The French carmaker Renault signed a multimillion-dollar deal in Tehran on Monday, agreeing to raise vehicle production in Iran just days after President Trump signed into law new sanctions against the country.
According to New York Times the roughly $780 million agreement to produce as many as 150,000 additional cars a year is the largest foreign auto deal in Iran’s history, state-run PressTV said. It was a victory for President Hassan Rouhani, who was sworn into office on Saturday after being re-elected this year promising to revitalize an economy hurt by sanctions.
Iran, an Islamic republic, is increasingly attracting foreign investors, despite restrictions imposed by the United States over its missile program and its military activities in the region.
Its economy has limped along, surviving mainly on oil sales in recent years, with youth unemployment topping 40 percent and the state controlling many sectors. American restrictions stop most international banks from providing financing or credit to Iran, and the country is cut off from international payments systems for using debit and credit cards.
On Wednesday, President Trump signed into law new sanctions against Iran, Russia and North Korea. It is unclear if the Renault deal violates any unilateral United States trade barriers still in place against business with Iran.
Still, the agreement to establish a joint venture with a government-run conglomerate is welcome news for Iran.
Renault has pledged to open two factories with Iranian partners.
One partner, the Industrial Development and Renovation Organization, a government conglomerate known as IDRO and which controls 117 companies, was long under sanctions by the United States and Europe which accused it of supporting Iran’s missile program. Those sanctions were lifted under Iran’s nuclear agreement with world powers last year, which allowed Renault and other foreign companies, including the American plane manufacturer Boeing, to do business with the country.
Officials of the Treasury Department, where the Office of Foreign Assets Control oversees the sanctions imposed on Iran, did not immediately respond to queries about the Renault deal. But the Industrial Development and Renovation Organization Company (IDRO) is listed on the Treasury Department’s website as exempt from sanctions under the nuclear deal.
Sanctions lawyers in the United States said Renault’s decision to proceed with the joint venture indicated it was confident that the nuclear deal would survive, despite the Trump administration’s threats to withdraw from it.
Farhad Alavi, managing partner of the Akrivis Law Group in Washington, said Renault’s decision also signaled that it had "likely undertaken a great deal of care to ensure that it is fully compliant.”
Another major French carmaker, Groupe PSA, which produces brands like Peugeot and Citroën, has stepped up its activities in Iran since the lifting of the sanctions last year, while the French energy giant Total signed a deal with Tehran last month to lead a natural gas project.
But despite the various agreements, Iran remains a difficult and opaque place to do business. Corruption is widespread, and political opposition to foreign investment can raise obstacles.
Renault said in a statement that the expansion would promote its brand in Iran. The carmaker sold an estimated 68,000 cars in Iran in the first six months of this year, more than doubling its sales compared with the period a year earlier. Renault said it now has about 10 percent of the Iranian market for autos.
The French company will hold a 60 percent share in the joint venture, according to Mansour Moazzami, the chairman of IDRO. The rest will be split evenly between the conglomerate and the other partner, Negin Khodro, a private company that represents Renault in Iran.
Last week, IDRO announced another joint venture, this time with Transmashholding, Russia’s largest rail equipment supplier, to develop Iran’s dilapidated railway system. As part of the $2.5 billion deal, the Russian company will own 80 percent of the joint venture.