December 16, 2015
The Joint Comprehensive Plan of Action (JCPOA), which the P5+1 (the five permanent UN Security Council members plus Germany) and Iran signed earlier this year, marked a watershed moment in international diplomacy. For 20 months, the P5+1 and Iran negotiated an accord to freeze Tehran’s nuclear program in exchange for an unfreezing of Iran’s economic relations with the world. At this juncture, many analysts are shedding light on the greater geopolitical implications of the nuclear agreement, the lifting of sanctions on the Islamic Republic, and how this will impact countries which complied with the sanctions regime, yet have an interest in exploring commercial opportunities in Iran.
Italian-Iranian relations are a case in point. From Rome’s perspective, the JCPOA opened the door for many Italian firms to tap into the Iranian market. Tehran officials have long seen Italy as one of Iran’s closest partners in the West. Undoubtedly, the level of trust between Iran and Italy is higher than between Tehran and most Western nations.
Not lost in the equation is the armed group Daesh (“Islamic State”), which considers its home in Iraq and Syria. Both Europeans and Iranians view Daesh as a grave menace to international security. Although the European Union and Iran have their differences with respect to the crises in Iraq and Syria, there is a growing call in European capitals for greater collaboration with Tehran in the international effort to counter the extremist group and its regional offshoots. Federica Mogherini, an Italian politician and the current High Representative of the EU for Foreign Affairs and Security Policy, articulated this position shortly after global powers and Tehran signed the JCPOA. Mogherini wrote, “Cooperation between Iran, its neighbors and the whole international community could open unprecedented possibilities of peace for the region, starting from Syria, Yemen, and Iraq.”
Earlier this month, Gulf State Analytics sat down with Cinzia Bianco, an Italian expert on Middle Eastern geopolitics, to discuss the context in which Italians and Iranians eye opportunities to pursue a mutually advantageous relationship in 2016 and beyond.
The text of the interview follows:
Gulf State Analytics: Iran has a relatively untapped market of 78 million people and a USD 400 billion economy. As European companies eye post-sanctions opportunities in Iran, what role do Italian firms see for themselves as Iran slowly reintegrates with the global economy? Who are the actors in Italy most interested in moving into Iran’s economy?
Cinzia Bianco: Indeed, Italian firms are eager to capitalize on the lifting of sanctions against Iran and fully exploit the country’s economic potential. Traditionally, Italy’s long-standing and diversified economic relationship with Iran has been centered around the petrochemical sector and related services, as well as the steel, mining, automotive and machinery sectors.
Relatively untapped promising sectors include transportation and infrastructure. Major Italian firms in these sectors have had a long-standing presence in Iran and they were more reluctant to comply with the sanctions. At this point, they are ready to get back in business. Some of the big Italian companies include Alitalia, which had a good presence in the logistics sector; Danieli, a major global player for plant making in the steel industry; multinational corporations specializing in engineering and construction for oil and gas projects such as Snamprogetti and SAIPEM (both subsidiaries of the energy major ENI) – and Tecnimont SpA, which since last March has allegedly been involved in preliminary talks regarding the realization of auxiliary infrastructures for the petrochemical complex in Asaluyeh, southern Iran – and Ansaldo Energia, an integrated operator for power generation plants. In addition to that, being rich in mineral resources such as lead, zinc, iron, and copper, the mining industry and its ancillaries are also looking at Iran with tangible interest, both as an investment spot and as a source of import. The food industry seems promising in both directions. Iran still has a sizeable portion of unexploited arable land, which might be of interest to Italian investors, and it is a big market for the export of Italian food. Finally, in addition to the big multinational companies, countless small and medium sized-enterprises are examining ways to tap into Iran’s market, in particular as a market for the export of “Made in Italy” products of the most diverse categories – from the usual textile and fashion, to luxury goods, to technology, and to medicine.
Gulf State Analytics: Before the UN Security Council imposed economic sanctions on Iran in 2006, Italy was one of Iran’s most important trade partners. How did sanctions impact Italian-Iranian relations?
