Will Foreign Investment Return to Iran’s Automotive Sector?

Iran produced just 770,000 automobiles in 2019, down from 1,418,550 just two years prior. The re-imposition of U.S. secondary sanctions interrupted new investment in Iran’s automotive sector, particularly by European automakers such as Renault, Peugeot, and Volkswagen.

The median age in Iran is just 32. Limited public transport options and cheap petrol make car ownership attractive and even necessary—under normal circumstances, the Iranians would purchase up to 2 million cars each year, with a total sales value of up to $20 billion. 

The rising cost of manufacturing inputs and a shortfall in production has contributed to a sharp increase in the price of automobiles, particularly in the secondary market. While Iranian policymakers consider the automotive industry as a “strategic sector,” with state-owned firms Iran Khodro and SAIPA among the country’s largest employers, the hit to output over past two years has made clear the limits of the government’s ability to grow the automotive sector without foreign partnerships. 

Over the last year, companies linked to Iran’s defense ministry have stepped in to support production at the Iran Khodro and SAIPA in an attempt to localize the production of more parts and shield automakers from the rising cost of imports. At a signing ceremony in December of 2019, SAIPA CEO Seyyed Javad Soleimani told reporters, “With Defense Ministry’s help, domestic substitutes for 35 key auto parts are to be produced in Iran to curb the industry’s reliance on the global supply chain.” 

The cooperation between automakers and defense contractors is best understood as a stop-gap solution for the automotive industry. In the short-term the goal is to raise output. In the medium-term, the automotive sector will still require the transformative investment that only foreign automakers can provide.

Foreign automakers have long understood the potential of Iran’s large domestic market and the combination of low labor costs and local parts production. Iran’s industrial workforce is skilled and experience, particularly relative to their compensation. The monthly minimum wage is IRR 18.34 million for the current Iranian calendar year—now equivalent to less than USD 100 per month at current exchange rates. Between 2009 and 2011, two out of every 100 cars and commercial vehicles produced worldwide was manufactured in Iran.

These dynamics led numerous European, Korean, and, more recently, Chinese car and truck manufactures to establish license manufacturing agreements and even full joint ventures with Iranian automakers. Iranian auto parts makers developed the supply chain to provide the local parts content on which Iranian policymakers insisted. The manufacturing of the Renault Tondar, known as the Dacia Logan in most markets, saw Iranian spare parts manufacture obtain “Grade A” certifications from Renault. Following the new investments committed after the implementation of sanctions relief in 2016, there were growing expectations that Iran would become an exporter of European-branded automobiles to regional markets. 

Notably, the new post-JCPOA investment was intended to facilitate the partial privatization of the state-owned manufacturers. Through the Industrial Development and Renovation Organization (IDRO), the Iranian state was set to become a minority shareholder in the new Renault joint venture. A similar deal was struck between Daimler and Iran Khodro Diesel for the manufacturing of Mercedes-Benz trucks in Iran. 

Allowing foreign firms to be the majority shareholders of their joint ventures was an important shift in industrial policy for the “strategic” automotive sector. Such policy was also intended to address the long-running issue of inefficiency and poor productivity among the state-owned automakers. There were also a number of deals between foreign automakers and private sector firms in Iran, such as the agreement between Volkswagen and Mammut, which has produced Scania trucks in Iran since 2008. Scania’s persistence in the Iranian market has earned it a commanding market share of over 60 percent.

Clearly, prior to the re-imposition of sanctions, Iran was set to deepen its dependence on foreign investment to drive growth in the automotive sector. In the case that sanctions are once again lifted, that drive for foreign investment would no doubt resume. Iran’s automotive market will remain attractive, but foreign automakers will want to be sure that any new round of sanctions relief will be durable.

Photo: IRNA

Iran's Automakers Need a Rescue, But Face a Reckoning

Iran’s giant automakers, Iran Khodro and Saipa, are in a tug of war with the Rouhani administration over demands to lift price controls. The state-owned firms are seeking to increase prices by 40 percent.

