We use cookies to make your experience of our website better. Some of these are set by third party Google Analytics to help us analyse website traffic. To comply with privacy regulations, we require your consent to set these cookies. If you continue to use the site without selecting an option we will assume you are happy for us to use cookies.



From Aberdeen to Abadan: 10 Tips for Prospective Investors in Iran

The post-sanctions opening of Iran offers potentially profitable openings for the UK’s oil and gas sector, but navigating this vast and complex landscape requires exceptional sure-footedness, experience and know-how.

In a ground-breaking seminar in the UK’s oil capital on 3 March 2016, leading international  experts Burness Paull brought together a panel of some of the UK’s leading experts on the legalities of doing business in Iran. Together with an invited audience of oil and gas company leaders they explored in-depth the opportunities – and the challenges – of engaging the Middle East’s re-awakening giant.

You can read (or search) the full transcript of this wide-ranging and informative session here. What follows is an at-a-glance summary of the key lessons from the session. Although the focus was on oil and gas, the lessons apply across all sectors:

If Iran can build so much infrastructure and educate its young so well under heavy sanctions, what might it achieve now that sanctions have been lifted?

That question, posed by the Iranian-born businessman Ali Afshar at Burness Paull’s Iran seminar in Aberdeen’s Chester Hotel, is becoming increasingly interesting. A growing sense of the scale of the possibilities explains the current buzz around investment in the Islamic Republic, and the eagerness of UK Government and industry to re-engage, as this country of 78 million (predominantly young) people reaches out to the world for badly-needed overseas knowledge and partnerships. Up to $100bn of Iranian assets are set to be unfrozen following the agreement over potential nuclear weapons development, and the country is seeking to invest much of it in upgrading its outdated energy infrastructure.

But potential partners must tread carefully. As recent high-profile legacy corruption cases and government statements have highlighted, Iran’s reforming but still complex commercial, political and legal landscape requires new entrants to know where they stand. Experienced operators in challenging oil and gas markets from the Middle East to Central Asia to West and Southern Africa, Burness Paull’s claims to provide that support are compelling.

British oil and gas technology has, of course, a long heritage in “Persia” as the country was known until 1935. The oil refinery at Abadan - in its 1970s heyday the largest in the world - was opened by the Anglo-Persian Oil Company in 1912. But with Iran’s emergence from sanctions-based isolation still in its earliest phases, could – and should – UK oil and gas companies of all sizes be seizing first-mover advantage in this field?

Other European countries are already signing blockbuster aerospace and infrastructure deals, so it might follow that hard-pressed North Sea operators should be beating tracks to the country with the world’s second largest proven reserves of natural gas and the fourth largest proven oil reserves. If they are, as the Aberdeen seminar made clear, they need the best possible advice at every stage of the journey.

Skilfully guided by the award-winning journalist and Energy Voice editor Rita Brown, the speakers at the Aberdeen Iran seminar included the Burness Paull international oil and gas law and sanctions experts Jamie Stark and Fran Hutchison, Deloitte’s leader in global export control Stacey Winters, and Iranian-born businessmen Mike and Ali Afshar.

Although their points of emphasis differed, they all shared a common consensus:  that now is the time to be scoping opportunities, performing due diligence and establishing whether or not your company’s appetite for risk is matched to the complex realities of operating in Iran.

To summarise? The opportunities of Iran are immense, but preparation and good advice are vital. In no particular order, here are Burness Paull’s 10 “takeaway” points for would-be entrants, derived from this fascinating and thought-provoking event.

  1. Beware the Revolutionary Guards. Both the EU and US still have prohibitions in place on dealing with proscribed bodies and individuals (the UK lists around 300), prominent amongst them The Army of the Guardians of the Islamic Revolution, commonly known as the Iranian Revolutionary Guard Corps or IRGC. This once-fanatical security force has over 125,000 members within Iran. In past decades have increasingly found public positions of power, including within the oil and gas industry. When entering negotiations it is vital to conduct due diligence into who you are dealing with, both the “front men” and those in the background, in case of IRGC influence.
  2. Always consider the US dimension. Despite the 2015 nuclear deal, Washington continues to impose strict non-nuclear sanctions on Iran. UK companies with US parents or other US connections must  ensure that any Iranian business is conducted without US support and without any of the Iranian business being routed through the US.
  3. Know your sanctions. Investors must be aware of the distinction between the different classes of sanctions covering  EU restrictions on trade with Iran (eg. financial sanctions and trade sanctions) and the difference between them and the various types of remaining US sanctions. Know thoroughly the rules and restrictions that apply to the product you are dealing with and understand the US jurisdiction that applies to your product.
  4. Watch out for “dual-use” items. Seemingly innocuous goods such as valves, lubricants or even standard encrypted software for laptops may have a potential alternative military applications and therefore be classed as “dual-use goods”. Importing or exporting them may be in contravention of remaining UN, EU or US trade bans.
  5. Is your bank on board? Ensure that you obtain the approval of your bank before entering negotiations with Iranian partners, and consider whether your UK bank will accept payments from Iran. Banks with US connections tend to be cautious about the risk of contravening US Treasury restrictions on trade with Iran. Despite the thaw, this uncertainty is likely to take some months to resolve.
  6. Be aware of ownership laws. Foreigners are permitted to own 100% of companies, with no local co-ownership requirement and Iran subscribes to international conventions on arbitration. If you do set up directly in Iran you can have 100% of companies.  However the country’s constitution forbids foreign nationals or foreign companies owning land.
  7. Watch out for “snap-back”. The sanctions-ending Joint Comprehensive Plan of Action (JPCOA) contained a provision that would quickly place Iran back “on the naughty step” of the full sanctions regime if it was found to violate the terms of that agreement. Make sure that contracts allow you a route to repatriate goods before any such renewed sanctions come into play. In other words, know where the exits are before you go into Iran.
  8. Be graft-alert. Cover yourself against bribery and corruption actions, involving public officials. Iran ranks roughly on a level with Russia in international corruption tables, so a strategy is required to cover off the risks that relations with public officials entail. To avoid the corporate offense of failure to prevent bribery it is essential to be able to show evidence of due diligence from the earliest stages of your engagement.
  9. Budget for the cost of compliance. Significant compliance burdens must be overcome in terms of knowing who you are doing business with in Iran. Banks are likely to want evidence of these  measures before they process payments.
  10. Keep the size of the opportunity in mind. Iran is the size of Germany, France, Britain, Italy and Spain put together, and has 15% of the world’s gas reserves and 10% of the world’s proven oil reserves. Iranian sources have suggested that the country intends to invest $500bn by 2025 in upgrading tired and inefficient plant and equipment. Although the challenges are formidable, the opportunities are vast, particularly for small companies looking to forge links with local operators on the ground before the major companies arrive in 2-3 years-time. 
07 March 16