Until Ottawa drops its hard line, Canadians will fall behind in Iran

A nuclear accord is finally in place between Iran and the “P5+1” – the United Nations Security Council’s permanent five, plus Germany.

In exchange for extensive relief from international sanctions, Iran has reportedly submitted to serious curbs on its nuclear program as well as a surprisingly robust inspections regime. The deal still has to be ratified by the parliaments of the countries involved – no certainty, given the opposition to a deal by Iran’s hard-liners and hawks in the U.S. Congress.

Nevertheless, we are likely to see the deal come into effect in the next couple of months. And this is big news for Canadian business. Iran represents a huge and, by virtue of international sanctions, largely untapped emerging economy with real potential for substantial growth and international investment.

Whatever one thinks of Iran’s theocracy, the nuclear agreement portends an international re-engagement with Iranians. Companies worldwide will now be clamouring to get a foothold – and first-mover’s advantage – in Iran’s markets.

From the perspective of Canadian business, Iran has a massive need for investment in its energy, infrastructure and banking industries in particular – industries where Canadian businesses have much to offer.

Small businesses run by members of the large Iranian-Canadian diaspora will also be looking for an easing of access to Iranian business networks as their counterparts in London and elsewhere are freed to trade with Iran again.

Yet the agreement brings as much uncertainty as it does opportunity.

In the aftermath of the agreement, Iran will be faced with a patchwork of sanctions. The UN will lift nuclear-related restrictions – likely in mid-December, when the world body reports on Iranian compliance with the deal’s terms – but individual countries can still maintain domestic sanctions, in whole or in part.

The United States, for example, has already made clear that it will remove sanctions related to nuclear proliferation, but leave in place sanctions related to human rights and terrorism.

This patchwork leads to uncertainty that is bad for business; legal obligations will be unclear, differing depending on the reach of the country imposing the sanctions.

We have seen in the past, recently in Libya, that when such uncertainty exists, the financial sector smartly tends to play it safe to limit exposure.

This means that financial transactions could remain difficult or impossible to complete, with the result that international sanctions barring trade remain effectively – even if not technically – on the books.

Canadian companies can look forward to further uncertainty by virtue of Ottawa’s approach to sanctions.

Current Canadian sanctions under the Special Economic Measures (Iran) Regulations include a virtual import/export and financial transactions ban. It is among the most stringent sanctions regimes in the world. And although the Canadian sanctions were implemented to respond to the nuclear threat posed by Iran and will become relatively toothless given the inevitable easing of international sanctions, the Conservative federal government has already announced that they will remain in place, at least for now.

The government does have time to change its mind before the UN reports on Iran’s compliance. Ottawa can use this time to quietly claw back the current position, amend the legislation to focus on terrorism and human rights offenders while removing blanket import/export or financial transactions bans, or to carve out legislative exceptions easing the burden on certain Canadian industries.

What they do will be worth watching, but in the interim, businesses will wait uneasily, not knowing what’s to come while our allies clearly signal to their industries what to expect.

Any change in government would likely signal a new approach. The Liberals and New Democrats have both pledged re-engagement with Iran. A nuclear agreement makes this a more palatable position, and one likely in line with what Britain and other allies will do.

However, even under a new government, there is no guarantee that Canadian sanctions will be repealed in whole or in part. With the nuclear agreement now in place, it will be interesting to see whether either opposition leader, Justin Trudeau or Thomas Mulcair, clarifies his position.

Given that the U.S. Congress now has 60 days to vote on the nuclear accord and the UN will not report on compliance until December, balancing these business interests with Iran’s political and security issues will likely be a challenge for the next government.

In the meantime, Canada will maintain its hard line on Iran, and Canadian industry will only hope not to fall too far behind its international competitors.