Courtesy of The Economist, a look at the reality of investing in Iran in light of the sanctions relaxation:

IT WAS billed as a once-in-a-generation opportunity. Iran is the “biggest new market to re-enter the global economy in decades”, British trade officials said in January, predicting more than $1 trillion of investment over ten years. “Iran is a new region to conquer,” said an imperial-minded boss of a French luxury-goods firm this month. Sanctions had kept outsiders from an oil-rich economy worth an estimated $400 billion. Although an American trade embargo remains in place, firms from other parts of the world were expected to scramble to enter after the lifting of nuclear-related sanctions in January.

At first glance the influx has begun. Soon after the IAEA, the international nuclear watchdog, said Iran had fulfilled the terms of an agreement with big powers, European firms trumpeted deals potentially worth billions. Airbus said it would sell Iran 118 jets, with bigger orders possibly to follow. PSA Peugeot Citroën and Renault-Nissan said they would assemble and sell cars to Iran’s 80m people. Analysts foresaw record car sales this year.

So many delegations of would-be investors flocked to Tehran that visitors reported struggling to find rooms in the smog-choked city. Earlier this month Italy’s prime minister, Matteo Renzi, became the latest to lead a gaggle of businessmen there, predicting a golden era for industrial ties. Italian fashion firms, such as Versace and Roberto Cavalli, and a French cosmetics firm, Sephora, have opened shops in Tehran or plan to do so. In cafés in north Tehran, where peroxide hairdos poke from veils, rumours circulate about a European arm of an American turbine-maker that has agreed a big joint venture. Local “business enablers”—such as Ilia, run by well-connected Iranians and Germans—are popping up like mushrooms. They offer to help outsiders navigate markets, set up joint ventures, rent offices, find pre-paid credit cards and more.

Yet getting started is proving harder than many expected. The biggest problem is a lack of finance. On April 13th a Treasury official denied that America is continuing to freeze Iranian overseas assets. Yet such funds, worth perhaps $100 billion, which had been expected to help pay for an investment boom, do not seem to be flowing. More importantly, America continues to deny firms that operate in Iran access to its financial system. That spooks foreign banks, which are wary of the long arm of American law. Since 2009 the Treasury’s sanctions enforcer, the Office of Foreign Assets Control (OFAC), has imposed $14 billion in fines on those dealing with Iran.

Without the banks, those headline-grabbing deals will struggle to go far. Uncertainty lingers. The US Treasury seems unable to define the benchmarks Iran has to meet to regain access to the American financial system. “It was better when sanctions were still in place,” grumbles a wheat merchant, who traded with American suppliers (OFAC approved) throughout the sanctions era. “At least the banks then knew what they could and couldn’t do. Now the lawyers, not the bankers, are taking decisions, and nothing is moving.”

Lacking lubrication

“We can’t sell to Iran because our bank won’t accept payment,” says a British producer of drilling parts for oil platforms, who has stayed out of Iran’s market for the past six years. European export credit agencies are issuing some credit notes, such as a recent Italian one for $5 billion. A few European banks, including Belgium’s KBC and Germany’s DZ Bank, have started handling transactions, probably because neither has a big presence in America. Even so, they cannot trade in dollars (unless, America says, those dollars were already abroad) and appear only to be testing the water.

In Tehran, businessmen and officials say everything is stymied from afar. Ayatollah Ali Khamenei, Iran’s religious leader, says Americans lifted sanctions only “on paper”. Hamidreza Taraghi, who advises the Supreme Leader, says deals announced, including the largest with Airbus, were “just show”. (Airbus executives have been in Tehran this month, but the deal is yet to be finalised.) An international trade forum due in Tehran this autumn has been cancelled for lack of interest. Iran’s oil ministry has delayed a promised shindig in London five times.

A fast-growing Iranian e-commerce site, Netbarg, complains that an American server shut all its websites this year without warning. “They didn’t do anything when Iran was under sanctions,” says its owner, Ali Reza Sadeghian. Since the lifting of sanctions America has made it harder for Europeans who visit Iran to get visas. An American ban continues on commercial use of American products in Iran. A lawyer in London who advises firms on trade in Iran says visitors there should not use iPads, Microsoft PowerPoint or the like.

The headaches do not end there. Much excitement, for example, rested on the prospect of oil funds being splurged on infrastructure. But despite rising output, revenues will disappoint. In 2010 oil generated $125 billion for Iran; this year, given low prices, it will be lucky to get $25 billion.

Much of Iran’s industry, oil included, is run-down. Once flourishing industrial parks are ghost towns. Though luxury-goods firms see an opportunity, many consumers are short of cash and opt for the cheapest goods. Chinese car parts, for example, outsell pricier European ones.

A labyrinthine bureaucracy frustrates everyone. Since last October many Western visitors (though not Britons or Americans) have been able to get visas on arrival. Getting a work visa, however, still involves tiresome wrestling with red tape. Worse, a few foreigners have been arrested, among them Siamak Namazi, an Iranian-American businessman held since October, and his father, an ex-official at the UN. Statements from some public figures are discouraging. “We’re not going to go in their countries and we don’t want them to come and live in ours,” says Hadi Khamenei, the brother of the Supreme Leader.

Other sources of uncertainty include pervasive corruption and the activities of shadowy groups, such as the Revolutionary Guard Corps, which have big, hidden economic interests. It is hard to navigate Iranian politics, or even to find trusty accounting and legal firms, although several foreign outfits are returning to Tehran.

Spot the foreigner

Iran has a modest ranking, 118th, on the World Bank’s ease-of-doing-business index (see chart). Things might improve if parliament, newly elected, were to pass laws to tidy up customs rules, or to make it easier to hire and fire workers. Some officials also talk of restructuring state-owned firms, such as Iran Air.

Such reforms would make sense, irrespective of the availability of outside financing. Relations with America are unlikely to warm up quickly. America says Iran’s government is violating the spirit of the international deal, by launching missiles and more. This month Barack Obama told Iran to stop “engaging in a range of provocative actions that might scare business off”. America might not ease its position until after its presidential election in November. Were a Republican to win, that “poses a huge risk for investors”, says a Tehran-based consultant. Iran still holds huge promise, but the scramble will be more stately than expected.