Executives in Iran’s automotive industry, which counts among the country’s largest employers and includes both state-owned and private sector enterprises, argue that rising inflation and the increased cost of parts and raw materials justify increasing automobile prices, which have long been subject to controls. Rising inflation in Iran has been spurred by the depreciation of the rial, first triggered by the reimposition of secondary sanctions by the administration of U.S. President Donald Trump.

The final say on any price increase lies with the Market Regulation Authority of Iran’s industry ministry. A meeting of the authority on May 4 led to a disappointing outcome for the automakers, as the authority’s board gave preliminary approval to a price increase of just 5 percent.

Despite the outcome, market regulators appear increasingly sympathetic to the demands of automakers and further deliberations are planned. The deputy minister who chaired the meeting, Hossein Modarres Khiabani, acknowledged the challenges facing Iran’s automotive sector, stating “For 15 months, the price controls have remained unchanged while many of the production costs have jumped during the period in question.” While carmakers have been unable to increase their prices, the price of automobiles on the secondary market has surged as inflation picked-up. The growing margin between the two prices has given license to many car dealers to engage in enormous profiteering.

However, regulators are reluctant to allow automakers to increase prices without demonstrating some new economic value. The 5 percent price increase preliminarily approved earlier this month is conditioned on a  “70 percent improvement in efficiency,” although no detail was provided as to how improved efficiency is to be assessed.

For decades, the poor-quality of locally produced automobiles has been at the core of growing discontent among Iranian consumers with state-owned carmakers. Iran Khodro and Saipa are accused of exploiting an uncompetitive market, operating as a duopoly and disregarding customer satisfaction in order to produce cars with fewer features and worse build quality. Even Iran’s Supreme Leader appeared to acknowledge the lagging quality of domestic cars in a recent tweet.

Despite the role that the price controls have played in deepening losses, Iran Khodro and Saipa have also been repeatedly bailed out by administrations unwilling to swallow the political consequences of mass layoffs. Iranian carmakers, particular those that are state owned, benefit from unfettered access to financing and cheap foreign currency, despite a track record of contributing to the non-performing loan crisis at many Iranian banks and a reputation for corruption among senior management. By one estimate, Iran Khodro and Saipa have received over USD 4.7 billion in foreign currency at the subsidized government rate. With the Rouhani administration now facing an unprecedented fiscal crisis spurred by sanctions, low oil prices, and the COVID-19 crisis, observers of the automotive sector are wondering whether the state remains able to support the embattled auto industry.

Any prolonged shutdown at Iran Khodro or Sapia would hammer Iran’s many parts manufacturers, which constitute the backbone of the auto industry. These companies have already been squeezed as sanctions have made sourcing the foreign currency needed to pay for imported raw materials far more difficult. Parts manufacturers are also owed huge sums by the likes of Iran Khodro and Saipa, who use their dominance in the domestic market to bully suppliers.

But the increasingly dysfunctional supply chain is catching up to the automakers. A recent report from Donya-e-Eqtesad estimates that up to 50,000 cars remain unfinished, parked in storage yards, due to a lack of parts. Falling productivity in the automotive sector, which accounts for 4 percent of Iran’s gross domestic product, could have a significant impact on the wider economy. The negative outlook for the sector stands in stark contrast to the optimism that followed the implementation of the nuclear deal. In 2017, buoyed by the resumption of industrial cooperation and investment by European automakers such as France’s PSA Group, automobile production hit a record high of over 1.4 million vehicles.

The swift decline in output spurred by the reimposition of U.S. secondary sanctions the following year has only been accelerated by the global pandemic. In the period from March 21 to April 20, corresponding to the first month of the Iranian calendar year, Iran Khodro manufactured just 23,246 vehicles, registering a stunning 43 percent decline in production year-on-year. The automaker has discontinued production of seven models, which relied on imported complete knock-down kits, including the Peugeot 2008 SUV and the Suzuki Vitaras. Production at Saipa fell even further, registering a 56 percent decline year-on-year, with just over 9,000 cars produced in the same period. Part of this slowdown is attributable to measures being taken to reduce the risk of transmission of COVID-19 among assembly line workers. Nonetheless, the collapse in production and the controversies around price controls contributed to the ouster of industry minister Reza Rahmani earlier this week. Khiabani has been appointed as caretaker.

