Potential for Pak-Iran trade

After thirty-seven years of economic isolation, Iran is back into the global community. Although, there are few sanctions remain in place, but primarily Iran moved on from crippling days of sanctions, and it is open for business. Arguably, it was a rare moment in international diplomacy when prolonged negotiation between Iran and the P5+1 (the five permanent members of the United Nations Security Council plus Germany) took place in July 2015, and both sides successfully came to a conclusion.
After these negotiations, Iran has reduced its first-generation centrifuges from 19,000 to 6,104. Similarly, the Persian nation has discontinued its advanced centrifuges, and low-enriched uranium stockpile has been cut to 660 pounds from over 19,000. This development would indeed go into history books, and it proves that diplomacy works and the results are a definite success for the Non-Proliferation Treaty.
Iran’s re-entry into the international financial system is the most significant development of the past few decades. By every mean, Iran is one of the last untouched and untapped economies for global trade and investment. The lifting of sanctions on Iran is not only great news for the Iranian nation, but it is also a well awaited moment for the global economy.
Iran already started to show its economic muscle when it pointed out that it can increase oil production by 500,000 barrels a day. However, it is expected that it would start exporting an estimated 300,000 barrels per day immediately. Similarly, now Iran’s central bank has access to $100 billion in frozen oil revenues, although experts say roughly half of that money is already obligated. With this amount of money and potential future earnings, the global players were already lining up right after the successful negotiations in July.
The global interest is not only in Iranian oil, but it goes beyond that. With over 80 million in population and close to 70 percent of the population is in the age group of 15 to 64 Iran holds significant potential and the international community wants all of it. Countries like Germany is expecting exports to Iran to double in the next three years to 5 billion Euros and according to German trade minister in five years, that figure could rise to 10 billion Euros.
On the other hand, China, which buys 40 percent of Iranian oil exports and has a significant presence in Iran in the form of over hundred companies, is looking to capture Iranian market further. The timing of President Xi Jinping Iranian visit was perfect as both countries vowed to boost bilateral trade to $600 billion in the coming decade. China also secured $40 billion Silk Road fund to counter an influx of competition.
The current opening in Iran would certainly provide Pakistan with a historic opportunity to raise mutual trade and investment. That is the reason Pakistan’s trade ministry is preparing for free trade agreement (FTA) with Iran and getting ready for the opening of banking channels in Iran. The bilateral trade between both nations has remained small over the years and in recent years it has fell drastically as a result of sanctions, high tariff barriers in Iran, high costume duties on textile imports in Iran and unwillingness of banks to finance trade. The commerce ministry also informed that they are planning to construct three additional border posts along the Pak-Iran border.
While talking to BRR, multiple trade organisations have mentioned that they have in recent months sent various trade groups to Iran for studying the situation. Pakistani trade groups have argued that Pakistan can right away export meat, rice, textile, surgical items, gems, sports goods and fruits. Especially the meat sector in the country is looking forward to this opportunity to cater Iranian market. Since Pakistan has suffered enormous economic losses due to large scale smuggling of animals from Pakistan to Iran, the official export of meat can stop that.
With the recent establishment of Pakistan Halal Authority for standard halal compliance and improved sanitary conditions, the meat industry is hungry for higher exports. Similarly, Waheed Ahmed of All Pakistan Fruits and Vegetables Exporters Association estimated that there is an export potential of $80 million with Iran. He has further mentioned that Pakistan should boost trade with Iran otherwise India would cash on this opportunity.
However, the state bank has the key and should take prompt actions in establishing the banking channels with Iran. Furthermore, the trade organisations have asked the government to increase flights to Iran since PIA only operates one flight a day. Similarly, the rail and roadways between the two countries are in dire need of improvements.