Tourism and related industries could be big winners as Iran emerges from years in isolation.

WHAT’S HAPPENING? Growing people-to-people exchanges seem to signal the end of Iran’s many years of isolation. KEY INSIGHTS – The Trump administration’s focus on soft targets in Iran could hurt people-to-people diplomacy

– The tourist industry stands to benefit substantially from increasing Iranian engagement with the world

– The benefits to sports and other cultural exchanges will be dependent on domestic as well as international factors

On June, 15 the US Senate voted 98-2 to impose new restrictions on Iran’s ballistic missile program and punish Tehran for supporting terrorism and committing human rights violations. If the bill passes the House, President Trump is all but certain to sign it—a rare concrete step for an administration whose antipathy towards Iran has largely been confined to rhetoric and promises of support to Washington’s traditional allies in the Gulf.

An Iranian official called the sanctions a “clear violation” of the nuclear deal, referring to the Joint Comprehensive Plan of Action (JCPOA) signed by China, France, Germany, Russia, the UK, the US and Iran in mid-2015. During his presidential campaign, Trump said he was going to “rip up” the JCPOA and renegotiate it on better terms. Yet despite similar sentiments among House and Senate Republicans, there has been no sign such policy will be enacted.

Instead, the administration has concentrated on symbolic measures, such as Trump’s controversial travel ban against Iranian nationals (among other countries). Tehran has threatened to respond in kind, casting a cloud over the anticipated people-to-people benefits of the JCPOA. However, the temporary ban—the legality of which will be tested in October—does not detract from the JCPOA’s wider benefits to Iran’s other bilateral and multilateral relationships.

BACKGROUND: EASING SANCTIONS

For all the hostile attitudes directed at the ‘bigger picture’ features of the JCPOA—such as the lifting of trade sanctions and granting Iran greater access to nuclear technology—most critics ignore its role in fostering people-to-people diplomacy. These ties, such as education exchanges, sports exchanges and tourism, will become increasingly important as the country of 80 million emerges from decades of international isolation.

The flow-on effect of the JCPOA has been substantial. Iran’s oil exports lifted dramatically to an estimated 300,000 barrels per day as of January 2016. In addition, Iran gained access to some $100 billion in frozen funds held overseas, and announced an ambitious program of aircraft purchases from Airbus to replace the dangerously ageing Iran Air fleet.

At the same time, Supreme Leader Ayatollah Ali Khameini accused the US of duplicity in its adoption of the JCPOA, saying Washington had removed trade restrictions on paper while at the same time discriminating against European firms that traded with Iran in an effort to discourage such exchanges. Despite this, inbound tourism is expected to increase 11.6 per cent on 2016 figures to 5.5 million international visitors. They will inject approximately $3.4 billion into the local economy, while visitor numbers will rise in the coming decade to approximately 10 million.

CONTEXT: PEOPLE-TO-PEOPLE EXCHANGES

Iran’s ongoing post-1979 isolation has largely relegated tourism to the ‘exotic’ or ‘off the beaten track’ sector of the market. The industry has been hampered by US-imposed sanctions, which made it illegal for American nationals to visit without permission, and other restrictions on trade and currency transfers that effectively rendered credit cards and other financial instruments useless. Such limitations, which were at least partially downgraded by the US and EU after the implementation of the JCPOA, severely limited the accessibility of the country.

The lifting of sanctions has benefited aviation, a sector critical to tourism. From January 2016, some airlines that had suspended services to Iran resumed operation. They were soon joined by several low-cost carriers from the East Asian region. The services reflect new opportunities for inbound tourism, particularly from emergent tourist sources such as Malaysia, Thailand and China. Conversely, the new routes enable Iranians to visit East and South East Asia, regions that have not historically ranked highly among travellers. Prior to the nuclear deal, the number of Iranian visitors to East, South and South East Asia had been steadily increasing but the JCPOA could facilitate a dramatic rise in such numbers as sanctions on Iranian trade and visa stipulations on Iranian nationals are lifted.

While sports and other cultural ties between Iran and the West have mostly been unaffected by domestic political changes in Iran or international political differences, the continuation of the JCPOA may increase or improve such ties as a collateral effect. By ending the financial and diplomatic isolation of Iranian citizens, full implementation could lead to greater access to coaches, international training facilities and sports exchanges, improving the overall standard of performance of Iranian athletes and team members.

OUTLOOK: NOT A LINEAR PATH

Iran is now increasingly on the radar as an alternate or greenfields tourist destination, with rich and varied points of interest and activities ranging from skiing in the Alborz Mountains surrounding Tehran, water sports in the Caspian Sea and Lake Urmia, and desert safaris of a similar stripe to those offered in the UAE and Gulf States. These are in addition to its ancient historic sites, including the 2500-year-old Persepolis ruins and the ancient cities of Isfahan, Shiraz and Yazd, with points of interest reflecting the country’s Zoroastrian and Islamic eras.

While unrelated to JCPOA implementation, Iran’s visa regime has proven problematic for tourists and travel agents seeking to promote the country. Lead times for visa processing are a disadvantage in a global tourism market that prioritises ease of entry. While travellers traditionally attracted to Iran post-1979 appreciated cultural sensitivities—such as women’s dress standards and the prohibition on alcohol—these discourage mainstream tourism. It is unlikely that the JCPOA will force change on these social issues. Lack of legal protections, in the US particularly, of travel agent customer funds once transferred to Iranian tourism operators is also a key risk the tourism industry must address in order to expand the number of Western tourists.

If the JCPOA ultimately leads to the complete removal of sanctions, the benefit to the Iranian economy will be significant. Tourism, as just one sector of the economy, could well become a reflection of the economic growth by the integration of Iran into the world economy. In addition, tourism will support related sectors such as retail, services and transport.

Even if the JCPOA is implemented in full, Iran’s sporting relations are unlikely to improve without significant domestic political change. Tehran’s refusal to participate in a karate tournament where it would have faced Israel is a prime example of recent conflicts between international sporting ideals and Iran’s domestic politics and social restrictions. President Hassan Rouhani’s re-election will probably do little to remedy this if the record of his reformist predecessor, Mohammed Khatami, is anything to go by. While Khatami’s administration made positive steps towards normalising relations with the US and EU, it precluded any similar rapprochement with Israel. Such a rejection was memorably demonstrated by the Khatami government’s firm rejection of Israeli aid, even when offered through the International Committee of the Red Cross, following the catastrophic Bam earthquake in late 2003.

Rouhani’s administration will likely follow in a similar vein. Any interaction with the Jewish state will likely be limited to unofficial and apocryphal ‘sideline’ meetings, of the kind that allegedly occurred between former Israeli President, Moshe Katsav, and Khatami on the sides of the World Economic Forum in Davos in 2007.

The benefits derived from the people-to-people engagement remain reliant on the JCPOA’s implementation, which is not guaranteed; a hardening policy position against Tehran within Washington, or intransigence by the Iranian Majles, Guardian Council and Supreme Leader towards further expanding Iran’s engagement, could undermine recent gains. However, if hostile sentiments from the Trump administration can be put aside and Rouhani follows a generally pro-engagement line within the JCPOA guiding framework, Iran’s tourism and cultural exchanges will grow both in number and quality over coming years.