Via STRATFOR (subscription required), analysis of how Iran’s weak economy will continue to deter foreign investment, even in the unlikely event the JCPOA is restored:

An agreement to restore the 2015 U.S.-Iran nuclear deal is unlikely as imminent as EU diplomats have suggested due to Iran’s continued demands for sweeping U.S. assurances. But even if Tehran secures an agreement that guarantees widespread sanctions relief, Iran’s structural economic weaknesses will continue to deter foreign investment. European officials recently expressed hope that Iran and the United States may be closer to restoring their beleaguered nuclear deal — known formally as the Joint Comprehensive Plan of Action (JCPOA) — than they have been in months, with EU foreign policy chief Josep Borrell noting on Aug. 22 that a meeting in Vienna could take place as early as this week. But on Aug. 15, just a week after the European Union proposed its ”final” version of a draft text to revive the JCPOA, Iran renewed its demands for ”sanctions guarantees,” which has jeopardized the prospect of a deal being reached in the near term. This is because, since March, the United States and its allies have made little-to-no progress in appeasing Tehran’s demands for widespread sanctions relief. They’ve also made only limited progress in addressing Iran’s other demands for resuming compliance with the JCPOA, including assurances that the United Nations end its probe into nuclear activity at undeclared sites in the country.

• In addition to sanctions relief, Iran has demanded guarantees that returning to compliance with the JCPOA would award it with substantial economic benefits. Tehran has also demanded guarantees that future U.S. administrations would not be able to withdraw from a restored nuclear deal, as former President Donald Trump did in 2018. (The current administration of U.S. President Joe Biden cannot prevent its successor from implementing sanctions against Iran, but it could craft language that would make it difficult for a future U.S. administration to implement such sanctions without also implementing a long grace period.)
• On Aug. 18, the ??London-based Iran International reported that Washington has made several offers to assuage Tehran’s concerns, including easing sanctions on 17 Iranian banks and 150 Iranian organizations, releasing $7 billion of frozen Iranian funds in South Korea, allowing 50 million barrels of oil sales within 120 days, and exempting foreign companies from sanctions in case of a U.S. withdrawal from the deal. 
• The United States has not officially responded to Iran’s renewed demands. But on Aug. 22, U.S. State Department spokesman Ned Price said Washington was encouraged by Tehran’s decision to drop its demand that the Islamic Revolutionary Guard Corps (IRGC) be removed as a U.S.-designated foreign terrorist organization, though he also noted that other outstanding issues with Iran remain.

Even if the JCPOA is revived, most Western companies would have little incentive to invest in Iran, which would lead Tehran to struggle to generate significant economic benefits from the deal beyond increased oil exports. For foreign companies, entering a new contract to buy more Iranian oil — particularly under short-term contracts — would carry little long-term risk following the lifting of sanctions under a revived JCPOA. For one, the limited duration of the contracts would enable foreign companies to pull out of the country on short notice. Foreign firms could enter such contracts without having to step up their business operations inside Iran. Longer-term investments in Iran, by contrast, would require companies to physically increase their business activity in the country, which would carry a long-term sanctions risk since the United States could quickly re-impose sanctions — especially if a candidate from the Republican Party, which tends to be more hawkish on Iran, wins the 2024 U.S. presidential election. This sanctions risk is made all the more acute by the fact that most foreign investors in new projects also do not make back their initial investment for several years at the earliest. Moreover, in addition to foreign investors, Western banks would hesitate to start quickly providing financial services to Iran due to the risk of future sanctions — particularly given that the IRGC and other Iranian entities would likely be sanctioned regardless of whether the JCPOA is restored. Additionally, Western banks would still have to navigate the high compliance requirements that accompany the Iranian market, further discouraging a resumption of services.

• Many of the Western companies that announced investments in Iran as part of the original 2015 JCPOA, such as France’s then-Total SA’s 2017 deal to develop the South Pars Phase 11 natural gas project, suffered losses when the United States exited the pact in 2018. If the JCPOA is restored, most Western companies are thus unlikely to re-enter Iran as quickly as they did when the deal was first signed. 