The Rouhani administration finds itself at a crossroads and the auto industry faces a reckoning. While regulators have been unwilling to increase the price of automobiles for fear of angering a public already facing diminishing purchasing power, the government cannot simply continue to rescue automakers that have failed to operate efficiently and transparently, selling their products into a profoundly dysfunctional market.

Photo: IRNA

Iran Automakers Face Rocky Road as Output Falls While Demand Rises

Iran’s automakers have pre-sold more than 1 million vehicles, most of which are earmarked for delivery to customers in the current Iranian year that started in March. But with vehicle production declining at a steep rate, fulfilling these orders will be no easy task.

Following the reimposition of US secondary sanctions in November of last year, the Iranian economy has begun to contract. Inflation is driving up the price of goods, including automobiles. 

For instance, the cheapest vehicle in the Iranian market, SAIPA’s Pride sedan, is now sold at IRR 450 million, just over USD 10,000. The same model was offered for just IRR 200 million one year ago. Despite the sharp increase in prices, demand for cars has also increased.

With the rial losing around 70 percent of its value over the past few months, many have rushed to convert their cash into safe-haven assets—including foreign currency, gold coins, real estate and even cars. Iranian consumers see cars as a safe investment and it is not uncommon for used cars to actually appreciate in value during periods of high-inflation.

Pre-orders for entry-level models like the Pride have also increased as consumers typically interested in more expensive models, such as locally produced Peugeots, are priced out of the luxury bracket.

Mounting Pre-Orders

With US sanctions taking a toll on the country’s auto industries, Iran’s automakers face an uphill battle to deliver the pre-ordered cars on time.

In order to service mounting debts, state automakers Iran Khodro and SAIPA sought permission from authorities to launch extended sales periods in which they racked-up 1 million preorders, with cash being injected into company balance sheets.

But just as the orders are becoming due, sanctions are restricting the import of critical parts and raw materials needed for the automakers to produce sufficient vehicles. Production output has declined significantly.

During the 11 months to February 20th, Iranian automotive companies produced 873,243 cars and commercial vehicles, indicating a 38 percent year-on-year decline in output. Output at Iran Khodro fell to 386,523 vehicles compared to 653,593 at the same period last year, reflecting a 41 percent decline. Meanwhile, total vehicle output at SAIPA has fallen to 381,085 from 605,348 at the same point last year—down 37 percent.

Foreign exchange rates have hit all-time highs and production costs have soared, forcing car companies to increase prices. With production plummeting, prices in the automotive market have been further distorted by dealers and middlemen who have sought to raise prices in the secondary market.

Persistent Hopes

Iranian automakers must therefore strike a balance between supply constraints and robust demand. Pre-sale deposits are an important source of cash flow for car companies, but delays in delivery can cause negative publicity and also add to financial pressure. In a quirk of #Iran’s automotive market, pre-sale terms entitle customers to get back their deposit with accrued interest in the event they decide not to take delivery of the vehicle—in effect customer deposits are a kind of loan made to the automaker.

Given these pressures, Iran’s automakers must aim to sustain output despite headwinds. Firms have actually targeted increased output in the coming year. Leading automakers plan to produce at least 1.2 million vehicles in the 2019-2020 fiscal year, leveraging their experience in the previous sanctions period to boost local capacities and establish new supplier relationships.

Iranian car companies have tried to forge new ties with international automakers like Russian car company AvtoVAZ. SAIPA is in talks with AvtoVAZ to import auto parts and completely knocked down (CKD) kits from Russia to restore production to normal levels.

Iranian automakers have also sought to expand operations outside of Iran to help earn much needed cash. Earlier last week, a joint venture between Iran Khodro and Azermash OJSC started pre-sales of a jointly-produced Peugeot 206 in Azerbaijan.