Cinzia Bianco: Undeniably, sanctions took a major toll on Italian-Iranian trade. However, the real hit came in 2012, when a wide range of financial and commercial sanctions, established by the EU in 2010, were fully implemented. The trade exchange between Italy and Iran had hit a peak in 2011, reaching USD 7.66 billion (EUR 7 billion), and has significantly declined since 2012. Due to the effects of international sanctions, Italian exports toward Iran have registered a decline of 24.3 percent in 2013 and a further decline of 22.6 percent in 2014. Because Italy’s “triangulated exports” (mostly consumer goods) via two key Italian partners – Turkey and the UAE – had to be halted, the sanctions hit even harder. One of the main sectors impacted was energy. Until 2011, Iran had been one of Italy’s main energy providers (Italy imported roughly seven percent of Iranian crude oil production). Italy’s energy market has thus suffered significantly since the 2012 oil embargo, also given that its sources had been already compromised by the instability in North Africa, Italy’s main source of oil imports.
Gulf State Analytics: What can the opening of Iran do to improve Italy’s dismal economic conditions? Does Italy view Iran’s market as an opportunity to increase national exports? What does Iran see in Italy as an economic partner?
Cinzia Bianco: Since the 2009 financial crisis, domestic consumption in Italy has been the most stagnant of all EU members. Many view increased exports as a means to overcoming the crisis and perhaps achieve economic growth.
In addition to the usual destinations and emerging markets in China, the GCC, Turkey, and Eastern Europe, Iran is seen as a promised land for Italian products. The numbers look good. According to SACE (the Italian state-owned credit rating agency), the opening up of the Iranian market could spur Italy’s export for a total of USD 3.28 billion (EUR 3 billion) within in the next four years. Of course, this is a preliminary assessment. Nonetheless, the opportunity is real, given that post-sanctions Iran will presumably seek medium- and high-range products, which absolutely include products that fit the “Made in Italy” description.
Gulf State Analytics: Do Italian firms’ links with the U.S. complicate their prospects for pursuing lucrative opportunities in Iran?
Cinzia Bianco: Throughout the past this has been a tricky issue, but mainly with the U.S. government, rather than with private American firms. Tension mounted with Washington when several Italian companies, including Italy’s energy giant ENI along with other European firms, showed a certain reluctance to comply with the U.S.-imposed sanctions. However, if the JCAOP proves successful, there is little reason to expect Italian companies to refrain from pursuing economic opportunities unfrozen by the deal.
Across Europe the “rush for Iran” has already begun with several European firms competing to organize business trips to Tehran.
Only the Italian companies that have structural connections with American firms would find it difficult to engage Iran’s market decisively and unilaterally. Of course these companies would probably opt for discussing their development plans with U.S. partners in order not to alienate them. Indeed, whatever profit Italian firms might hope to gain from Iran is hardly worth such a high price. On the other hand, U.S. companies seeking to explore Iran may find Italian firms to be important partners for coordination purposes.
Gulf State Analytics: Do economics alone explain Italy and Iran’s growing interest in one another? Do security dilemmas in the Middle East (Syria, Iraq, Afghanistan, etc.) factor into the equation? Do Italy’s ties with the Gulf Arab states and/or Israel place pressure on Rome to proceed cautiously vis-à-vis Iran?
Cinzia Bianco: Like other Mediterranean countries, Italy’s interest in Iran has never been just about economics. Even more so, Iran’s positive view of Italy is not solely related to its position in the world’s economy. Many Italians and Iranians agree that the relationship rests chiefly upon cultural connections. Both Italy and Iran represent ancient civilizations and the two nations have long been interested in the other from a historical, literary, and archeological point of view.
Official diplomatic ties date back to the 1950s and remained solid throughout the 1979 Islamic Revolution, which brought a sizeable Iranian community in exile to Italy, and the Iran-Iraq war. In 1999, when President Mohammad Khatami visited Rome, Italy was the first country to receive the visit of an Iranian leader after the Revolution. Building on this history, in 2004, the Iranians sought to pressure the P5+1 group into incorporating Italy into the nuclear file, yet Italy opted out. Officials in Rome did not want to side either against Italy’s good trade partner – Iran, nor against the country’s main strategic ally – the U.S.
