Iran General NewsPolitical instability adds to business risk in Iran

Political instability adds to business risk in Iran

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ImageThe Times: Iran became the number one country in terms of risk concern for business last month, after the disputed re-election of president Mahmoud Ahmadinejad led to violent protests and fears of political meltdown.

Times Online

Patrick Sherwen

ImageIran became the number one country in terms of risk concern for business last month, after the disputed re-election of president Mahmoud Ahmadinejad led to violent protests and fears of political meltdown.

According to a monthly survey of the users of Control Risks’ Country Risk Forecast (CRF) service, who comprise more than two thirds of the Fortune 500, interest in Iran surged between May and June. Before the elections in May the country received only 718 hits on CRF, but this rose to 5,495 in June, 30 per cent more than received by May’s top country.

The oil and gas sector is likely to be affected by the most significant outbreak of political instability the country has seen since the early 1980s because it provides further ammunition for those who have supported additional sanctions against Iran since the deterioration in Iranian relations with the west in Ahmadinejad’s first term.

The post-elections unrest attracted even greater interest for a variety of reasons, ranging from concerns about the safety of travel to the country to questions about its implications for US President Barack Obama’s plans to attempt to engage Iran diplomatically and the prospects for the stability or even survival of the regime, given apparent serious rifts within the political establishment itself over the election.

In contrast, Mexico, May’s top ranked country, slipped down the table but still remains fourth, behind India and Pakistan, with roughly the same number of user hits it received in May.

Reports of dual Mexican-US nationals being targeted for kidnap by drug-traffickers in the northern state of Chihuahua will have worried investors in Mexico. Similarly, the discovery of wider than previously thought network of corruption in the northern business hub of Monterrey would have alarmed businesses wishing to know the implications for their operations. The run-up to the mid-term legislative elections held on 5 July and their implications for business is a second factor likely to support interest in Mexico.

China maintained its position at fifth but attracted nearly 30 per cent more hits as a result of the arrests of four Rio Tinto employees and unrest among Uighur separatists, which raised new questions about the business climate.

The detention of the Rio Tinto employees was followed by the arrest of a senior executive of local steelmaker the Shougang Group. This kind of event prompts debate about the rule of law and the extent to which lines are blurred between the business sphere and the realms of politics, national interest and security. Information around the cases remains scarce but some in the business community fear they could constitute a warning to foreign companies’ employees and will be watching for a pattern of more aggressive tactics in dealings with foreign companies. Meanwhile, the eruption of violence between Han and Uighur ethnic groups in Guangdong and Xinjiang was bloody but should represent a minor concern for most businesses.

Peru and Yemen rose up the risk agenda to enter the top ten in June. Interest in the former was sparked by the demonstrations in the Amazon region of the country that turned violent on 7 June, with clashes between demonstrators and the security forces leaving at least 31 dead, including 22 policemen.

The country has experienced a serious increase in incidents of social unrest over the last two years, with 238 social conflicts reported in March 2009, up 20 from the previous month and just over 50 in August 2007. However, most cases had passed off peacefully, which highlights the impact of the violence.

Again the oil and gas sector stands to feel the impact, since exploration in the country has increased considerably over the last two years, with some of these operations falling in environmentally sensitive areas or close to indigenous communities, which has led local activists and domestic and international non-governmental organisations to increase their monitoring of developments.

Growing instability in Yemen, significant for its liquefied natural gas reserves, has prompted speculation that a ‘perfect storm’ of risks will result in the state’s collapse. The spike in hits this month was driven by the murder of three foreign women shortly after they were taken hostage in the north of the country. Tribal kidnaps of foreigners are common but victims have almost always been treated as honoured guests and released after a short period in captivity.

Furthermore, although the identity of the kidnappers remains unclear and militants have not used kidnapping as a tactic since 1998, there has been speculation that they may begin to do so to scare foreigners away from Yemen. The fact that the incident occurred in a remote area is unlikely to prevent fears of further attacks from adding to an already extensive array of security concerns faced by foreign companies.

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