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South Africa-Iran Agreements Signify Co-operation in More than Energy

Wednesday, May 4, 2016

Bronwyn Fraser, Research Assistant, Indian Ocean Research Programme

Background

South African President Jacob Zuma met with his Iranian counterpart, Hassan Rouhani, in Tehran on 24-25 April 2016. The two signed eight agreements mostly aimed at boosting the two countries’ trading relationship, including trade and industry, agriculture, the establishment of a  Joint Investment Committee and a South Africa-Iran Business Council, water management, intelligence and counter-terrorism co-operation, energy and tourism, although no further details have yet been released. Speaking on Iranian state television, President Rouhani praised South Africa’s support during the nuclear sanctions, referring to the two countries as ‘close friends’. Despite warm diplomatic ties, trade volumes between the two countries dropped to approximately 358 million rand ($32.5 million) in 2015, largely owing to the lack of banking capacity and the imposition of sanctions by the P5+1 (China, France, Germany, Russia, the United Kingdom and the United States) on Iran due to the latter’s nuclear programme. Now that many of the sanctions have been lifted, Iran is eager to reboot its economy and South Africa is eager to access unfrozen Iranian assets.

Comment

Before the sanctions, oil was a substantial part of Iran-South Africa trade. Iran supplied South Africa with nearly one-third of its crude oil in 2006, but that figure fell sharply in 2012 due to sanctions. South Africa’s energy security dropped proportionately, and, in 2013, half of its imported crude oil came from Saudi Arabia. Due to South Africa’s heavy reliance on Iranian oil, Washington granted Pretoria a temporary exemption from the sanctions to give it time to find a new supplier but South Africa was still required to cut its imports in the meantime. Insurance prohibitions on tankers carrying Iranian oil resulted in a further drop in the volume of oil imported by South Africa.

South Africa has consistently supported a “peaceful” nuclear programme in Iran, even during the latter’s difficult, sometimes hostile relationship with the West. That approach generated some criticism from Western countries but goodwill from its former major energy supplier. While being mindful of the sanctions, which crippled the Iranian energy sector, in late 2014, South Africa and Iran indicated a willingness to revitalise their economic relations and energy imports. No details were given as to how the sanction issues would be resolved and South African import data for 2014 does not reflect the rhetoric. In 2015, perhaps sparked by progress made between Iran and the P5+1, Iran and South Africa again indicated eagerness to boost their economic relations, although attempts were once more frustrated by existing trade bans. While economic relations were strained by the sanctions, politically South Africa and Iran remained in good standing.

Most sanctions have now been officially lifted, unfreezing billions of dollars in Iranian assets and allowing the international sale of Iranian oil to resume. South Africa is keen to welcome Iran back into its import portfolio. While energy imports accounted for up to 90 per cent of the trade between South Africa and Iran in the past, the new landmark agreements are an attempt to expand their economic ties beyond oil. South Africa’s stalling economy is hungry for development and energy, and while competition for Iranian business has been steep in Asia – South Korean oil imports from Iran have quadrupled since sanctions were lifted to 400,000 barrels per day – many trade deals elsewhere have been stalled. Despite the lifting of most of the sanctions in January 2016, Iran is still excluded from global markets to a large degree. That is primarily due to lingering uncertainty regarding the possibility of future sanctions if Iran were found to be restarting its nuclear programme or of falling afoul of the sanctions restricting the use of US dollars in the Iranian financial system that are still imposed by the United States. In what would have been intended to be a major deterrent, international bank BNP Paribas was fined nine US$9 billion for violating the still in place US financial sanctions.

For Iran, South Africa – despite the weakened state of its economy – is a good choice for an economic partner. If Iran can resume a healthy economic relationship with a G-20 state, it might also boost the confidence other, previously reluctant, trading partners. South Africa does not seem to share the hesitation that Iran sees international banks possessing, nor does it appear concerned about any blowback from Saudi Arabia, which now supplies a substantial amount of its crude oil. Notably, however, only one of the commitments signed by Zuma and Rouhani related to energy, and it does not necessarily cover supply (although South African Foreign Minister Maite Nkoana-Mashabane has written that her country is very willing to resume imports of Iranian oil). The accords signed in Tehran could foreshadow a broader economic partnership and, if each can remain on the right side of the remaining sanctions, be a win-win for both parties. South Africa stands to receive much-needed energy, development and investment and Iran can demonstrate to the global market it that can be welcomed back into the fold successfully and profitably.

Source: Future Directions International (FDI)
http://www.futuredirections.org.au/

*Photo Credit: Press TV

*These views represent those of the author and are not necessarily Iran Review's viewpoints.

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