The joint venture was inaugurated during a state visit to Baku by President Hassan Rouhani last March. In addition to the Peugeot 206, two sedan models designed by Iran Khodro, the Dena and Dena+, will be produced at the Khazar Car Factory, located in the Neftchala Industrial District in southeast Azerbaijan.

With an initial annual production capacity of 10,000 vehicles, the Khazar Car Factory will increase output to 15,000 vehicles. The joint venture partners hope to produce 6,000 vehicles this year.

Photo: IRNA

For Iran’s Economy, the Price of a Car Matters More Than the Price of Oil

The combination of reimposed sanctions, a slowing economy, and a devalued currency have put Iran’s automotive sector under severe pressure With nearly 1 million jobs linked to the automotive industry, the price of a new car could be even more important than the price of oil for the Iranian economy.

In an interview with Bourse & Bazaar, Saeed Madani, the former CEO of SAIPA, Iran’s second largest automaker, warned that price controls are squeezing state-owned automakers as sanctions effect the overall economy.

State-owned firms Iran Khodro and SAIPA, account for 90 percent of the 1.5 million vehicles manufactured in Iran each year, but are in many respects these firms are least prepared for the bumpy road ahead.

Madani, who led the SAIPA for three years during the height of sanctions from 2012 to 2015, warned that dependence on imported raw materials and parts leaves Iranian automakers vulnerable as the economy slides into a recession.

“With the rial weakening, carmakers’ purchasing power has been slashed. The input costs of auto parts industry have also increased significantly,” Madani explained. The rial has lost 70 percent of its value against the US dollar since the current Iranian fiscal began in March, making manufacturing inputs significantly more expensive.

Automakers Face Pricing Squeeze

These costs cannot always be passed onto the consumer. Presently, Iran’s Competition Council retains the power to set prices for many domestic products, including cars that are categorized as affordable, meaning their sticker price is less than IRR 450 million.

Madani believes that even if the state is reluctant to deregulate the auto market at large, authorities must give a green light to the carmakers to increase prices. “The upgraded prices need to be set for each model depending on the share of imported auto parts in its production,” he said.

The price increases are especially crucial for models assembled from imported completely knocked-down (CKD) kits, as these vehicles have a higher foreign parts content than those designed locally. Madani thinks prices for the vehicles assembled from CKD kits should be “at least doubled.”

SAIPA’s most popular model is the entry-level Pride, based on a design from Korean automaker Kia. The Pride is the cheapest car made in Iran. To manufacture each Pride, “it is necessary to import USD 1,500 worth of parts and raw materials,” Madani explained.

But while earlier this year, automakers were receiving foreign exchange at the subsidized rate of IRR 30,000 per dollar, today their currency is purchased through the NIMA system, established by the Central Bank of Iran to coordinate foreign exchange purchases and to track forex transactions involving banks, exchange houses, importers and exporters in real time. Over the last month, the average NIMA rate was IRR 92,304 per dollar.

In Madani’s estimation, looking just to cost of inputs, and ignoring increased overheads facing SAIPA, the price of the Pride needs to be raised by IRR 90 million (USD 600) to bring its sticker price to IRR 320 million (USD 2200).

The official price of the Pride was last raised in June, bringing it to IRR 227 million (USD 1,500). Today, the Pride is regularly selling for IRR 340 million (USD 2,300) in secondary markets, demonstrating the heavy subsidization enforced by the government.

Failing to readjust prices could have dramatic consequences for the auto industry, warned Madani. “If the government does not let carmakers increase prices, they will go bankrupt. Firms will be forced to shut down many production lines and output rates will nosedive,” he said.

Faced with this dilemma, the government will be tempted to throw the automakers a lifeline by providing financial aid and loans. But Madani considers such aid to be a burden for manufacturers, which will struggle to pay back debts in the future.

Uncertain Government Response

In recent weeks, government figures have repeatedly signaled that they are considering giving carmakers the green light to increase car prices. Financial newspaper Donya-e Eqtesad recently reported that industry stakeholders and officials are well aware that the car prices need to be increased, but are afraid of the political cost of such a decision as it will be seen as placing pressure on Iranian consumers.

