Volkswagen and its Skoda brand are looking at entering Iran following the country's deal with the West to end sanctions, in a move that could cut their dependence on volatile Chinese and Brazilian markets and challenge French rivals.

Iran is already the Middle East's largest car market and analysts believe it could grow rapidly, with a population of almost 80 million and 1.1 million cars sold last year.

Investment from Europe and elsewhere could start pouring into the country as soon as next spring after July's international deal to lift sanctions in exchange for a curbing of Tehran's nuclear ambitions.

Germany's Volkswagen (VW), hit by a drop in demand in China and Brazil which together account for almost 40 per cent of its global sales, is keen to tap new markets.

"It is still too early to say which product we could use to go in with but of course we see the potential," VW brand R&D chief Heinz-Jakob Neusser told Reuters on Wednesday at the Frankfurt auto show.

"Iran is a very interesting market with great opportunities," Neusser said, adding VW would conclude an assessment of the country's auto market by the end of the year.

Czech division Skoda is similarly looking at the prospects for entering Iran, but has not taken a decision, its R&D chief Frank Welsch said in an interview.

"If the conditions develop right, this will be a market where we can fit in quite well with our offerings," Welsch said.

VW and Skoda may face stiff competition from past market leader PSA Peugeot Citroen and French rival Renault , which are also positioning themselves in the race to capture market share in Iran.

A company source told Reuters in July that VW was considering a move into Iran with the mass-market Skoda and Seat brands. - Reuters