During the years leading up to the Iranian nuclear agreement, however, Italy took a more clear-cut position. Former Minister for Foreign Affairs Emma Bonino was the first diplomatic head of a European nation to visit Iran after Hassan Rouhani’s election in 2013. At that point Italian diplomats were already pushing for Iran’s inclusion at the Geneva II negotiating table on Syria. Somewhat echoing the Iranian leadership, Italy’s leadership often emphasizes that there is no military solution to the Syrian conflict, only a political one. In both Syria and Iraq, Italy is keen on recognizing Iran’s sustained efforts in the fight against Daesh (“Islamic State”). Rome shares Tehran’s concerns about stability in Afghanistan, where Italy is present with a sizeable contingent, at least by Italian standards. President Rouhani has been very supportive of giving a seat to Italy at the UN Security Council, a declared goal of Prime Minister Matteo Renzi’s government.
However, not everything in the Rome-Tehran relationship is rosy. One of Italy’s most important international commitments is the leadership of the UNIFIL mission in Lebanon. This has raised difficult questions more than once regarding the role of Hezbollah, Iran’s longa manus in Lebanon. This factor feeds into an intangible halo of uncertainty that represents an obstacle to transform the latent convergence of interests into a real partnership. The same is true with respect to Italy’s existing connections with Israel, the growing ones with Gulf Arab countries, and especially Rome’s relationship with Washington, a high priority for Italy’s leadership.
Gulf State Analytics: Several weeks after the P5+1 and Iran signed the JCPOA, Italian officials invited Iranian President Hassan Rouhani to Italy. He accepted, and planned to make Rome and the Vatican his first two stops on an outreach campaign trip to Europe, which was canceled due to the November 13 attacks in Paris. What did Rouhani’s plans to make Italy and the Vatican the first two stops tell us about the state of Italian-Iranian relations five months after world powers and Iran signed the JCPOA?
Cinzia Bianco: Although it is a bit early to say, Rouhani declared that he was pleased that his first visit abroad after signing the nuclear agreement will be to Italy and he underlined the good economic, cultural and political relationships between Italy and Iran. The president of Iran further acknowledged that on international and political issues, Italian leaders have always taken a moderate stance on Iran, which will definitely pay off in terms of trust. He went even further, maintaining that Iranians consider Italy as a friend in the West and that they view Italy as their potential gateway to Europe. To what extent these declarations were rhetorical remains to be seen. Certainly his postponed visit, which will include business meetings and bilateral meetings with the highest Italian institutions, will help understand whether a new phase of the relationship, especially on the economic front, will begin.
Gulf State Analytics: What is the likely future of the Rome-Tehran relationship?
Cinzia Bianco: From the Iranian side, a high-level political visit has been planned to Italy. From the Italian side, there has been no political visit yet and the main activity has been a business trip, which the Ministry for Economic Development organized in partnership with other Italian institutions. The delegation was big in number and profile. Last month, 178 companies, 20 business councils, and 12 financial institutions participated in the Bilateral Economic Forum in Tehran, which ended with the signing of four Memoranda of Understanding in the fields of tourism and trade. Undoubtedly, this was a remarkable initiative. However, it was less significant than what the Iranians had planned – a visit by Rouhani to Italy and the Vatican. Ultimately, there might be a discrepancy at this moment between what the Iranians expect from Italy and what Rome can realistically provide Tehran.
At the end of the day, Italy will always be aligned with the EU. Put simply, unless Iran shows a certain amount of goodwill in terms of being a constructive player in the region (especially in Syria and Iraq), the medium-term future of the relationship cannot be certain. We will probably witness a two-speed future in the bilateral relationship – a faster pace on economic development and a slower pace on political cooperation. Surely the potential to strengthen the bond exists. Time will tell if both sides are willing to pursue it.