Iran Becomes Dynamic New Market

Borzou Daragahi, SF Chronicle:

Iran has emerged as one of the world's flash points, as the United States and several European allies warn Tehran to give up its plans to produce nuclear fuel.

While the Europeans offer the carrot of diplomacy, the Bush administration threatens to push for United Nations sanctions. Some international experts speculate that, if all else fails, an American military strike is possible.

But Andreas Gabriel isn't worried. The director of Iran operations for the French automaker Renault is sitting in his chic, open-space Tehran office, sipping tea and lauding the opportunities in Iran's market, which is growing at a rate of about 500,000 new vehicles a year. READ MORE

"There is a big discrepancy between the image that you can have about Iran and the reality," he says. "It's a huge market that was closed to foreign companies for 30 years. The pioneers get the biggest part of the cake, so I think it's better to hurry than to wait."

The international community has intensified its pressure on Iran, which stands accused of failing to keep its promises to suspend its uranium enrichment activities.

Tehran has dismissed the demands -- as well as Washington's offer to remove a ban on selling spare airplane parts and end opposition to Iran entering the World Trade Organization in exchange for a halt of nuclear activity -- as "hallucinations."

But while diplomatic rhetoric has reached a fever pitch, in the Iranian capital, the drumbeats of war are drowned out by the sounds of deals being made between Iran and European firms.

Europeans consider Iran one of the most attractive, untapped consumer markets in the world. Renault has already invested an estimated $300 million in Iran and is set to invest more in the coming years.

Oil companies have long ignored the country's diplomatic problems and human rights violations in their pursuit of energy supplies. But Iran's increasing business ties with Europe now go well beyond petroleum and gas.

Last month, Germany's Mercedes Benz announced a joint venture with Iran's main car manufacturer, Iran Khodro.

They'll be rushing to catch up with Peugeot, the French automaker, which has had a deal to build cars in Iran for years. And last week, Iran and Italy signed a trade cooperation deal worth more than $3.5 billion.

European Union trade with Iran totaled at least $15 billion a year in 2001, according to the latest EU statistics, and has been steadily rising since. Europe buys 40 percent of Iran's exports, mostly oil.

Business consultant Siamak Namazi says despite a few international deals canceled or delayed by the government, foreigners are rushing to do business in Iran.

"One of the best indicators is to check the number of business-class flights to Tehran, which are completely booked through," he said.

Europeans aren't just bringing their briefcases and laptops here. They're bringing their families.

Gabriel brought his wife and three kids for a life of diplomatic parties, language classes, upscale gyms and new restaurants like Bistango, a continental restaurant that was started by a Canadian chef.

"Our daily life is really much better than we could have expected," Gabriel said.

American companies are forbidden to engage in most trade with Iran because of sanctions. But Europeans say they've been drawn here by the business potential. Iran sits atop some of the world's largest energy reserves.

Paul-Marie Graf used to head the Iranian operations of the big French oil company Total. Now he's a business consultant living in Tehran with his wife in a plush mansion. "You cannot ignore Iran today," he said.

Namazi says it's no mystery why European companies are so keen on Iran. They're merely exploiting U.S. sanctions. "There are a lot of American businesses that could have won a contract, and their main European competitors know that they can only compete in a country where the American company isn't present," he said.

"So actually they come to Iran precisely because American companies cannot come."

In any case, the potential rewards are so high that they outweigh the risks, which include a hot war with the United States.

"They don't think really the U.S. is going to attack," said Nasser Hadian, a professor at Tehran University. "The perception is that if they attack it will be a surgical kind of attack, and that's not going to have a major impact on their investment. So they feel relatively secure."

European diplomats in Tehran say opening the floodgates of trade with Iran is the best way to neutralize conservative Islamic organizations, like the Revolutionary Guards, which control huge sections of the economy.

Instead of isolating or attacking the country, they say, send in an army of Western businesspeople.

"The revolution in Ukraine last year did not happen overnight," said one European diplomat in Tehran, speaking on condition of anonymity. "The revolution in Georgia did not happen overnight. It took 10 years of economic trade and normalization."