The Iranian Conundrum: How sanctions removal affects global logistics

Iran re-emerges to changed world

For many American businesses, 1979 was the cutoff point regarding trade with Iran. After the 444-day hostage crisis and Iran’s later involvement in state-sponsored terrorist activities, Iran has been considered a pariah by the U.S. government for more than 35 years. But Europe and many other regions of the world have continued trading with Iran. It was not until 2006, when the U.N. Security Council broadened the trade sanctions over Iran’s continuing uranium enrichment program, that the sanctions began to truly bite. The U.N. sanctions targeted not only exports and investments in oil, gas and petrochemicals, but also banking and insurance transactions, shipping and web-hosting services.

Since then, Iran has had to scrape together scant resources to keep its industrial capabilities intact, including its vitally important oil and gas infrastructure, as well as the aging fleet of planes owned by Iranian airlines. Currently, the country’s carriers operate about 140 aircraft that are an average of 20 years old. While the Airbus deal made headlines, the country will eventually need a total of 400 long-range aircraft and 100 short-haul jets to keep up with demand.

“Iran’s national carriers have been hampered by the sanctions, one of the results being that they lack the financial strength today,” said Peter Triebel, CEO of the Middle East, Africa and CIS region for forwarding giant Panalpina. “They will need some time to beef up their fleets. With the lifting of the sanctions, foreign carriers are going to start operating to and from Iran as demand grows.”

Investment in the oil and gas sector will be one way of boosting Iran’s economy, Triebel said, but the historically low cost of oil – which fell as low as $27 per barrel before rebounding over $40 by the early spring – has slowed Iran’s rate of recovery. “Iran’s cost of production is rather low, but the facilities are outdated and in need of modernization,” he said. “The pace will depend on how much foreign investment will flow into the country.”

For the last five years, Iran has oriented itself toward the East, doing more business with China, Korea and the United Arab Emirates. Germany’s involvement in Iran has been “negligible in the last five years, but not zero,” Dietmar said. In 2015, Lufthansa Cargo handled just 633 tons of exports and 1,575 tons of imports, Braun said. “Compared to 2014, the export volume dropped by almost a quarter while the imports grew by 24 percent,” he said. “Import and export volumes have been rather volatile through the last five years.”

During this time, the sanctions have eroded Iran’s productivity, Dietmar continued. “Look at any average Iranian factory and you’ll see their efficiency rated at about 20 percent,” he said. “The world is moving much faster than it did in 1979.” At the same time, the quality of products in the U.S. and elsewhere has improved dramatically.

Citing the World Bank’s Logistics Performance Index (LPI), Dietmar said Germany leads the pack at No. 1 in terms of trade logistics capability, while the U.S. is on the list of top 10 countries. Iran, in comparison, is ranked No. 114 out of 166 countries in the LPI. “They’re broke, and they’ve had to fix everything based on their own creativity,” he added. “Tehran reminds you of what can happen if you just leave a country alone for 30 years.”