On October 31, Iran’s newly appointed industry minister, Reza Rahmani, told IRNA, “Automakers are not permitted to change car prices [on their own]. There is a designated legal mechanism for introducing new car prices. No decision has been made yet about changing car prices.”

In the interview, Rahmani also questioned the credibility of the unaudited financial statements reported by the local media, which suggested that Iran Khodro and SAIPA had made losses amounting to IRR 21 trillion (USD 142 million) and IRR 29 trillion (USD 196 million) respectively in just the last six months.

“Iranian automakers are not loss-making. By producing certain models local carmakers may incur losses. However, this is not an issue which cannot be resolved by better management of resources,” the minister countered.

Rahmani revealed that a “specialized task force” had been established in coordination with industry executives “to study the problems which have hindered auto production over the past few months.”

But time is short. “With every day passing carmakers’ loses will further pile up… Automakers should not be forced to foot the bill for subsidizing car prices in Iran,” Madani said.

His assessment is shared by Maziar Beiglou, a board member of the Iran Auto Parts Makers Association. Beiglou recently stated in an interview that the “The situation has been worsening by the day,” pointing to the rising price of inputs such as iron ingots used by companies that produce automotive steel. In Beiglu’s assessment, more than 300 auto parts makers have been forced to stop production.

Total vehicle production in Iran is down 15.1 percent looking to the first half of the current Iranian fiscal year, which began in March. Already, economic headwinds and slowing production have led to mass layoffs.

Sate-owned companies such as Iran Khodro and SAIPA are unlikely to “resort to laying off workers” given the difficult optics for the Iranian government, Madani predicted. But private sector auto parts companies have already been forced to layoff “100,000 to 150,000” workers because of the deteriorating situation.

Photo Credit: IRNA

Autoneum Deal Underscores Huge Potential in Iranian Auto Parts Industry

Switzerland’s Autoneum, a world leader in the acoustic and thermal insulation for automotive applications, has signed a new exclusive license agreement with Ayegh Khodro Toos (AKT), an Iranian auto parts company that specializes in noise and vibration damping materials.

Autoneum and AKT will establish a new production like at AKT’s facility in Mashhad in order to begin producing carpet systems and dashboard parts. The first parts will come off the production line in 2019. According to company materials, AKT employs 95 technicians and controls 75% of the market for automotive insulation.

These parts will support the production of a new "SUV" by IKAP, the joint venture between Iran Khodro and Groupe PSA. The unnamed vehicle is most likely the Peugeot 3008, for which imports to Iran of complete vehicles will begin in early 2018. 

Commenting on the new agreement, Martin Hirzel, CEO of Autoneum, highlighted Iran’s potential as “a central automotive hub for the Middle East, Far East and the Caucasus region.” Hirzel sees “strong sales potential” as the company seeks to meet the needs of customers in this regional market.

The new licensing agreement follows a common model in the Iranian auto parts industry, in which a foreign company brings technology and manufacturing specifications to a local partner, in order to supply the Iranian joint-ventures or CKD contract manufacturing agreements of the likes of PSA Groupe, Renault-Nissan, and Daimler. These parts are the lifeblood of a burgeoning Iranian automotive sector, which produced over 600,000 vehicles in the first half of 2017, registering 18% year-on-year growth.

The Iranian Auto Parts Manufacturers Association (IAPMA) estimates that there are 1200 parts manufacturers in the country generating USD 8 billion in annual sales. IAPMA ambitiously projects that Iranian auto parts market could generates sales of USD 32 billion by 2025. A major contributor of growth will be an expansion in exports, which are currently less than USD 200 million, but are expected to rise to USD 6 billion by 2025, a thirty-fold increase.

Major Iranian auto parts manufacturers such as Ezam and Crouse manufacture under license for global players such as Bosch, Mahle, Mando, and Valeo. The new agreement between AKT and Autoneum shows the potential for smaller, specialist parts manufacturers to strike similar deals that improve the quality and sophistication of the parts available for the local market and for export.

