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Iran’s nuclear deal is an important ‘first step’

Silk Road Capital assesses the implications of Iran’s nuclear deal with the West…

Landmark Deal. Iran and world powers have reached an agreement that freezes key parts of Iran’s nuclear activities in return for about USD7bn worth temporary sanctions relief. The hard-fought deal, the first such agreement in 10 years, has broken a long-lasting diplomatic gridlock between Iran and the West. The six month agreement commits Iran to curb key activities of its nuclear program, in particular to halt enrichment above 5%, and neutralise its stockpile of near-20% uranium; to halt progress on its enrichment capacity (including no installing additional centrifuges of any type); no further advances of its activities at Arak reactor; and to increased transparency and monitoring of its nuclear program.

In exchange, world powers represented by the P5+1 group, including the five permanent UN Security Council members plus Germany, have agreed to provide temporary relief in sanctions comprising suspension of certain sanctions on about USD1.5bn worth revenue from gold and precious metals, Iran’s auto sector and petrochemical exports; allowing purchases of Iranian oil to remain at their current levels (USD4.2bn worth sales to be transferred in installments). However, the arrangement maintains the major sanctions related to oil sales, finance, and banking transactions, and the relief will be revoked if Iran fails to abide by its commitments of the agreement.

This interim deal is the starting point of further difficult rounds of negotiations to reach the comprehensive agreement. Therefore, the next steps will be crucial as Iran and the US will be thoroughly tested in their ability to overcome domestic and international opponents, make necessary, politically difficult concessions and reach permanent deal.

An Important “First Step.” President Obama hailed the agreement as “an important step toward a comprehensive solution that addresses our concerns with the Islamic Republic of Iran’s Nuclear Program”. While this deal is a “first step,” Obama states, “… it achieves a great deal.” Obama acknowledges that this first step marks “the most significant and tangible progress” with Iran since he took office. President Rouhani stated at a press conference, which was broadcast live in Iran, that the accord marks “a starting point for a new chapter for the Iranian nation. The world came to realize that respecting the Iranian nation will bring about positive results and that threats won’t bear fruit.” The president said that Iran “has never and will never seek nuclear weapons.”

World Powers Welcome the Deal. The historic agreement has been welcomed by major powers including Russia, China, and India. Russian President Vladimir Putin called the deal a “breakthrough”, while German Foreign Minister Guido Westerwelle hailed it as a “turning point.” For India, as reported by The Times of India news agency, the deal provides a “relief” to continue trade relations with Iran and to safeguard its investments in the region. On the contrary, Israel’s Prime Minister Benjamin Netanyahu condemned the deal as “historic mistake.”

In our view, there are three key takeaways from the deal reached between Iran and world powers. First, the agreement is a major milestone in the challenging path for resolving one of the world’s thorniest issues; second, it could be a catalyst for unprecedented US-Iran rapprochement after 34 years of hostilities; and third, Iran’s possible rehabilitation can open the country’s economy for foreign investments.

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