Sanctions set to cripple Iran economy as UK solar firm joins exodus

Exodus fears as European companies have begun to withdraw from deals with Iran

British renewable energy investor Quercus halted the construction of a 500 million euro (Dh 2 billion) solar power plant citing U.S. sanctions on Tehran Chinatopix via AP

The imposition of US sanctions is set to wreak a devastating impact on the already battered Iranian economy and blame for the increasing hardship is settling firmly with the Tehran’s “mad” regime, a leading trade expert has warned.

Just this week, British renewable energy investor Quercus became the latest company to pull the plug on Iran operations, halting the construction of a 500 million euro (Dh 2 billion) solar power plant citing recently imposed U.S. sanctions on Tehran.

The solar plant would have been the first renewable energy investment outside Europe by Quercus and the world’s sixth largest, with a 600 megawatt (MW) capacity.

The exodus from trading with Iran has gathered pace not just in the US – where firms like Boeing and Honeywell – have pulled out since Washington started putting in place sanctions earlier this month. A survey by The National found that dozens of European corporate leaders are also withdrawing, including energy and automotive giants. France alone has 600 firms registered as Iran traders with hundreds more spread across Europe.

As firms backed out of Iranian deals with the sanctions coming into effect, the decision to take Iran nuclear was cited as the key cause for Iran’s hard-hitting economic situation, said Michael Thomas, the chairman of Pathfinder Trade & Invest.

"The Iranian economy is going be disastrous for some time to come. The Iranian economy is absolutely up the creek and suffering very badly," Mr Thomas, a former British trade envoy to Iran, told The National.

“The Iranian regime is quite mad and has already put Iran and Iran business commercial connections in a very weak position and not just because of these sanctions but also due to its foreign affairs,” Mr Thomas added.

The recent Trump administration sanctions were put in place on August 7 with another raft targeting Iran’s vital oil industry expected in November. The US is ramping up efforts to curtail Iran’s trade as Tehran pours its resources into a missile development and destabilising regional activity.

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Despite official British, France and German opposition to the US move, major European companies have begun to withdraw from deals with the Iranians.

Among the biggest casualties announced so far is the French carmaker PSA which has severed links to its joint venture partner that sold 445,000 vehicles in 2017. It signed production deals worth 700 million Euros when sanctions on Tehran were initially lifted in 2015.

Swiss railway company Stadler Rail has halted plans for a railway system in Tehran in what had been a $1.4 billion agreement. Auto giant Renault, which sold Iran 160,000 cars in 2017, has signalled its intention to withdraw, as has the Peugeot and Citroen parent company PSA.

“As we comply fully with US sanctions, it’s likely that our development would be put on hold,” said Renault Chief Operating Officer Thierry Bollore.

French company Total has attempted to transfer is 50.1 per cent stake in the giant South Pars gas field having signed a $4.8 billion deal with Iran last July. Mercedes Benz parent company Daimler and leading engineering company Haldor Topsoe have also signalled their intention to reduce or end activities in Iran.

"We have suspended our already limited activities in Iran in accordance with the applicable sanctions," a Daimler spokeswoman said on August 7.

German engineering group Bilfinger has said it did not plan to sign any new business in the country, while automotive supplier Duerr  said on Aug. 11 said it had halted activities in Iran. A second solar project, planned by Norway’s Saga Energy, which said last October was to create 2 GW of new renewable capacity has also stalled.

Meanwhile, Boeing has deferred indefinitely a 100-jet order from Iran and Europe’s Airbus is due to make an announcement on the fate of its 95-plane Iranian order book soon.

Mr Thomas said this isolation would cause severe problems for Iran and said it needed international companies to help propel it into the future. “You need international trade, that’s crucial. Relying on Russia and the Far East has its limitations. Iran really has missed the boat.”

“A big problem for the Iranians, most of the major businesses were taken over by the state during the revolution. It’s all pretty inefficient because of the way its organised, so that will continue. The Iranians real missing out badly. Iran is stagnating and held back,” he added.

Despite this, analysts still contend perhaps the biggest damage will come from a weakened Iranian Rial and oil industry.

"In the past few weeks, the Iranian authorities have been grappling with a deteriorating economic situation," said a report by Energy Aspects, an energy market researchers, and seen by The National.

“Since Trump announced the US would reimpose sanctions, a collapsing Iranian Rial has unleashed inflationary pressures across the economy, hiking the cost of imports and the cost of living, leading to protests across the country,” it added.

“The dollar sanctions that came in (on August 7) are extremely important most of the payments, not all of them, are done in dollars. Even the ones done in Euros are not willing to transact with Iran,” said Amrita Sen, chief oil market analyst at Energy Aspects,

There are also fears the November 4 sanctions will bring as it targets the Iranian oil industry. Ms Sen predicts Iranian exports to drop from 2.7 million barrels per day to around 1.2 million bpd by the end of the year.

“It will be catastrophic. The Iranian economy depends on oil and gas,” said Mr Thomas.

He said he had a deep affection for Iran and the people he knows in the country and he lamented the barriers that have been erected between Iran and the outside world.

“Iran decided it wanted to go down the nuclear weapons mistake. Huge mistake, huge tragedy for the Iran people. Iran should be focused on its own economy and it can’t possibly do that if it's playing the nuclear game, that will affect Iranian business,” he said.

“It’s a bright intelligent population. Many well-educated Iranians are doing their best to leave Iran. There really is a brain drain going on because they want to get out and make a better life for themselves,” Mr Thomas added.