneurial verve play into the inherent coverage biases of the international media, a larger swath of society remains ignored. By a similar token, the rise of the “Iranian consumer” with untapped purchasing power and Western tastes has been much heralded, but the reporting fails to appreciate that Iran’s upper-middle class rests upon a much larger base whose primary economic function is not consumption, but rather production.

The struggle of the blue-collar laborer is one of the few truly universal experiences left in the world. The international fraternity of laborers is bound by a common set of anxieties which exist as much in Iran, as they do in Europe and the United States. These concerns range from access to healthcare to economic fears—all of which culminates in the stressful and all-consuming uncertainty of providing for one’s family.

The health risks faced by Iranian workers are well-documented in Iran’s extensive body of public health research. Issues include exposure to toxins, severe back and neck pain, and the workplace accidents. Most of the completed studies were based on research originally conducted among worker populations in Europe and the United States. The findings consistently suggest that the incidence of health issues adds considerably to the work-related stress of blue-collar workers, diminishing overall satisfaction with quality of life.

Alongside health concerns, Iranian blue-collar workers, both male and female, bear the fundamental burden of providing for their families. In this regard, there remains considerable skepticism of senior management. A 2013 study which looked at the sentiment of workers from at Iran Khodro and Saipa, Iran’s two largest automakers, found that staff report  “top management commitment” to high standards “is not positively related to staff degrees of freedom of choice” for the workers. This means that while the managers at Iranian auto companies may demonstrate their commitment to their staff with training programs and performance-based remuneration opportunities, Iranian auto workers still feel they are at the mercy of their superiors, ultimately hurting overall employee satisfaction. Given that Iran does not permit organized labor, this feeling of vulnerability is especially acute, particularly when companies are late making payroll or fail to improve safety standards.

In the West, the power of working class voters has reasserted itself with the Brexit referendum outcome and the election of President Trump, who boasted of his commitment to America's "forgotten man"—the blue-collar worker—in his inaugural address. Elections in France and Germany also loom large. Behind these electoral shifts is a heightened awareness of the malaise in the working-class heartlands of these countries. Yet while the frustrations of the working class are now better understood by voters across the political spectrum, the mere existence of the working class in economies such as Iran has not been fully acknowledged in these countries, despite the remarkable similarities in the Iranian blue-collar experience.

The only substantive difference between the Iranian and Western working class is that the two groups are demanding opposing solutions from their governments. Whereas voters in the United States and Europe are pushing for a protectionist turn in economic policy in order to protect jobs and wages, working-class voters in Iran have given their mandate to a plan which hinges on the forces of globalization. Having experienced the abject failure of protectionist policies in the Ahmadinejad administration, when Iran’s industrial output cratered under international sanctions and general mismanagement, Iran’s working-class is betting on the success of a different approach.

As the Iranian presidential election looms, a renewed mandate for the Rouhani administration will depend on the ability to demonstrate that sanctions relief has created high-quality employment opportunities, particularly for younger Iranians who face the highest levels of joblessness. Rouhani has succinctly described his vision in stating that “The future path of the Islamic Republic of Iran is the path of economic growth, non-oil exports, attracting domestic and foreign capital, and creating jobs for the educated.” Taking his statement as a “to-do” list, the Rouhani administration has already unlocked economic growth through economic reforms and revitalized non-oil exports through the lifting of sanctions and stimulus programs. Today, domestic and foreign investor capital is slowly being deployed. Job creation, of the kind that supports social mobility, is the remaining objective.

In accordance with Rouhani's vision and the tenor of Western populist politics, major multinationals looking to engage Iran need to consider their own blue-collar stakeholders, both in Iran and at home. Surprisingly few multinationals have touted the job-creation benefits of expanded trade with Iran. One of the few examples can be seen in Boeing’s statement following the finalization of its contract to supply 80 aircraft to Iran Air. In a clear nod to the rhetoric of the Trump administration, Boeing declared that “new orders will support nearly 100,000 U.S. jobs” within the company’s larger supply chain that “currently supports more than 1.5 million U.S. jobs.”

Troublingly, working-class voters in the West are empowering political parties that are either ambivalent or openly antagonistic towards the Iran Deal. In the United States, public sentiment towards Iran remains dire, with American voters considering Iran their second greatest enemy, only after North Korea. Many of these voters fail to recognize that their own job security could be tied to the trade opportunities represented in post-sanctions Iran. They are also unaware that the potential failure of the Iran Deal would principally hurt fellow blue-collar workers who are similarly at the mercy of forces beyond their control.

