As Iran sanctions ease, western firms seek a way in

The Wall Street Journal

By Benoît Faucon

TEHRAN—Temporary sanctions relief hasn't yet translated into an economic turnaround in Iran. But at the Melal Hotel, business hasn't been this good in years.

Employees of French drug maker Sanofi Aventis and tire maker Cie. Générale des Etablissements Michelin mingle on a recent morning among the still lifes and faux-leather chairs of the hotel dining room. At the breakfast buffet, a German tobacco salesman and an Irish drug-sales consultant went for seconds, loading their trays with savory pastries, flat bread and doogh, a yogurt-based drink.

A few weeks earlier, two managers from French telecommunications company Orange stayed at the Melal, which is nestled on a quiet street of the Valiasr business district and offers suites appointed with engraved copper fireplaces and embroidered Persian sofas.

Tehran is still choking from a reeling currency, inflation of more than 30% and shortages of water, fuel and medicine. But a steady flow of Western executives through here in recent weeks signals that economic détente with the rest of the world may be on the horizon.

The U.S. and the European Union began tightening sanctions against Iran's banks and oil industry in 2010 amid suspicions that Iran's nuclear program had military aims. Tehran says the program is peaceful.

In November, Iran's government agreed to give Western powers more scrutiny of the country's nuclear program for six months. In exchange, Western capitals eased some sanctions. The relief is limited to just a handful of industries—aircraft, car parts and petrochemicals, for example. And Western authorities are scrutinizing deals closely. Businesses exploring the Iranian market "do so at their own peril right now," U.S. President Barack Obama said last month, "because we will come down on them like a ton of bricks."

But that hasn't stopped companies from boosting their presence or sending in advance teams—essentially making exploratory visits in the hopes that sanctions may be lifted further and permanently.

Sanofi hosted a training seminar at the Melal this month. Part of the sanctions relief eases constraints on humanitarian goods, such as food and medicine.

An Orange representative said its executives visited Tehran recently with an eye toward offering consulting services to Iranian phone companies. Sanofi and Michelin decline to comment.

A high-profile delegation from Western companies, including cement maker Lafarge and bank Natixis came in February on a trip organized by a French business association. Executives raced through a packed meeting schedule that included half of Iran's cabinet, the country's customs agency and Tehran Mayor Mohammad Bagher Qalibaf. Lafarge and Natixis confirm that the trip occurred and say they have no current presence in Iran.

Western businesses generally are discreet about their visits.

"We have agreed with companies not to name" those meeting with Iranian officials, Deputy Oil Minister Mansour Moazami, says in his office, in front of a portrait of Supreme Leader Ali Khamenei and a 5-foot-square map of Iran's pipelines and oil and gas fields.

Yet Mr. Moazami and other Iranian officials also have embarked on a counteroffensive to Western warnings about moving too fast. "For the latecomers, the opportunity will be lost," he says. "We won't wait forever."

That has left Western executives walking a tightrope.

A manager for a European hospital-services company was in town recently, lunching with Iranian officials and discussing possible business. The next day, he was ordered to fly home after his company's legal department feared trouble from the U.S.

Sayeh Tower, a concrete edifice darkened by pollution a 10-minute walk from the Melal, bears evidence of the fine line Western companies must tread. A few years ago, it housed the Tehran offices of several Western companies.

Asea Brown Boveri Ltd pulled out of Iran in 2011 because of sanctions, but an office on the Sayeh's ninth floor still carries the Swiss engineering company's logo. Inside, contracts for electrical-generation equipment gather dust on glass shelves.

The office is managed by Ardeshir Kiaie, who says he is a consultant to the Swiss company. "I can't give you my business card, because it has ABB on it. And the ABB office is closed," he says.

ABB says the office is closed and the company isn't looking into new opportunities. Mr. Kiaie "helps us with the various steps in liquidating the entity," a spokesman says.

One floor below, the logo of Finnish shipping engine-maker Wartsila Corp. WRT1V.HE -0.68% is engraved on a brass plate next to a door. The company once equipped the Islamic Republic of Iran Shipping Lines, which remains under sanction.

Hassan Islami says he works for the local agent that used to represent Wartsila here but declines to elaborate. When he calls headquarters, Wartsila executives "won't talk to me. They say the sanctions are still there," he says.

A Wartsila spokesman says the company has no presence and no agents in Iran and complies with sanctions.

Sayeh Tower housed an office for Schlumberger Ltd. until last year. At a new office in a building next door, an employee hands out a card in Persian with the office's address and the logo of the U.S. oil-field-services company. She says her team of five people merely chases unpaid bills from Iranian and international companies. "We'd like to return," she says.

Schlumberger says it wound down its Iran operations in the second quarter of last year and declines to comment further.

For many longtime Iran hands, the prospect of returning here is enticing. Despite Iran's strict Islamic code, Tehran long was a cosmopolitan capital, where Western executives reveled in the city's vibrant art galleries and posh restaurants.

"The villas, the parties, the culture, the great food," says a former expatriate visiting on a business trip. "We loved it here."