Photo Credit: Autoneum

The Other "Forgotten Man": A Look at Iran's Blue-Collar Workforce

Iran will soon witness a significant boost in its industrial output. Led by a resurgence in the auto sector, the country’s factories are receiving new investment, as major multinationals seek domestic and regional dominance across market sectors. Volkswagen will be building models in partnership with Mammut Khodro, while Mammut Diesel expands its production of Scania trucks. Renault will manufacture trucks in Iran with local partner Arya Diesel. Volvo has signed an agreement to build trucks in partnership with Saipa Diesel. The finalization of Renault’s long-awaited agreement to establish a new manufacturing joint-venture in Iran is expected soon. Peugeot, Daimler, and DAF are also also exploring local production. As the boom in passenger and commercial vehicle production in Iran picks up steam, a rather simple question remains unanswered—Who will build all of these new vehicles?

Iran boasts one of the largest blue-collar workforces in the Middle East. On the back of a population boom that began following the Islamic Revolution of 1979, Iran’s labor force has surged to reach over 27 million, roughly the same size as the labor force of Turkey, and over twice that of Saudi Arabia. The Iranian economy has struggled to absorb the influx of new workers, and the official unemployment rate remains stubborn at between 12%-14%, although some analysts believe the total is even higher. This simple fact explains two fundamental aspects about the dynamism of Iran's political economy. Firstly, the blue collar working class underpins significant consumer buying power. Secondly, the perseverance of Iran’s political diversity cannot be overlooked, especially not in a region where most such diversity has withered away.

Relief for blue-collar workers was fundamental to the early success of the win-win formula that drove the nuclear negotiations between Iran and the P5+1. The initial sanctions relief provided to Iran as part of the Joint Plan of Action (JPOA) focused on sectors which accounted for Iran’s largest employers, including the automotive sector. This was a direct result of advocacy of deal supporters in Washington, who argued that galvanizing Rouhani’s political base required showing tangible benefits to Iran’s blue-collar workers. As a result of targeted sanctions relief, the production of automobiles and commercial vehicles in Iran rebounded from 743,680 units in 2013 to 1,090,846 units in 2014, with year-on-year growth swinging from a 25.6% decrease to a 46.7% increase. This early success may have been the single-most important factor in validating the Rouhani administration’s gamble on diplomacy.

In the subsequent years, however, the importance of Iran’s blue-collar worker has been largely forgotten by business leaders and policymakers working on the implementation of sanctions relief. These stakeholders remain fixated with the Iran Deal’s role in the “Great Game” of the Middle East, and business leaders are focused on the intricacies of compliance and financing challenges as they approach Iran. In both cases, the international media is happy to play into the blind spots of the respective parties.

What has been lost is an appreciation that the “normalization” of relations between Iran and the international community is as much about elevating “normal Iranians” into a global consciousness, as it is about matters of international commercial, financial, and legal integration. While there has been progress in building awareness of Iran’s young and highly educated elite, whose start-ups and entrepreneurial verve play into the inherent coverage biases of the international media, a larger swath of society remains ignored. By a similar token, the rise of the “Iranian consumer” with untapped purchasing power and Western tastes has been much heralded, but the reporting fails to appreciate that Iran’s upper-middle class rests upon a much larger base whose primary economic function is not consumption, but rather production.

The struggle of the blue-collar laborer is one of the few truly universal experiences left in the world. The international fraternity of laborers is bound by a common set of anxieties which exist as much in Iran, as they do in Europe and the United States. These concerns range from access to healthcare to economic fears—all of which culminates in the stressful and all-consuming uncertainty of providing for one’s family.

The health risks faced by Iranian workers are well-documented in Iran’s extensive body of public health research. Issues include exposure to toxins, severe back and neck pain, and the workplace accidents. Most of the completed studies were based on research originally conducted among worker populations in Europe and the United States. The findings consistently suggest that the incidence of health issues adds considerably to the work-related stress of blue-collar workers, diminishing overall satisfaction with quality of life.

