Iran Country Report Aug18 - August, 2018

August 3, 2018

Iran’s economy expanded by 3.7% during the 2017-2018 Persian calendar year (ended March 20), according to a report released by the Central Bank of Iran (CBI) on June 16. Further revisions of expected GDP growth in Iran, a country with a population of 80mn, can be expected as the impact of the sanctions, and the secondary sanctions directed at foreign companies who opt to continue doing business with Iran, becomes clear. The US is intent on throttling Iran’s economy to achieve its ends.

The Trump administration on May 8 unilaterally walked out of the multilateral Iran nuclear deal and warned foreign companies that chose to remain involved with the Islamic Republic that they would be exposed to Washington’s reintroduction of heavy sanctions against Tehran. Whatever the rights and wrongs of the move it leaves Washington and the five other signatories who in late 2015 agreed to the deal with Iran—the UK, France, Germany, Russia and China—on a collision course with the Trump administration. And, just for starters, Iran’s plans to source $200bn of investment for its oil, gas and petrochemical industries and spend $38bn on Boeing and Airbus aircraft purchases may be doomed.

As the accord entirely unravels, Iran's hopes for economic expansion in the years ahead would take a much greater hit through impacts on trade, investment and available financing. The latest big names to state that they are preparing to suspend their joint ventures or deals in Iran include PSA, which makes Peugeot and Citroen Cars, while Austria’s Oberbank, Swiss lender BCP, India’s IndusInd and UCO and German’s DZ bank said they were winding down Iran-related financial transactions. Several sizeable European companies such as Poland’s PGNiG, Germany’s Wintershall and French energy major Total look set to avoid irking Washington. The Trump administration claims that more than 50 foreign companies have withdrawn from Iran since the sanctions were announced.

The first part of the planned US sanctions will snap into place on August 6. The sanctions in this phase will include targeting Iran's automotive sector, trade and gold, and other key metals. The most dangerous aspect of the US sanctions campaign for Iran is Washington’s demand that all countries cease buying Iranian oil by November 4. Oil export revenues are indispensable to Iran’s economy and Tehran has threatened to block the Strait of Hormuz in response to Trump’s move against its oil sales.

Iran retains firm hopes that at least China and India—the two biggest markets for its vital oil exports—will pay little heed to the US sanctions. Though the other major power signatories to the deal still back the nuclear accord, noting that Iran has always remained in full compliance with it, they have so far done little to shield their companies from the penalties. Iran, of course, will have little incentive to stay in the JCPOA if the EU does not deliver it the economic incentives to do so.

Meanwhile, Iranian President Hassan Rouhani on July 25 replaced the head of Iran’s central bank with the collapse of the Iranian rial (IRR) continuing to take a heavy toll on the country’s economy. Seif and the central bank have been heavily criticised for Iran’s handling of the currency crisis sparked by the US move to reimpose heavy sanctions on Iran. The IRR had plunged to a new all-time unofficial market low of IRR120,000 to the dollar on July 30, according to reports via social media.


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