Iranians commemorating the Iranian revolution. © Press Association Images
Iranians commemorating the Iranian revolution. © Press Association Images

Iran's re-entry to global economy creates opportunities and uncertainty

17 February 2016

Supply chain risk in the Middle East North Africa (MENA) region remained at historically high levels in the fourth quarter of 2015 as Iran’s readmittance to the global economy makes for uncertainty and opportunity, according to the latest CIPS Risk Index.

The index, which is compiled by Dun & Bradstreet, estimated global supply chain risk to be on the rise for the second quarter in a row, standing at 79.3.

Some 9.1% of this risk came from the MENA region – a figure largely unchanged since 2014. But the index said Iran’s re-entry into global supply chains would add benefit and uncertainty to supply chain risk in the region.

With the bulk of sanctions finally lifted in January 2016, it is expected Iran’s long standing logistical partners will benefit from a short-term increased flow of goods and services in and out of the country.

And with $600bn worth of trade expected between Iran and China alone in the next decade the UAE is likely to benefit as a trading hub, the report found.

The first to feel the benefits of Iran’s reemergence will be suppliers contributing goods and services to the civil aviation or automotive sectors.

But working with Iran is likely to pose unique challenges.

“The domestic market in Iran is dominated by the influence of the clergy, the Revolutionary Guard and state institutions,” said the report.

It also noted that binding business agreements in Iran are traditionally made in person.

Overall commodities markets would feel the biggest impacts. Iran has 9.3% of the world’s known oil reserves and 18.2% of proven gas reserves.

“Higher levels of supply are likely to keep energy prices low for the foreseeable future,” the report said. It also noted that more expensive production techniques, such as those deployed in the extraction of shale gas, could be halted entirely.

CIPS economist John Glen said that Iran represented a once in a generation opportunity for supply chain managers to break into a new market.

Dealing with a business culture which has been cut off from the world for so long, requires a set of skills often absent from procurement departments,” he said.

“Supply chain managers will need to understand the Iranian way of doing business and develop trusting relationships, often over an extended time period.”

Ultimately, he said, the extent to which these skills were present would determine whether Iran’s re-introduction to global trade flows would reduce or increase supply chain risk.

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