Furthermore, a new nuclear deal would not solve the broader mismanagement or structural challenges plaguing Iran’s economy, which create an incredibly difficult operating environment for foreign investors and present tradeoffs for Iran’s leaders. Iran’s economy is rife with major structural problems, including widespread corruption, outdated infrastructure and powerful politically-entrenched companies seeking to protect their interests. These issues would not only further deter Western investors from returning to the country following a potential JCPOA deal, but they also dissuade investors in China and other non-Western countries (who are often less risk averse than their Western counterparts) from seeking new opportunities in Iran. Additionally, even the economic benefit of increased oil exports would have tradeoffs, as today’s high oil prices and demand for Iranian oil would increase inflationary pressures on the Iranian rial, which would undercut exporters of non-sanctioned products that have benefited under Western sanctions due to a weaker currency. Moreover, if the removal of sanctions under a restored JCPOA doesn’t provide Iran broad economic benefits, it could politically backfire on Iran’s leaders by quashing their narrative that Western sanctions (and not Tehran’s largely failed policies) are the root cause of the country’s economic issues.

• Raisi has not explicitly laid out an economic strategy, beyond making modifications to Iran’s subsidy program and backing Khamenei’s ”resistance economy” approach. But since taking office in August 2021, the Iranian president has not sought to pursue the sweeping economic reforms envisioned by his predecessor Hassan Rouhani when Rouhani negotiated the original JCPOA. Under his ”economic rejuvenation” strategy, Rouhani had hoped to improve Iran’s investment environment by reducing the IRGC’s role in the economy and financial system. He also planned to implement broader economic liberalization reforms for foreign investment, including bringing Iran’s investment terms for the oil sector on par with other Persian Gulf OPEC countries.

But regardless of the economic impacts of a potential new deal, Iran’s leaders still have multiple reasons to stall negotiations. Iran’s leaders probably assess that sanctions — which have been expanding since 2012 — are not capable of causing enough economic upheaval to threaten their underlying grip on power for the foreseeable future. Tehran has survived four years of tough sanctions from the United States with limited political fallout, and Iran’s security services have demonstrated that they can manage large-scale economically motivated protests when they do occur. Iran’s economy, while facing high inflation and a rapidly depreciating currency, has not collapsed — in part because Iran has been able to sell some oil to countries, like China, that are willing to partially skirt sanctions. The United States also has little interest in more military adventures in the Middle East; while Iran’s nuclear advancement is increasing the risk of more U.S. and Israeli operations against Iran, any physical strikes against Iranian infrastructure will only aid Iran’s nationalist political rhetoric against the West. Therefore, Iran likely believes the West is unlikely to make good on any threats to retaliate against Tehran’s nuclear development and other aggressive activities with military force. More broadly, Tehran likely also sees changing global dynamics, including China’s economic and political ascent, as proof that the Western-led global order is declining and that Iran’s economy and political leadership can survive indefinitely as long as China, Russia and other non-Western countries are still willing to do business. Finally, the hard-line and conservative politicians in Iran who have always opposed the JCPOA have only gained political influence over the last five years of tighter sanctions.

• When Iran started negotiating the JCPOA with the West in 2012, Iranian leaders probably feared that sanctions could result in significant economic, social and political upheaval in Iran. The U.S. imposition of secondary sanctions on Iranian oil and the EU embargo on Iranian oil had just come into force, and, only three years prior, Iran faced the massive 2009 Green Movement that led to 18 months of protests. Meanwhile, Iran’s leaders had seen the Arab Spring demonstrations in 2010 topple authoritarian governments in Egypt, Yemen and Libya. Finally, the United States was still deeply involved militarily in the Middle East, and a military conflict between Iran and the United States was still a possibility, even if a low-likelihood one. 

• In 2021, Iran and China signed a 25-year cooperation agreement. Iran likely views the deal as a strategic pact in deepening ties with a global rising power that over the next two decades will equal (if not eclipse) the United States’ economic heft.