S E C R E T SECTION 01 OF 02 RPO DUBAI 000285

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E.O. 12958: DECL: 7/14/2019
TAGS: ECON EFIN EINV EIND ETRD ETTC PGOV IR
SUBJECT: IRAN: BUSINESSMEN POST-ELECTION: THINGS HAVE COME TO A HALT

CLASSIFIED BY: Timothy Richardson, Acting Director, Iran
Regional Presence Office, Department of State.
REASON: 1.4 (b), (d)

1. (C) Summary: Several Iranian business contacts told IRPO
that business was on hold in the aftermath of the election, and
all doubted that their businesses could survive much longer.
Goods are not clearing customs, clients are not placing orders,
no money is moving out, revenues are falling, and traditional
money movers such as sarafs are not exchanging money. The
post-election turmoil has exacerbated financial difficulties
they are experiencing due to the global recession, sanctions,
and commercial pressure on Iran over the nuclear issue. Our
contacts noted that diminished unrest may help business return
to normal, but they no longer had hopes for private-sector
development in the next four years. Accordingly, some lamented
that because they can not afford to run their business under
sanctions and face unfriendly treatment from the state, they may
undertake other lines of business or leave Iran. End summary.



Hard Times Getting Harder

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2. (S/NF) A regular IRPO contact who owns a Tehran-based factory
employing 1,000 Iranians on July 9 told us that he feared that
his business would not survive past two weeks if the uncertain
business climate continued. Although Iranian ports were
receiving shipments, goods were not clearing customs, and they
were building up at the ports. Our contact said he has limited
his stock to less than two weeks' worth of inventory and has run
out of some raw materials because of customs delays. The only
thing keeping him in business is the trade at the Iraqi border.
Ease of getting products into Iraq and trade with the Kurds are

providing his company with much needed liquidity. His normal
monthly revenue of USD 1.39 million trading this way,
nevertheless, has only netted USD 278,000 to USD 417,000 so far
in July. His suppliers are pressuring him to increase turnover,
but he has told them there is nothing he can do.




3. (C) Establishing trust with Iran's state apparatus has become
the most important tool in our contacts' attempts to remain in
business. IRPO contacts working with Iranian brokers as of last
week had found it increasingly hard to move their goods out of
Tehran's Bazaar. An Iranian businessman in the steel sector said
July 7 that he had recently discovered that a consignment of
Chinese steel he sent to Tehran's Bazaar before the election had
not been released because of, according to his distributor,
political turmoil. Moreover, domestic importers were very
reluctant to sign contracts without a significant level of
trust. Along with bazaari and distributors, the importers were
not interested in establishing new relationships because of the
political uncertainty. Domestic and international business,
according to him, was on hold and he was finding it very
difficult to make a living because "there [was] nothing going
on."



Credit Tightens

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4. (C) Iranian businessmen also as of last week were struggling
to move money. The factory owner has returned several times to
Tehran, most recently to try to secure financing. Normally,
Iranian businesses used Iranian banks and sarafs, which
increasingly were necessary because of US, UN, and EU sanctions
on Iranian banks. He maintained, however, that it had become
very expensive to use sarafs since the election because they
were constantly increasing their surcharges and some were
reluctant to release their US dollar holdings. His factory has
been unable to transfer money out of Iran.




5. (S/NF) US, UN, and EU restrictions on Iranian banks and
financial pressure over Iran's nuclear issue have made this
problem particularly prescient during the post-election period.
Sanctions have limited our contacts' businesses' ability to
obtain credit from Iranian banks, which are themselves
increasingly unable to afford to issue credit. Several
businessmen explained that it has become all the more crucial to

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establish new relationships and levels of trust with state bank
managers in order to conduct business. The factory owner
recounted the many times he has had to court state bank managers
to provide credit. He has started with small loans, but hopes in
time this will grow.



Potential Political Retaliation

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6. (C) The factory owner told us that he and his business
acquaintances feared that the state will begin discriminating
against businesses owned by people thought to be affiliated with
the opposition, for example, by making it harder for them to
establish credit and obtain loans and licenses by raising fees,
extending waiting periods, and red tape. The factory owner
thought this will abate eventually, but his other business
acquaintances disagreed. This concern, according to him, has
contributed to an overall feeling of hopelessness among the
business community for Iran's economic development. Many IRPO
contacts have maintained they were optimistic about
opportunities to interact with the US before the election, but
they are now considering leaving Iran or pursuing other business
opportunities.




7. (S/NF) Comment: Our contacts' experiences suggest that the
private sector will continue to struggle under Ahmadinejad's
presidency. This is not likely to translate into contempt for
the regime however, as many Iranian businessmen have said they
are more likely to leave Iran or seek other business ventures
than channel their frustrations politically. The recent
experiences of our business contacts underscore sanctions'
potency in combination with Iran's mismanagement and highlight
their negative impact on the private sector. Accordingly, state
domination of the economy somewhat insulates the regime from the
woes of the private sector. In the interim, our contacts will
continue to struggle for survival amid the economic and
political uncertainty, with some expressing the hope that the
relatively limited July 9 protests may soon revive economic
activity.
RICHARDSON