Iran’s economic growth recorded 5.7% in the third quarter of the current Iranian calendar year (September 23 – December 21, 2021), according to a report by the Central Bank of Iran (CBI) on March 14. Iran’s economy has continued to rebound despite US sanctions still levied on it through local production and a boost in exports thanks to high oil and gas prices in the global market.
The CBI’s report said that the country’s gross domestic product (GDP) stood at $13.4bn in the three-month period, showing 5.7% growth compared to last year’s corresponding period. The report put the country’s overall economic growth in the nine months to December 21, 2021 at 4.1%.
This would mean Iran has emerged from the long and bitter three-year recession that set in around May 2018 following then US president Donald Trump’s reintroduction of heavy sanctions on Tehran. Officials have credited higher exports and a general realignment of the economy, necessitated by the impact of heavy US sanctions, with securing the new growth.
Iran has responded favourably to the proposal of the head of European diplomacy, Josep Borrell, to resume the Joint Comprehensive Action Plan (JCPOA), and it seeks to complete negotiations as soon as possible, Deputy Foreign Minister Ali Bagheri Kani said on July 31. Earlier, Borrell said he had presented his text of the proposal to renew the JCPOA, which he considers the best possible deal suitable for execution in a last-minute attempt to revive the deal and get parties around the table.
The talks between Iran and the US have been deadlocked since March and ended without an agreement. Tehran's insistence that Washington remove the Islamic Revolutionary Guard Corps (IRGC), a state entity, from its Foreign Terrorist Organizations (FTO) list is thought to be the key obstacle preventing Iran and the US from sealing an agreement. The latest round of negotiations on the JCPOA took place in Doha, the capital of Qatar, on June 29-30.
Meanwhile, the Ukraine conflict has reportedly resulted in a surprising surge of trade flows from Europe to the East and South via Iran, which saw Iranian goods transit increase 52% in March and creates something of a political quandary for both the European Union and United States, as Iran, like Russia is also under significant US sanctions.
With sanctions still in place in an effort at keeping Iranian oil off world markets, Iran has been relying on China turning a blind eye to American demands to import substantial amounts of Iran’s crude on the grey market. Iran's oil export volume is running at a level 40% higher than was seen a year ago, according to the National Iranian Oil Co (NIOC).
Iran's gas export earnings for the first four months of the Persian calendar year (March 21 to July 21) reached nearly $4bn, higher by 580% y/y, the semi-official ISNA news agency quoted Oil Minister Javad Owji as saying on July 27. The Islamic Republic has expanded gas output significantly at South Pars in recent years and supplies are estimated to flow at an average of 850-950mn cubic metres per day, topping out at 1bn cubic metres.
The National Iranian Oil Co. (NIOC) and Russia’s Gazprom on July 19 signed a memorandum of understanding (MoU) covering investment worth around $40bn.
Iranian President Ebrahim Raisi and Russian counterpart Vladimir Putin have voiced their wish to pursue de-dollarisation in global trade during Putin’s visit to Tehran on July 19. Raisi remarked on June 29 that an independent financial system would make it "impossible for any country to exert influence or pressure on it".
As Russia deepens ties with Iran, US officials monitor what they have claimed is an Iranian plan to supply Russia with several hundred drones, including some that are weapons-capable and surveillance drones, for use in the heat of battle in Ukraine. Washington is also keenly aware that Moscow and Tehran are accelerating and building trade and investment links that will help the Kremlin counter impacts of Western sanctions imposed in response to the war.
The Iranian rial (IRR) hit a record free market low of 332,700/$ on June 12 as market sentiment further soured on prospects for the talks aimed at keeping alive the nuclear deal. The euro and the pound sterling also fell to all-time lows at IRR349,900 and IRR400,000, respectively. The pound broke the 400,000 barrier for the first time in 2022.
The worsening “street rate” of the dollar and other hard currencies in Iran are a further burden to the consumer faced by painful inflation, officially at around 40%. Prices for wheat-based, dairy and pasta products in Iran have been rising at a far faster rate.
Iran’s official annual inflation rose 13.2 pp to a record 52.5% in June from 39.3% in May, the Statistics Center of Iran (SCI) announced on June 28.
Price growth in food, beverages and tobacco grew by 32.2 pp to 81.6% in June, while nonfood goods and services prices moved up by 2.8 pp to 36.8%.
At least 53 people were on July 29 confirmed dead amid landslides and flash floods caused by heavy rainfall in Iran, officials said. Iran has endured persistent drought in recent years that leaves sun-baked earth. When torrential rain falls on such ground there is high susceptibility to floods. Floods caused damage estimated at more than $2bn.
Social tensions in Iran have risen amid surging inflation, including steep hikes in food prices, and a series of strikes mounted by workers including teachers and bus drivers in Tehran. In the past year, the country has also been hit by protests over water shortages.
The blow to Iranian consumers came after Iranian oil and petrochemical workers began a strike for higher wages, with their industries becoming the latest of several in Iran to be plunged into turmoil by cost-of-living protests.
Looking ahead, the World Bank in the June edition of its Global Economic Prospects report has upgraded its 2022 GDP growth forecast for Iran to 3.7% from the 2.4% it anticipated six months ago, citing higher oil prices.
Nonetheless, the institution observed the threat that drought poses to Iran as well as a growing number of cost-of-living protests which saw its official inflation rate remain elevated.
Turkey on August 18 introduced another shock rate cut. The USD/Turkish lira (TRY) pair, which had been testing the 18-level for around a month, crashed through the 18/$ threshold towards 18.15.
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