The great irony is that if there is indeed a breakdown in Iran’s new, improved relations with the international community because of electoral apathy in the West, it is Iran’s blue-collar workers who will be the first to suffer. Should sanctions "snap back", the layoffs in the manufacturing sector would be swift. In the event of possible global political conflict, Iranian conscription would draw indiscriminately from the ranks of its blue-collar labor force. 

In some sense, the full range of stakeholders, including business leaders, policymakers, and the media, continue to look at the Iran Deal through a lens that dates back to 2016 when JCPOA was formally implemented. The ground has shifted since then and new ways are needed to think about the Iran Deal in the current political and economic climate. By connecting the fortunes of blue-collar workers in Iran with those of their Western counterparts, a more powerful model of normalization might be found.

Photo Credit: Atta Kenare

Smarter Iran Policy Could Give Trump Leverage to Protect American Jobs

Last week, President-Elect Donald Trump and Vice-President Elect Mike Pence traveled to Indianapolis, Indiana to save American jobs. In a speech at a manufacturing facility of Carrier Corporation, a subsidiary of United Technologies Corporation (UTC), Trump announced that the company would preserve approximately 1000 jobs it had planned to outsource to Mexico and would make a new investment to preserve the competitiveness of its Indiana manufacturing facility. In exchange for its compliance, UTC would receive significant tax incentives.

The Wall Street Journal editorial board called the Carrier intervention a “shakedown,” and it was shocking to many that President-Elect Trump would go so far as to interfere in the decision-making of a private enterprise in order to preserve a small number of jobs.

By a similar token, members of the business and policy communities were dismayed to learn that the Trump administration may seek to interfere in the Iran Deal more deliberately and quickly than previously thought. While Trump was making his announcement at Carrier in Indianapolis, the U.S. Senate voted unanimously to renew the Iran Sanctions Act. The following day, it emerged in a report in the Financial Times that the Tump transition team is exploring new non-nuclear sanctions.

But what if Trump is missing out on the chance to win big on both job creation and Iran policy by connecting the two efforts? The potential nexus of Iran policy and jobs policy is clear. Either Iran can be a direct destination for American-made goods, unleashing a new and highly valuable export market, or, Trump can use his powers to permit non-U.S. companies to more freely trade with Iran, offering a growth opportunity that may enable executives to forego cost-saving layoffs in the US. 

Indiana, where Trump and Pence stood up for American jobs, illustrates the salience of Iran to American business interests quite well. Nearly every major multinational corporation with operations in Indiana, counting among them many of the state’s largest employers, have had or currently maintain business dealings with Iran.

When Trump met with Gregory J. Hays, CEO of UTC, at Trump Tower to negotiate the preservation of the jobs at Carrier in Indianapolis, he probably did not realize that instead of offering a tax incentive, he could easily use his future executive powers to enable Carrier and UTC to resume doing business in Iran, a market that was once highly lucrative. 

In 1972, Carrier invested USD $2.4 million (equivalent to nearly USD $15 million today) in order to acquire 50% of Carrier Thermo Frig (CTF), an Iranian manufacturing joint-venture. CTF operated until the Islamic Revolution, growing steadily and paying its shareholders a dividend of just over USD $1 million in 1978 (equivalent to nearly USD $4 million today). While the numbers may seem small, it is worth considering the unrealized growth potential. In neighboring Turkey, Carrier Corporation currently owns 50% of Alarko Carrier, a manufacturing venture similar to that of the former CTF. In 2016, Alarko Carrier generated USD $131 million in revenue.

Today one can still find Carrier air condition units in Iran. Some are old models from the CTF days, others are newer models imported via the grey market. These are serviced by Sarma Afarin Industrial Co. a publicly traded company, which emerged from CTF when Carrier pulled out from Iran in 1979. Sarma Afarin still manufactures climate control units based on Carrier designs.

A couple of days after announcing the Carrier outcome, Trump turned his attention to Rexnord, a diversified industrial company. 

Rexnord of Indiana is moving to Mexico and rather viciously firing all of its 300 workers. This is happening all over our country. No more!

— Donald J. Trump (@realDonaldTrump) December 3, 2016

Just like Carrier, Rexnord had direct business dealings in Iran prior to the Islamic Revolution, and then continued supplying Iran through non-U.S. subsidiaries. The company only began to completely wind down its trade with Iran through in 2009, according to regulatory filings. Iranian companies continue to source and service Rexnord systems through the secondary market.

