Can a new nuclear deal trigger a car boom in Iran?

April 27, 2022

Iran’s recent sales history is significantly mixed. In 2019, President Trump’s resurgence of U.S. sanctions has dramatically disrupted activity after foreign OEMs have been forced to break ties with local manufacturers and move away from trading with Iran. Did.

But lately, an impressive resurgence has taken place. Despite the triple threat posed by catastrophic sanctions, COVID-19, and weak global oil outlook, the automotive industry made a strong comeback in 2020 and 2021. The government and military have successfully localized the automotive supply chain, partially isolating the domestic market from the effects of sanctions and external risks.

The recent rise is significant, but Iran’s automotive market’s annual performance is still more than one-third below the 2017 highs. Therefore, the true potential of the market has not yet been unleashed. And US sanctions are still important.

Talks between the Biden administration and Iran are underway, and recent reports show that the deal has been closed, but the United States has warned that the window of opportunity is closed. The update of the Joint Comprehensive Plan of Action (JCPOA) will ease economic sanctions and allow foreign OEMs to regain access to Iran’s market. In addition, lifting sanctions not only promotes direct sales activities by promoting the diversity and competition of new models, but also supports a significantly improved economic outlook. Being more open, Iran will be able to export oil again, take advantage of high global demand, and even provide an alternative source for European countries looking for an alternative to Russia.

Our baseline forecast assumes that new transactions will be closed this year, most US sanctions will be lifted, and overseas OEM activities in Iran will be possible to resume.

However, the risks to prediction can be discussed both on the positive and the negative. If the stalemate continues for the next few months and negotiations are closed, industry volume growth will rely solely on newly localized supply chains, leading to steady single-digit year-over-year growth in the medium term. However, transactions that ease sanctions and allow Iran to expand its energy supply in the first half of 2022 could result in a faster recovery than the baseline scenario. In that case, the car market could exceed 2017’s record highs by mid-2010. With that in mind, we will continue to closely track the consultations.