A new horizon for FDI?
Iran explores welcoming foreign capital, including from US
As the primary architect of the most complex and inhumane sanctions regime against Iran, the US has played, and continues to play, a decisive role in shaping the psychological climate and risk calculations of other international investors. Breaking this atmosphere by potentially facilitating the presence of prominent American investors, within the framework of possible future agreements, could act as a key to unlocking the psychological and operational barriers for many other European and Asian investors hitherto deterred by the fear of US secondary sanctions. Such a move would effectively weaken the sanctions architecture from within, paving the way for a new wave of capital, technology, and management expertise into the country.
By Navid Kamali
Foreign affairs expert
Recent remarks by Iranian President Masoud Pezeshkian during the National Nuclear Technology Day ceremony have displayed hopeful signs of a new strategic approach within Iran’s political and economic landscape. This emerging perspective addresses one of the most critical components of sustainable development: Foreign Direct Investment (FDI). The explicit statement that there is no fundamental obstacle to attracting legitimate investment from other countries, including even the United States, carries added significance, particularly as it came on the cusp of a new round of dignified dialogue between Iran and the US government in Muscat.
President Pezeshkian, referencing the viewpoint of the Leader of Iran’s Islamic Revolution Ayatollah Seyyed Ali Khamenei that there is no opposition to legitimate investment, even by American economic actors, drew a clear line between constructive economic cooperation and what is deemed conspiracy, subversion, and destructive interventionist policies. This distinction, while emphasizing the preservation of national principles and security, opens the door to leveraging international capacities to address accumulated shortcomings and accelerate the nation’s development.
Prior to this, comments from a seasoned figure like Dr. Ali Larijani, an advisor to the Leader, regarding the possibility of defining mutual economic interests with the US and noting the business acumen of individuals like Donald Trump, already indicated a potential rethinking of economic engagement models at the country’s highest levels of decision-making. This relative alignment at senior levels suggests a deeper understanding of contemporary economic necessities and geopolitical imperatives. It could serve as a launching point for formulating and implementing an active, targeted economic diplomacy aimed at attracting productive and sustainable foreign investment — something increasingly viewed not merely as an option but as an undeniable necessity for Iran’s future.
The strategic importance of FDI for Iran is multi-faceted and vital, considering the economy’s structural challenges, the urgent need for technological modernization in key industries, the necessity of creating sustainable employment for a young and educated populace, and the imperative to strengthen Iran’s regional standing in a volatile and competitive environment, particularly with neighbors potentially seeking to weaken and fragment the country.
A historical review of FDI attraction in Iran, especially since the Islamic Revolution, reveals a checkered and often inadequate path. As both domestic studies and international reports, such as those by the UN Conference on Trade and Development (UNCTAD), confirm, Iran — despite possessing significant comparative advantages like a large domestic market, rich natural resources, a geostrategic location, and a young, educated workforce — has failed to attract substantial and sustained FDI flows commensurate with its potential. Comparing the volume of FDI inflows to Iran with neighboring and rival countries in West Asia starkly illustrates this reality: Iran’s share of the global investment pie has been negligible. We have not sufficiently utilized this powerful tool to bridge the development gap created over the past decades by factors such as the imposed Iraqi war against Iran, cruel sanctions, and, at times, domestic mismanagement. Slow capital accumulation, deteriorating infrastructure in critical sectors like energy (oil, gas, and electricity), and technological backwardness in many industries all underscore the urgent need for injecting financial resources, technical expertise, and know-how from abroad.
It must be noted that FDI is not merely a financial flow; it is a package that brings with it new technologies, advanced management standards, access to global markets, and enhanced productivity. It can act as a powerful catalyst, driving the wheels of the national economy and increasing Iran’s international competitiveness.
Beyond purely economic dimensions, attracting FDI, especially from developed countries and reputable multinational corporations, carries significant geopolitical implications and benefits that should not be overlooked. The presence of major international investors in a country creates an intertwining of economic interests that can function as a defensive shield against political pressures and external threats.
History attests that countries hosting substantial foreign capital naturally enjoy a greater margin of security in international relations as the economic interests of investing nations incentivize them to support the host country’s stability and security. In the turbulent West Asian region, where geopolitical rivalries and efforts by some regional and extra-regional actors to isolate Iran have always existed, attracting foreign capital can serve as an effective tool to neutralize these efforts and strengthen Iran’s economic and political ties with the outside world. Welcoming investors from diverse geographical origins can improve perceptions of investment risk in Iran and contribute to the normalization of the country’s economic relations.
Within this context, mentioning the United States as a potential investor holds particular weight. As the primary architect of the most complex and inhumane sanctions regime against Iran, the US has played, and continues to play, a decisive role in shaping the psychological climate and risk calculations of other international investors. Breaking this atmosphere by potentially facilitating the presence of prominent American investors, within the framework of possible future agreements, could act as a key to unlocking the psychological and operational barriers for many other European and Asian investors hitherto deterred by the fear of US secondary sanctions. Such a move would effectively weaken the sanctions architecture from within, paving the way for a new wave of capital, technology, and management expertise into the country.
Of course, welcoming foreign investment, especially from a country like the United States, requires prudence, careful consideration, and the establishment of very robust legal and technical frameworks. As implicitly and explicitly stated in official remarks, investment must be “legitimate” and aligned with national interests and security. This means investment contracts must be structured to yield maximum benefit for Iran and prevent potential risks.
A crucial requirement is mandating technology transfer within contracts. The mere entry of capital and profit generation by foreign firms is insufficient. We should make sure that up-to-date technical knowledge is brought in, particularly in industries where Iran suffers from technological lag — such as oil and gas (in areas like enhanced oil recovery, advanced drilling technologies, and LNG production) and the power sector (high-efficiency power plant technologies, smart grids, and renewable energy). This technology transfer should not be limited to equipment delivery but must encompass design, engineering, manufacturing, operation, and maintenance knowledge.
Another vital condition is the requirement for participation in upgrading the country’s infrastructure. Foreign investors should commit to contributing to the improvement and modernization of related infrastructure alongside their projects, ensuring the benefits of the investment are sustainable and long-term.
A third key requirement involves training and developing human resources. Contracts must include specific, well-defined programs for training Iranian personnel at various technical and managerial levels. This aims to create employment while enhancing the skill level of the domestic workforce, thereby reducing future dependence on foreign expertise. This approach aligns with studies showing that the effectiveness of FDI in boosting economic growth significantly depends on the host country’s absorptive capacity, particularly its education levels and human capital. Therefore, FDI should be directed in ways that contribute to strengthening this absorptive capacity.
Alongside these contractual requirements, success in attracting sustainable and productive FDI necessitates creating and reinforcing a conducive and predictable domestic business environment. This demands modernizing laws and regulations and continuously improving development indicators. Efforts to attract sustainable foreign investment must, therefore, be coupled with fundamental efforts to transform Iran into an attractive and reliable destination for global capital. These reforms benefit not only foreign investors but primarily domestic economic actors and the general public, contributing to a more dynamic and efficient national economy. Global experience shows that countries succeeding in attracting FDI by creating stable, transparent, and competitive environments have reaped benefits in the form of higher economic growth, increased job creation, export diversification, and technological advancement.
It is hoped that the emerging political will to open new pathways for economic engagement with the world will be accompanied by meticulous planning, active and targeted diplomacy, and modern approaches to governance in economic and social spheres. May this significant development, in turn, usher in a fruitful chapter of economic development and strengthen Iran’s international standing in the current Persian calendar year, officially designated as the year of “investment for production”.