Iran's agreement with major powers about its nuclear activities may or may not make the world safer. But as sanctions are lifted, what do experts, including wealth managers, think?

A great deal of ink has already been spilled on an international deal involving Iran and its nuclear programme. The agreement, through which sanctions by the United Nations and European Union against Iran will be lifted in return for the country observing certain conditions and restrictions around nuclear facilities, is controversial. Already, countries such as Israel have voiced worries about whether too much has been conceded to a power that has been dubbed a global sponsor of terrorism. More positively, US president Barack Obama has said the agreement represents a welcome break from decades of hostility between Iran and the West. 

As wealth managers know only too well, breaches of sanctions against Iran by banks have been costly. Last year, the US authorities hit Paris-listed BNP Paribas with a $8.9 billion fine for violations. The removal of such controls does not in any way lessen the need for private bankers to be rigorous in their due diligence checks on clients from Iran, or indeed anywhere else. 

A number of institutions have commented on the Iran story. We publish a selection that we hope readers find helpful.

Bank of America Merrill Lynch Global Research team
The Iran - P5+1 Joint Comprehensive Plan of Action (JCPOA) is of historical importance, in our view. Iran has been subject to sanctions since the Islamic Revolution in 1979 and its 36-year isolation may be soon coming to an end. While the unwinding of the complex sanctions regime is not assured, we analyse the Deal's potential market implications in this GEMs [global emerging markets] paper. 

Iran is the world's 18th largest economy by purchasing power parity. Within MENA, Iran's hydrocarbon-rich economy is the second largest behind Saudi Arabia and it trails only Egypt in terms of population. The gradual and partial removal of sanctions could help Iran's domestic demand rebound rapidly, especially if oil exports normalise to pre- 2012 levels. Our analysis suggests the Iranian economy would have matched the size of Saudi Arabia, were it not for sanctions. We think the deal is likely to bring macro benefits to Iran in three stages: cash, trade, and investment. 

The potential return of up to 0.7 million barrels per day in production over the next 12 months could add downside pressure on forward oil prices of $5-10/bbl, in our commodity research team's view. In their base case, as sanctions are unwound, the National Iranian Oil Company ramps up production to pre-2012 sanction levels of 4.5mn bpd of liquids by 2020 and maintains this with limited development of new fields. The commodity research team's medium-term balances still point to a range of $60-80/bbl for Brent. 

The gradual and partial removal of sanctions could imply around $200 billion in annual import demand by 2020, from $80 billion now. We believe UAE and Turkey are best positioned to enjoy potential upside in Iranian trade volumes. The deal should also support South Caucasus via freer trade, but could have some negative spill-over effects on Russia via lower oil prices or eventual competition to supply gas to Europe. Still, sustaining any boost in activity would require Iranian macro reforms, we think. 

Damon Holliday, private client consultant at Druces, a London law firm
Once the sanctions are lifted it is unclear who the regime will be able to blame for Iran’s economic woes. Wealthy individuals may now be looking to move their wealth elsewhere, and applying for investor visas in the UK, to avoid this uncertainty. 

Not everyone agrees that this deal is good news and those that do cannot agree on who it’s good news for. There is bound to be a profound effect on some sectors and it may be that it will take some time to see where the financial impact will be felt most.

Firas Abi Ali, head of Middle East analysis, IHS Country Risk
The nuclear agreement will most likely impose identical constraints to those agreed in the April draft, while allowing international inspectors to visit Iranian military sites conditional to approval by the P5+1 and Iran. In return, the P5+1, the United Nations Security Council and the EU will probably gradually lift sanctions affecting Iran. Sanctions affecting trade are likely to be the first to be removed. Third party countries, such as India, South Korea and South Africa, which had imposed their own sanctions on Iran due to US pressure, are likely to lift sanctions in the coming weeks.

Iran will not be open to business until the ratification process is completed. Moreover, doing business with Iran will entail several key risks. Iran’s legal system is outdated and complicated. Iran has not had significant experience with international investors for years and the bureaucracy is likely to lack sufficient numbers of skilled personnel to be able to process investor requests rapidly enough.

There will be significant pressure to change regulations to address investors’ concerns and protect Iranians’ interests. Moreover, the IRGC plays a very large role in the Iranian economy. Sanctions on the IRGC will likely continue, leading to significant counter-party risks for businesses partnering with Iranian counterparts.

Domestically, the boost that Iran’s economy will receive from the removal of sanctions will increase president Hassan Rowhani’s popularity, and enhance the credibility of the Islamic Republic model of government, at least for the next two-to-three years. It will also increase the power of the moderate conservative camp, as opposed to the hardline conservatives who emphasise the Islamic values of the Iranian revolution, and consequently, hostility to the West. However, expectations of significant, across-the-board improvements in living standards are unlikely to be met. Moreover, the conservative element is likely to place greater emphasis on maintaining Iran’s cultural identity and distancing that from the West. This may well lead to increased political instability in the three-to-seven year outlook.