I attended the Iran Capital Market Conference organized by the Securities and Exchange Organization of Iran. It took place on Kish Island, a luxury island 19 km from the continent. The Shah wanted it to give the image of a booming and international Iran. Judging from the construction, Kish Island could be the next Miami, including skyscrapers, palm trees, palaces and beaches.
One of the most interesting elements of this Iranian capital markets conference was the presence of the Indian, Indonesian, German, British and Belgian institutions. Also, the Turkish and the South Korean ambassadors were there to represent their countries.
Opening Iran’s capital markets to the world
At the time of this blog, the rediscovery of Iran is palatable. Germany, and in particular Bavaria, is actively inviting Iranian banks to open a branch in Munich, and four Iranian banks have obtained the required license. The European Iranian Bank in Hamburg is completing the presence of Iranian banking at the heart of the Eurozone.
The OLMA Damavand Fund, established in the Cayman Islands, is operational and allows investors to invest in Iranian shares. It is open to worldwide investors while accessing directly Iranian stocks is still impossible.
The Euro solution
The disenclaving of the Iranian capital market and its financial institutions will most likely open up via the Euro, due to the wide scope of continuing US sanctions. BNP Paribas received a $9 billion fine for violating US sanctions regulations, also in relation to Iranian transactions. BNP originated the transactions outside of the United States, but paid in US dollars, which was enough to establish the jurisdiction of US courts. This effectively excludes the US dollar as a currency of payment for any international transactions with Iran. The Euro is the most obvious alternative for international payments. Securities Investments will follow.
No US banks, please
The sanctions imposed by the United States exclude US banks, but also foreign banks with operations in the United State such as the major global European or Japanese banks. It is therefore through domestic European banks and affiliates of non-European banks domiciled in Europe that the payments and clearing relating to Iran will happen.
A segment of the Eurozone’s banking system is composed of public sector banks such as KfW in Germany. These banks will support investments by German banks in Iran. They are out of reach by OFAC, the US authority that tracks breaches to the sanctions.
Self-exclusions could be costly
Two major players in international finance have self-excluded themselves voluntarily from business with Iran to please Donald Trump.
India has decided to line up with the US President in exchange for leniency on other issues such as trade. There was no obligation to be zealous and, would Prime Minister Modi have looked at the matter, he might have found out that it is not in the interest of India. However, his public approach is combined with practical developments such as India’s pursuit of the trade route Chabahar-Milak-Delaram that will connect India with Afghanistan, via Iran, bypassing Pakistan with the help of Japan, a development that is in fact encouraged by the United States. It allowed for the first shipment of wheat to Iran on October 29. Isn’t it India that hosted the Persian Zoroastrians persecuted during the Muslim conquest of Persia? The Parsis created Indian empires, starting with the prominent Tata group.
The Middle East is, as always, divided. While Qatar is aligned to Iran, the Arab countries are excluding any relationship with Iran. While Dubai was expected to benefit from the lifting of the Iran sanctions, it did not seize the opportunity. Sheikh Mohammed of Dubai would have drawn a huge benefit from remaining neutral. Dubai would have been a natural trading place of Iranian stocks and bonds. Why did he launch the attack against Qatar?
Donald Trump cannot break the treaty
Donald Trump sent the Iranian Treaty to Congress that is unlikely to agree neither to implement the Treaty, nor reject it. Powerful interests such as Boeing will make it very difficult to Congress, during an election year that just started, to take a conflictual view to its funding.
Unless the International Atomic Energy Agency (IAEA) in Vienna were to demonstrate that Iran is in breach of its commitment under the Nuclear Pact, other signatories will have the freedom to act as they see fit. Hence the foreign business and investments in Tehran.
Iran will make sure that it does not happen.
The Saudi backlash
The fact that Saudi Arabia has put in place an embargo that threatens, according to the United Nations, the life of 20 million Yemenites will put, once more, Donald Trump on the wrong foot. Who’s the terrorist? The coup d’état staged by the young Crown Prince to liquidate the Saudi leadership instigated with the son in law of the President, Jared Kushner.
The Financial Times’ Edward Luce draws an interesting parallel between the “House of Trump” and the House of Saud. “It shows a president who cannot tell the difference between the national interest and the family business,” according to Luce. Things are not as Manichean as Donald Trump would like to see them in his immersion on the Sunni side against the Shiites.
Could this end up with a war between the two countries? It would definitely be a disaster of global dimension.