Iran - Foreign investment





Until the early 1970s, Iran rarely participated in foreign businesses. The National Iranian Oil Company (NIOC) did invest in the construction of oil refineries in Madras, India, and other places, and it participated in several mixed ventures with foreign oil firms that held concessions for Iranian oil. But with the vast increase in oil revenues, Iran became one of the world's leading creditor nations; in 1974 alone, bilateral agreements worth hundreds of billions of rials were signed with France, West Germany, Italy, and the United Kingdom. In July 1974, Iran agreed to purchase a 25% interest in the German steel-making firm of Krupp Hüttenwerke, an investment believed to be the largest single stake purchased by any oil-producing nation in a major European firm up to that time. In 1975, Iran began negotiating investments through the UNDP in developing nations.

Prior to World War II, foreign companies had important investments in Iranian banks, insurance companies, transport, and the oil industry. In 1955, the legislature enacted a law providing for withdrawal of invested capital in the currency that was brought into Iran, for the export of annual profits, and for adequate compensation in the event of nationalization of the industry or business. In 1957, the United States and Iran exchanged notes recognizing that the United States would guarantee its private investments in Iran against loss through actions by Iran, and the following year the Majlis enacted a law protecting foreign capital investments. Foreign companies moved into Iran to exploit mineral resources, to establish banks in partnership with Iranian capital, to build factories, and to carry out segments of the shah's vast economic development program.

Since 1979, the instability of the revolutionary government and the catastrophic war with Iraq have had a chilling effect on western investment in Iran. As of 1995, the United States has imposed investment restrictions on US firms, and, in general, Iran looks with official disfavor on reliance upon the west for investment. The economic reality, however, is that the country emerged from the war with Iraq in terrible economic shape. In 1995, desperate for western assistance in rebuilding its oil sector, Iran contracted with the French Oil Company, Total, to develop its Sirri oil field. It is the first instance of foreign investment in the vital petroleum sector since the 1979 revolution. In 1995, Iran had negative direct foreign investment of about $50 million, reflecting repatriation of profits greater than inflows of new investment. Foreign direct investment was almost non-existent in 1998.

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