Sanctions, Inflation, Protectionism, War, Bonyads, And The IRGC |

Journal of Political Risk, Vol. Figure 1: Foreign Investment in Iran and its own Neighboring Countries, March 19, 2012-March 19, 2013. DATABASES: The Government of the Islamic Republic of Iran News. Despite a tumultuous recent political history which includes revolution, sanctions, and war, relations between Iran and the West are enhancing and Western investors are increasingly interested. But, Iran’s politics cause sanctions, and the economy suffers from inflation.

Protectionist laws are on the books, and in some cases financial crimes are punishable by death. Of warming relations with the West Regardless, Iran has before reneged on its agreements, and war continues to be a risk with non-Western bordering countries and regional powers. The Iranian Revolutionary Guard Corps (IRGC) has nationalized foreign investments recently, and the politically powerful revolutionary foundations known as Bonyads control large segments of the most lucrative investment sectors.

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Iran has experienced long-run raises in foreign immediate investment interest because the 1980s, with major investors coming from Europe, Canada, Singapore, United Arab Emirates, and South Korea. The end of the Iran- Iraq war and the start of the era of reconstruction in 1988 opened the way. 34.6 billion from 1992 to 2009. Foreign direct investment in Iran increased 14-17% since 2011, about 70% of which went to Iran’s oil and gas industries.

During the last three years, as a total result of intensified sanctions and failed domestic financial procedures, especially subsidy reforms, Iranian money lost about two-thirds of its value. Iran’s “flexible exchange rate” is highly fluctuating, which causes instability and severe insecurity for foreign investors. Because of their potential willingness to flaunt sanctions, Iran has contacted Russia significantly, China, and India to increase foreign investment. Iran’s complex political structure is one of the pressing issues encountered by potential international investors.

The supreme leader is the ultimate decision maker, despite the nationwide country having an elected chief executive and parliament. As the commander in chief, the supreme leader controls all security and military forces, like the militarily and economically powerful IRGC. The history of the IRGC shows that they have the capability to expropriate foreign investments or cancel contracts in the name of national security. The IRGC and its financial empire do not answer to the national government but are accountable to the supreme leader directly.

The supreme innovator also supervises the economic activities of the brand new foundations and establishments know as Bonyads or Setads. There are several Bonyads that are active in numerous commercial sectors of the country such as oil and gas, auto manufacturing, shipbuilding, food creation, and agriculture. Given that they control massive industries in Iran, any international investor needs to be familiar with their areas of influence, monopolies, and market sensitivities before investing.

Iran has handed down several laws to promote and protect international investment. The biggest problem with these laws is their focus on encouraging rather than protecting investment. The laws allow the government to expropriate the investment, cancel the contracts, or even stop foreign investors from post-project repatriation of capital investments and accumulated profits.