Iran Country Report Jul18 - July , 2018

July 3, 2018

Iran’s real GDP growth came in at 4.3% in 2017, according to the World Economic Outlook issued by the International Monetary Fund (IMF) on April 17. Nonetheless, this figure is a shortfall from the impressive 12.5% economic growth recorded in the last Persian year ended March 20 since international sanctions were lifted in January 2016. Besides the effect of a slowdown in its oil sector following an exceptionally high 2016 surge, activity in Iran was dampened by weak foreign investor confidence associated with geopolitical tensions.

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. They seem unlikely at this point to keep their current business ties with Iran.

Moreover, a senior US State Department official on June 26 warned that the world must stop buying Iranian oil before November 4 or face a renewed round of American economic sanctions. 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, Iran’s president calls for unity as the financial pain caused by a dramatic devaluation of the Iranian rial (IRR) causes sporadic strikes among merchants. The collapse of the rial on the now-illicit unofficial market—it is pegged on the official market—has caused the cost of imports to soar. The IRR had plunged to a new all-time unofficial market low of IRR90,000 to the dollar on June 24, according to reports via social media.


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