Alongside health concerns, Iranian blue-collar workers, both male and female, bear the fundamental burden of providing for their families. In this regard, there remains considerable skepticism of senior management. A 2013 study which looked at the sentiment of workers from at Iran Khodro and Saipa, Iran’s two largest automakers, found that staff report  “top management commitment” to high standards “is not positively related to staff degrees of freedom of choice” for the workers. This means that while the managers at Iranian auto companies may demonstrate their commitment to their staff with training programs and performance-based remuneration opportunities, Iranian auto workers still feel they are at the mercy of their superiors, ultimately hurting overall employee satisfaction. Given that Iran does not permit organized labor, this feeling of vulnerability is especially acute, particularly when companies are late making payroll or fail to improve safety standards.

In the West, the power of working class voters has reasserted itself with the Brexit referendum outcome and the election of President Trump, who boasted of his commitment to America's "forgotten man"—the blue-collar worker—in his inaugural address. Elections in France and Germany also loom large. Behind these electoral shifts is a heightened awareness of the malaise in the working-class heartlands of these countries. Yet while the frustrations of the working class are now better understood by voters across the political spectrum, the mere existence of the working class in economies such as Iran has not been fully acknowledged in these countries, despite the remarkable similarities in the Iranian blue-collar experience.

The only substantive difference between the Iranian and Western working class is that the two groups are demanding opposing solutions from their governments. Whereas voters in the United States and Europe are pushing for a protectionist turn in economic policy in order to protect jobs and wages, working-class voters in Iran have given their mandate to a plan which hinges on the forces of globalization. Having experienced the abject failure of protectionist policies in the Ahmadinejad administration, when Iran’s industrial output cratered under international sanctions and general mismanagement, Iran’s working-class is betting on the success of a different approach.

As the Iranian presidential election looms, a renewed mandate for the Rouhani administration will depend on the ability to demonstrate that sanctions relief has created high-quality employment opportunities, particularly for younger Iranians who face the highest levels of joblessness. Rouhani has succinctly described his vision in stating that “The future path of the Islamic Republic of Iran is the path of economic growth, non-oil exports, attracting domestic and foreign capital, and creating jobs for the educated.” Taking his statement as a “to-do” list, the Rouhani administration has already unlocked economic growth through economic reforms and revitalized non-oil exports through the lifting of sanctions and stimulus programs. Today, domestic and foreign investor capital is slowly being deployed. Job creation, of the kind that supports social mobility, is the remaining objective.

In accordance with Rouhani's vision and the tenor of Western populist politics, major multinationals looking to engage Iran need to consider their own blue-collar stakeholders, both in Iran and at home. Surprisingly few multinationals have touted the job-creation benefits of expanded trade with Iran. One of the few examples can be seen in Boeing’s statement following the finalization of its contract to supply 80 aircraft to Iran Air. In a clear nod to the rhetoric of the Trump administration, Boeing declared that “new orders will support nearly 100,000 U.S. jobs” within the company’s larger supply chain that “currently supports more than 1.5 million U.S. jobs.”

Troublingly, working-class voters in the West are empowering political parties that are either ambivalent or openly antagonistic towards the Iran Deal. In the United States, public sentiment towards Iran remains dire, with American voters considering Iran their second greatest enemy, only after North Korea. Many of these voters fail to recognize that their own job security could be tied to the trade opportunities represented in post-sanctions Iran. They are also unaware that the potential failure of the Iran Deal would principally hurt fellow blue-collar workers who are similarly at the mercy of forces beyond their control.

The great irony is that if there is indeed a breakdown in Iran’s new, improved relations with the international community because of electoral apathy in the West, it is Iran’s blue-collar workers who will be the first to suffer. Should sanctions "snap back", the layoffs in the manufacturing sector would be swift. In the event of possible global political conflict, Iranian conscription would draw indiscriminately from the ranks of its blue-collar labor force. 

In some sense, the full range of stakeholders, including business leaders, policymakers, and the media, continue to look at the Iran Deal through a lens that dates back to 2016 when JCPOA was formally implemented. The ground has shifted since then and new ways are needed to think about the Iran Deal in the current political and economic climate. By connecting the fortunes of blue-collar workers in Iran with those of their Western counterparts, a more powerful model of normalization might be found.

Photo Credit: Atta Kenare