Business

Scotland sets sights on trade with Iran

  • 16 October 2015
  • From the section Business
Media captionFrom Aberdeen to Abadan - how a Scottish business helped build Iran's first oil refinery in 1912.

The prospect of oil giant Iran opening up for business in the coming months might not on the face of it seem like good news for Scotland's oil capital, Aberdeen, but that's not how the Scottish National Party's Alex Salmond sees things.

"This is not just a good opportunity," he told an audience at a BBC debate on the fringe of the SNP conference in Aberdeen.

"It's an unambiguously a great one. Scotland has much to offer. Benefits can flow both directions."

Iran struck a deal in July over its disputed nuclear programme.

Under the terms of the agreement, once Iran delivers on its commitments the European Union and the US will end sanctions on Iran's trade, financial and energy sectors.

It is expected that this will happen sometime early next year.

Within months Iran will be producing about 500,000 barrels of oil a day, and $100bn (£65bn) of Iranian government funds, currently frozen in overseas bank accounts, will be freed up to spend in key sectors such as petrochemicals, oil and gas, mining and construction.

Technology transfer

The economies of Scotland and Iran both rely on crude oil, and Scottish engineers were heavily involved in prospecting for oil in Iran and developing the oil industry there in the early 20th century.

Image copyright Mark Runnacles
Image caption Alex Salmond wants more Scottish firms to consider doing business in Iran

But future ties between the two countries may go beyond oil.

Mr Salmond said he was taking a delegation of Scottish business leaders to Tehran shortly to promote cooperation in agricultural technology among other areas.

Scottish companies are also looking for openings in the fields of education, digital technology and gaming.

A generation of Iranian gamers grew up on Grand Theft Auto, the computer game developed by Edinburgh-based Rockstar North.

According to Mr Salmond, Scottish expertise in digitally mapping archaeological sites could one day be of interest to Iran.

Also taking part in the BBC event were a number of UK business people, with long experience of working in Iran. All agreed that exporting know-how would be a key component of future business ties with Iranian companies.

Image copyright ALI AL-SAADI
Image caption Iran is investing in boosting its infrastructure

Paddy Collins is the chief executive of Aubin Group, based near Aberdeen, which supplies chemicals to the oil and gas industry.

"Iranians know what's going on and what technology they want and need," he said. "You've got a huge workforce of highly educated people who can easily be trained up."

"The key thing is transfer of technology, Iranians want that with every major project," said Nigel Coulthard, another Iran veteran, who is president of Franco-Iranian economic exchange group Cercle Iran Economie.

But underneath the optimism is a deep concern in Aberdeen about what lifting Iranian oil sanctions will mean for oil prices.

Iran says it could add one million barrels a day to its production a year after sanction are removed.

Image copyright Andy Buchanan
Image caption Scotland's oil workers have much technological expertise

This will add to a global market is already oversupplied by three million barrels.

Some analysts say this could put more downward pressure on oil prices that are hovering around $50 a barrel for Brent crude. Last year, the price was $90.

That's not good news for Scotland's oil industry, which already has some of the highest production costs in the world at about $40 per barrel, compared with just $5 in Iran.

But Iran also says it wants to invest some $185bn in developing its oil and gas resources over the next decade, most of which will have to come from international oil giants.

Mr Salmond said: "The oil industry here is an international one. The ability of Scottish-based companies depends on international prospects."

Senior executives from Scottish-based oil services firm Amec Foster Wheeler, and industrial giant Weir Group, accompanied Foreign Secretary Philip Hammond on his August visit to Tehran.

Political risks

If Scottish companies do succeed in capturing new markets in Iran they will be doing so from very modest beginnings.

Compared with the rest of Europe, the UK's trade-turnover with Iran has always been relatively low, even before sanctions.

Image copyright ATTA KENARE
Image caption Without the sanctions Iran plans to substantially increase its exports

Iranian customs authority statistics show Scotland exported $4.7m worth of goods and services to Iran in the year to March 2015, and imported almost zero.

Iran's imports globally were $52bn, including some $600m from England. In other words, Iran's trade with the UK is tiny, and negligible with Scotland.

For companies going into Iran there are also considerable political risks too.

The country may be opening up for business but it is still dominated by political hardliners who often see change as a threat to the system.

"Progress is likely to be slower than people anticipate," says Professor Ali Ansari of St Andrews University's Institute of Iranian Studies. "There will be problems inside Iran adjusting to the new realities."

'Know-who'

So did anyone have advice for Scottish businesses thinking of investing in Iran?

"Don't go there unless you have a good Iranian partner," says Paddy Collins. "We have the know-how. They have the know-who."

"Iran is a country of 80 million people. It has a young population and it is a consumer country," said Maryam Kiaie, business development director of Rah-Shahr International, an Iranian construction group.

"Iran's opening up is brilliant news for everyone."

An accompanying radio discussion on this topic will be broadcast on BBC Radio 4's The World Tonight on Friday, 16 October at 21:00 GMT, and then available via the podcast. It will also be broadcast on the BBC World Service's In The Balance show on Saturday, 17 October at 07:32 GMT.

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