More than a year after the United Nations lifted sanctions against Iran, crude exports from Iran have come roaring back.
Iranian Oil Minister Bijan Namdar Zanganeh says the country exported more than 3 million barrels on a single day last month, the highest level seen since the late 1970s, according to Bloomberg News.
But a the same time, investors have not been flooding back into the country since the United Nations reached a deal with Iran over its nuclear enrichment program, said Suzanne Maloney, a senior fellow at the Brookings Center for Middle East Policy.
“There’s been a considerable increase in traditional European sources of investment, like Germany and Spain, in automotive, industry and to some degree energy. But it’s slow progress,” she said, speaking at CERAWeek by IHS Markit. “The expectation there would be a quick bounce back from sanctions was over sold to the Iranians and this is the political dilemma the Iranian government faces.”
The possibility that President Donald Trump will take action against Iranian financial institutions associated with terrorist groups is creating further uncertainty for investors, Maloney said.
Iran’s attempt to reboot its economy comes at the same time the Middle East at-large is working to figure out a strategy for dealing with uncertainty in the oil markets, forcing heavy borrowing from governments in order to maintain their domestic economies.
“The real issue people are starting to come around to is peak demand. Governments are starting to understand they’re probably going to have to leave oil in the ground and find other ways to create revenue,” said David Scott, president of the U.S. consulting firm IDG. “Some countries will be successful but some will not.”
United Arab Emirates has already turned its largest city in Dubai into an international financial and technology hub. And Saudi Arabia is moving ahead to reform its economy, by selling stock in its national oil company Aramco and developing new industries like logistics.
“You have to start diversifying now. The longer you wait the harder it’s going to be,” said Samer Al-Ashgar, president of the King Abdullah Petroleum Studies And Research Center in Saudi Arabia.
But there is skepticism that countries so long dependent on the large revenues that came with crude can adjust. Mahmoud El-Gamal, an economics professor at Rice University, warned the campaigns for reform were more likely to create large paychecks for consultants rather than create real economic change.
“One has to think very seriously about squandering what limited capital these countries have left,” he said.