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Why the United States Needs to Consider Investing in Iran

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In the wake of Barack Obama's phone call to Iranian President Hassan Rouhani in September 2013, a U.S.-Iran détente may be possible. Even with a new warmth between the two countries, a number of questions have been raised, the most obvious being "what now?" With the states slowly inching toward a more cordial relationship, now is the perfect time for American firms to explore investment options as the Iranian economy could potentially be a vibrant place for your money in the near future.

With the release of over $4 billion in previously frozen assets, the Iranian economy may see an opportunity that has not been present for over three decades: an economy less burdened by sanctions. Since 1979, when the United States first applied sanctions, the Iranian economy has struggled as money, goods, and skilled labor hemorrhaged from the country.

While many have long seen the sanctions as ineffective, recent comments by Rouhani's administration indicate an incredibly dire financial situation. The continued isolation from the SWIFT banking system causes capital to flow around the country, and rarely through. Nearly one in five Iranians live on $10 per day or less, a number that has grown steadily in recent months as domestic firms continue to declare bankruptcy and create more unemployment.

Iran's oil trouble

Especially the oil market has suffered. Under sanctions, Iranian oil exports have fallen to record lows and have allowed neighboring Iraq to take on a larger role in the market, something that has not happened since the 1980s. Three-quarters of Iran's diminishing foreign reserves, valued in mid-2013 at $60 million, lie in escrow accounts that permit goods purchases only from Iranian oil consumers.

As such, the Iranian economy has been left with little choice but to import high-bulk, low-quality goods from countries such as China. This relationship has left many Iranians with a bad taste in their mouths, feeling cheated by the increasing amount of capital that moves to China and stays there.

A U.S. opportunity

This amalgamation provides the perfect time for American firms to get involved in an ailing economy. Although current sanctions limit the amount of investment in-country (see Executive Order 13622), there are indications that Obama may make minor unilateral concessions, which would resonate in both markets.

Any minor repeal of sanctions such as EO-13622 could open new capital flows into Iran. Beyond the immediate creation of American business ties with the country, funds invested now could create potential markets for more American products and services in the long run.

The shortage in skilled labor in the country allows for a more indirect approach. While China has shown a clear preference for Chinese corporations on domestic Iranian projects (and therefore keeping money in the Chinese system), a more cooperative approach may allow for an integrated market, based on skills transfer between American and Iranian firms. The Obama-endorsed sale of General Electric (NYSE: GE  ) products to Iran could be turned into such a partnership.

This is not to say that the road to an improved Iranian economy will be easy.

There are indications that Supreme Leader Ayatollah Khamenei is not yet completely supportive of improved ties with the United States. The further challenge of a deadlocked Congress means that the possibility of a détente is not set in stone.

What is important is the next step taken by President Obama. Even the smallest American gesture toward reviving the Iranian market will pay great dividends in the long run for firms of both countries.

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Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 25, 2014, at 10:52 AM, gt4eva wrote:

    China is kicking our butts all over, cutting deals with countries in developing and emerging markets. Russia too. Our economic recovery is a mirage, more Americans live in poverty now that ever before. Jobs are dwindling and we continue to hold to our pious convictions about what's right. What's right for us changes from day to day and much of our policy really is in the best interest of some ungrateful nation(s). A lot of the awe in which we were held no longer applies. Our exceptionalism is no longer exceptional.

    We must wake up now!

  • Report this Comment On January 25, 2014, at 11:44 AM, jimmychurch wrote:

    I was waiting for the other shoe to drop. Remember when liberals said to past presidents that it was just about oil. Well, it is 2014, so what is it about with this Prez?

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Kurt Avard

A January 2014 addition to the Motley Fool team, Kurt Avard prefers to focus on the "dark" side of business and how it interacts with politics. Rarely writing on the same thing twice, he feels that, if he manages to convince you that the two are inexorably linked, he has adequately done his job. Follow him on Twitter @kurtsavard

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