The Iranian Conundrum: How sanctions removal affects global logistics

Iran_Air_Cargo_Boeing_747-200_KvW-smallThe Parisian Azadi Hotel was recently the voted the most popular hotel in Iran. The award, which the hotel touts, was based on an “extensive poll” by the Islamic Parliament of Iran, which the hotel calls “one of the most authoritative institutions in Iran.” The hotel boasts views of the mountains ringing Tehran.

It is at this hotel that last January the CAPA – Centre for Aviation, a global information company, held a  conference on the Iranian aviation market. The event turned out to be something of a landmark for Iranian aviation, because not only did Iran announce during the summit that it plans to buy up to 90 Airbus passenger aircraft, air cargo was on the agenda. It turns out the hotel offered views of that market, in addition to the mountains.

Iran is a country with more than 78 million people and a GDP of nearly US$370 billion. The population is  mostly well-educated and has developed a modern infrastructure for global trade. Plus they have vast natural resources and a culture that extends back for more than 3,000 years, with a rich tradition of art, commerce, architecture and scientific achievement. However, this enormously influential country has been practically off limits to the rest of the planet, economically, despite its location at the crossroads of the world, between Europe and Asia. What kind of repercussions would it have on world trade if it suddenly appeared again?

That’s one of the main questions freight forwarders, cargo carriers and shippers have been asking since January of this year, when the International Atomic Energy Agency (IAEA) announced that the Islamic Republic of Iran had passed inspections required as a result of the nuclear energy deal struck between the the United Nations, the European Union, the United States and others. Because Iran had demonstrated to the IAEA that it had curtailed its nuclear enrichment program, crippling trade sanctions that had been in place for the previous decade have now been eased or lifted, opening up the country to more foreign trade.

The announcement was electric throughout the logistics community. Thomas Cullen, practice leader with market analysis firm Transport Intelligence, said the removal of even a few Iranian sanctions “triggered a flood of business, much of it requiring logistics infrastructure,” as the Middle Eastern country sought to “replace its worn-out fleet” or aircraft and to modernize its aging infrastructure. Almost immediately, the Iranian government inked a $25 billion deal with Airbus to purchase 118 desperately needed new aircraft – 73 widebodies and 45 narrowbodies – over the next several years, including provisions for the training of new pilots, airport operators and air traffic managers.

Several airlines, forwarders and shippers also pledged to re-establish ties with one of the world’s most powerful, oil-rich economies. Thorsten Braun, Lufthansa Cargo’s general manager for the Middle East, Iran and Pakistan, said Lufthansa plans to increase capacity by more than 20 percent on its daily Frankfurt-Tehran flight, using a 747-400, and this month will also launch a second route to Iran with three weekly A330 flights from Munich to Tehran. As one of the first freight consolidation services in Iran, going as far back as the 1950s, DB Schenker also planned on resuming its work with automotive companies and large-scale projects in Iran, said Hans-Michael Dietmar, vice president of network partner development, in the forwarder’s Essen, Germany, office.

But as the news sank in, logistics companies began to realize that resuming trade with Iran is not as simple as picking up the phone. While many sanctions have been lifted for European nations, relations with the United States remain icy at best, with the U.S. government still banning trade of virtually any kind with Iran, especially any items that could be converted for indirect use in a nuclear weapons program. In today’s globalized world, change comes fast, and sanctions for even a few years can quickly allow a country’s logistics sector to be eclipsed by competitors.

“We have a very visible footprint in Iran – or rather we had a very visible footprint,” Dietmar said of Schenker’s history. “Before the sanctions were imposed, Iran had a purchasing power rated globally as No. 18 in the world in terms GDP,” placing them just below Australia and just above Turkey. Today, he said, as the effects of the sanctions are slowly being revealed to the world, a humbled, yet still defiant Iran is learning how to rejoin the world of international air cargo trade.

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