The incoming administration should realize that the Carrier and Rexnord cases are not exceptions when it comes to Indiana or America's Iran business ties. For example, Indiana is a leader in the American pharmaceutical industry. One of the state’s largest employers is Eli Lilly, which has its global headquarters in Indianapolis. According to regulatory disclosures, the company currently supplies “medicines for patient use in Iran.” The company exports to Iran and conducts related activities “in accordance with our corporate policies and licenses issued by the U.S. Department of the Treasury's Office of Foreign Assets Control.” The encouragement of the Trump administration would certainly help Eli Lilly penetrate the Iranian market, which is becoming a goldmine for European pharmaceutical companies. American firms are being left out. 

Indianapolis is also home to the sprawling North America headquarters of Switzerland's Roche Diagnostics, which researches, develops, and manufactures laboratory equipment for the analysis of medical samples. Under licenses and exemptions for medical equipment, Roche exports diagnostic equipment to Iran through its local agent, Akbarieh. While Roche products manufactured in Indiana are not imported directly to Iran, the research and development performed in Indianapolis informs the rollout of products in the country. Other sections of Roche’s business are operated locally by Roche Pars, a wholly-owned Iranian subsidiary established in August, 2013. Roche Pars is currently the fastest growing pharmaceutical company in Iran, registering 50% annual sales growth as it approaches 5% market share.

Indiana boasts a proud history of transportation manufacturing. The state is home to the world’s sole manufacturing plant for Toyota’s midsize Highlander SUV. While the Highlander is not currently sold in Iran, Toyota’s RAV4 and Corolla models are strong sellers with nearly 4,000 models sold since March of this year. The Highlander would likely do very well, as two of its direct competitors are among the most popular imported models in the country. The Hyundai Santa Fe is Iran’s top selling imported car, followed closely by the Kia Sorento. However, if the Trump-Pence team did decide to unleash Indiana’s mighty Highlander on the Iranian market, they would have to extend an olive branch first, as Iranian legislators have blocked the import of US-manufactured automobiles in retaliation for the US renewal of the Iran Sanctions Act.

According to a 2012 filing to the Securities and Exchange Commission, Cummins, a world-leader in diesel engines and generators, continued exports to Iran via its European subsidiary until 2010, when sales totaled approximately USD $1.3 million. Just two years earlier, sales were USD $5.7 million. As sanctions have tightened, third party importers have stepped in to divert generators produced in Cummins’ factories in places like Chongqing, China and Pune, India to Iran. Neither Cummins, nor the workers at its Seymour, Indiana factory, now benefit from what was once a promising market. 

Rolls Royce’s Indianapolis facility produces “more Rolls-Royce products... than anywhere else in the world” according to its website. While this facility primarily produces small to medium civil aircraft engines and marine and helicopter engines that are not currently exported to Iran, the company has expressed that it welcomes Iran Air’s pending acquisition of Airbus aircraft that will be powered by the larger Rolls-Royce Trent-series engines. In addition, the company is reportedly in talks with Iranian energy authorities to determine whether Rolls-Royce diesel and gas generation systems can be acquired as part of upgrades to Iran’s power infrastructure.

There are almost certainly other companies in Indiana that would benefit from an enabling of trade ties with Iran. In 2014, NIAC, an advocacy group, published a report that examined the total value of US export revenue to Iran forgone between 1995 and 2012 due to the imposition of sanctions. The researchers found the total value of lost exports to be as high as USD $175 billion. In addition, the lost exports translate to an average of 66,000 jobs lost each year. 

Even in the American heartland of Indiana, the economy depends on the success of major multinational corporations, some headquartered locally, others operating foreign outposts. For nearly all of these companies, Iran is a market of significant interest.  If the Trump administration wants to be known for its business acumen, it should think more creatively as to how best to incentivize global corporations to preserve American jobs. Rather than using public pressure and tax incentives to compel global companies, Trump should offer opportunities that encourage growth and ambition.

Given the renewal of the Iran Sanctions Act, it remains the prerogative of the executive branch to green-light Iran trade through the provision of OFAC licenses. Donald Trump has clearly realized that his new role as President-Elect gives him immense influence over some of the world’s largest corporations. He should use that leverage to give big business what it wants—new markets in which to compete. For the workers at Carrier, Rexnord, Eli Lilly, Roche, Toyota, Cummins, and Rolls Royce, anything that reduces the pressure on their executives to slash costs could make all the difference. Currently, European products dominate Iran's marketplace. Products made in Indiana—and indeed in all fifty states—could find a hugely receptive market in Iran. The Trump administration would be wise to take heed. 

Photo Credit: Wikicommons