AS Iran’s re-entry into the global economy continues to roil the jittery markets and send shock waves across the world’s stock exchanges, we can see why the nuclear deal signed last July was so vehemently opposed by Saudi Arabia and other Gulf states. Riyadh also fears that the transfer of around $100 billion in blocked assets to Tehran will embolden it to pursue a more aggressive policy in the region.

Already, a large number of multinational firms have made the pilgrimage to Tehran to sign deals, with Airbus poised to sell new civilian aircraft worth $10 billion to the national airline. But barely had the ink on the deal dried that a retired American general — one of a multiplying breed of ‘security consultants’ — warned darkly on CNN that these planes could easily be converted to military use.

Although Iran has complied with its commitments by destroying its plutonium plant, sharply reducing the number of its nuclear centrifuges and exporting its stock of enriched uranium, Israeli and American hawks continue to mutter that their security has been compromised. According to them, Iran will secretly continue to work on its nuclear programme while benefiting from the lifting of US, EU and UN sanctions.

Although the lifting of sanctions and the return of its oil to the global markets will certainly make life easier for the government and the people of Iran, we are unlikely to see an overnight transformation of the economy. Writing in the November/December issue of Foreign Affairs, Cyrus Amir-Mokri and Hamid Biglari have cast doubts on the possibility of serious foreign investment in the country without major reforms.

Basically, the authors argue that out of the $100 billion in blocked assets being released, only around $25 billion will actually be available for immediate deployment as $50 billion will be needed to pay off existing liabilities, and $25 billion will be needed as foreign exchange reserves. But the requirement of the Iranian economy over the next decade is of the order of $1 trillion. Thus, if Iran wants to rebuild and modernise its economy and its tottering infrastructure, it will have to attract foreign capital.

But many obstacles lie in wait for overseas investors. For a start, Iran ranks 136th out of 174 countries on Transparency International’s 2014 Corruption Perceptions Index. Next, the ownership structure of state assets and business entities is opaque and largely unaccountable. What is termed ‘privatisation’ in Iran is simply the transfer of shares to government pension funds and various security agencies like the Revolutionary Guards. Thus, there has been little fresh managerial ideas or capital injected into these organisations. A foreign investor wishing to buy shares in these entities would have a hard time unravelling who actually controls them.

In his turbulent tenure, former president Mahmoud Ahmadinejad redistributed half of all ’privatised’ shares to the underprivileged in the form of ‘Justice Shares’. Obviously, most of these shareholders have no experience that could be relevant to the management of the institutions in which they now hold a stake.

More serious than these practical considerations is the overarching suspicion many older Iranians hold foreigners in, especially those from the US and Europe. Iranian history over the last century is replete with harmful Western interventions and exploitative deals. The British-American coup that ousted Mossadegh, an elected prime minister, over 60 years ago, is still a cause of resentment: since then, Iran has remained in the grip of one kind of autocracy or another.

Iranian clerics are concerned that an opening to the West with the lifting of sanctions will bring in not just new machinery and goods, but Western ideas of gender equality and secularism. They thus feel that the entire theocratic edifice constructed to govern the actions and thoughts of the Iranian people will be under threat. But in the real world, it is hard to keep ideas out; already, young Iranians resent the heavy-handed restrictions they are forced to live under. It will be interesting to see how the ayatollahs cope once their country opens up to the world.

And yet, there are many positives that should attract foreign capital. For one, Iran has a literacy rate of 87pc, with 65pc of all university places going to young women. And unlike its oil-exporting neighbours, Iran’s economy is diversified, with oil and gas contributing only 30pc to GDP. Saudi oil, by contrast, makes up 45pc of GDP and provides the kingdom with 90pc of its export earnings.

The state of Iranian banks is a major cause for concern. Over the years, their balance sheets have been skewed by being forced to lend to unprofitable, mismanaged state business enterprises. Over his eight years in power, Ahmadinejad enforced lending and borrowing rates that reduced the spread banks normally garner in their operations. This has squeezed profits and the ability to reinvest. The Central Bank of Iran lacks the independence that would reassure foreign investors, and remains a pliable instrument in the hands of the government.

Law courts, too, are often instruments of state control, rather than independent institutions where everyone is equal before the law. How foreigners would fare in Islamic courts remains to be seen. In Pakistan, where courts are supposed to be independent, foreigners have generally had an unhappy experience: witness the bullying of Hubco in the nineties; the blocking of Pak Steel’s privatisation by the Supreme Court; and the Reko Diq copper field disaster.

Despite these caveats, it is certain that the lifting of sanctions will lead to a more prosperous Iran. Whether it uses its growing economic power to benefit its people, or to throw its weight around, remains to be seen.

Twitter: @irfan_husain

Published in Dawn, January 25th, 2016