28 June 2013 10:01 [Source: ICB]
With the election of a moderate president, hopes are high that US-led international sanctions could eventually ease
Players in Iran's petrochemical markets are hopeful that international sanctions on the Middle Eastern country will eventually ease following the election of its former top nuclear negotiator Hassan Rohani as president, industry sources said.
'The diplomat sheikh': incoming president Hassan Rohani
Rohani won the presidential elections held on 14 June, taking the reins from Mahmoud Ahmadinejad - who has a hardline stance on Iran's nuclear issue and has been ruling the country since 2005.
"We are cautiously optimistic that some change will be seen even in the next two months in terms of an easing of trade flows," a Tehran-based supplier said.
In recent years, international sanctions in Iran have been tightening over the country's suspected nuclear weapons programme, posing major deterrents in its trade dealings with the rest of the world.
Any material change to the prevailing trading conditions, however, will take time to emerge, market players said.
"The removal of sanctions will be a more long-drawn process, which will take a couple of years," the Iranian supplier said.
Rohani, who was nicknamed "the diplomat sheikh", served as secretary of the Supreme National Security Council for 16 years, and was the country's top nuclear negotiator from 6 October 2003 to 15 August 2005.
"We cannot comment on how the political negotiations will go, but we are hoping that given the new president's past experience as a negotiator, he can open up dialogue on the nuclear issue and help Iran resume normal trade with the rest of the world," said a market source.
In May, the international sanctions on Iran were reinforced, directly targeted at trade and investments in the country's petrochemical industry.
In the fiscal year ending 20 March 2013, Iran exported around 15.5m tonnes of petrochemical products - valued at $11.6bn (€8.7bn) - out of its total domestic capacity of 60m tonnes/year.
Iranian-origin material accounted for about 27% and 16% of China's low density polyethylene (LDPE) and high density PE (HDPE) imports, respectively, in 2012.
China also relies on Iran for 40% of its methanol import requirements. India, on the other hand, procures more than 70% of its methanol import from the Middle Eastern country.
Before any major policy change can be enforced in Iran, Rohani will need to convince Iranian religious leaders and the United Nations of his broad plans, taking into account recent developments in the Arab world, a Saudi-based market player said.
BALANCE OF POWER
"We have to keep in mind that his power is limited as the ultimate lead is still with the religious leaders of Iran," he said
"[The] ongoing unrest in many countries of the Middle East could [prompt] leaders of Iran [to] start a slow reform process to avoid any civil conflicts like we see in Syria and other places," the Saudi market player said.
"I believe that we have a [clearer] view if we better understand his role towards Syria and how he will negotiate the nuclear program with the UN in the next weeks and how he can convince the religious leaders to support him in his reform ideas. If he will master those two major challenges I see a strong player coming back into the market," he added.
In the near term, market conditions are likely to stay pretty much the same for Iran, market sources said.
Iran's low-priced polyethylene (PE) cargoes are expected to continue flowing in huge volumes into neighbouring Pakistan via illegal routes because of porous borders, said a Karachi-based trader. Pakistan is located southeast of Iran.
"Things may change if [Rohani] manages to overturn the [US-led] sanctions. But he will take time to change anything - one or two years even, or more. He may face pressure from the Supreme Council," the Pakistani trader said.
Electing a "moderate leader is good for Iran and the world", an India-based petrochemical trader said. "While I don't expect any immediate change in the situation, I think Western nations will wait and watch before taking any further action to curtail trade with Iran," he said.
"In the long run, it will depend on how the equation between the religious and political leadership within Iran emerges, which is anybody's guess."
Additional reporting by Pearl Bantillo, Muhamad Fadhil, Heng Hui and Chow Bee Lin
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