Iran Country Report Mar22 - March, 2022

March 4, 2022

The World Bank in its latest Global Economic Prospects published on January 11 has upgraded its real GDP growth projections for Iran, anticipating estimated GDP gains of 3.1% in 2021, 2.4% in 2022 and 2.2% in 2023.

The International Monetary Fund (IMF) in its World Economic Outlook published on October 13 has stuck with its forecast for a 2.5% expansion in Iran’s economic growth in 2021. The Fund also predicted that figure in April. However, the IMF now calculates 2020/2021 Persian calendar year (ended March 20) GDP growth in Iran was 3.4%, up from its previous suggestion of 1.5%. For 2022, it anticipates 2.0%.

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.

The US on February 4 restored sanctions waivers to Iran that will clear the way for international nuclear cooperation projects. The move was made as the Vienna talks on reviving the 2015 nuclear deal, or JCPOA, between Tehran and six major powers enter what’s likely to be the final stage. Iran’s foreign ministry quickly welcomed the gesture, but said that it “is not sufficient”.

The US and Iran have held eight rounds of indirect talks in Vienna since April aimed at reinstating the JCPOA that lifted major sanctions imposed on Tehran in exchange for restrictions on its nuclear programme aimed at ensuring it is kept entirely civilian. As Iran has not yet agreed to face to face talks with the US in the Austrian capital, officials of the three European states signed up to the nuclear act as intermediaries between the Iranian and American delegations.

There is an inevitability about Iran striving to defend its interests by securing a reliable renegotiated nuclear deal given the country’s “bitter experience” with broken US promises, Iran’s national security chief was reported as saying on March 2.

One of the handful of remaining obstacles to Iran, the US and other major powers agreeing on how to revive the JCPOA is a demand from Iran that the US provides a guarantee that it will not withdraw from the restarted deal. The key problem with the demand for a ‘no exit’ guarantee is that US President Joe Biden cannot guarantee what his successors will do in foreign policy.

Another sticking point in the negotiations that are ongoing in Vienna is that Tehran wants the issue of uranium traces found at several old but undeclared sites in Iran to be dropped and closed for ever, Reuters reported on March 2.

There is a sense in Iran that officials are poised to press for a ramping up of activity across different industrial sectors in line with the relaunch of the 2015 nuclear deal, or JCPOA, between Iran and major powers.It is presumed that the Iranian clerical leadership would like to see the deal closed before the March 19 start of the long Persian new year holidays.

Several dozen people chanting “Death to Putin!” on February 27 gathered outside the Ukrainian Embassy in Tehran, according to posts on social media. The Iranian government and ruling clerics have refrained from referring to Russia’s attack on Ukraine as an invasion, while at the same time officials have pointed the finger at Nato for claimed provocations that led up to the military assault.

Iranian foreign ministry spokesman Saeed Khatibzadeh also hit out at the Western defence alliance, saying that “the Eurasia region is on the verge of entering a pervasive crisis” because of Nato moves led by the US.

Tehran and other cities around Iran are suffering from what officials say is the “sixth wave” of the virus in the country. Tehran Governor Mohsen Mansouri on February 1 announced the closure of all kindergarten and elementary schools in the Iranian capital in response to a growing wave of coronavirus infections largely of the Omicron variant.

The Omicron situation across Iran has become so bad so rapidly that several regions including that of the capital are now classified as “red” by the Health Ministry.
On January 31, at least 47 of the 250 members of Iran’s parliament tested positive for the virus, forcing the closure of the legislature. At least 10 lawmakers with coronavirus infections were hospitalised.

The price of Iranian rice has leapt by 95% in the past year, according to the Statistical Center of Iran (SCI). One factor in the steep price hikes is drought, with the government having to step up imports of rice to counter disappointing Iranian rice harvests. Some premium varieties of Iranian rice hit record price highs of around Iranian rial (IRR) 1.15mn rials.

Annual inflation is running at slightly more than 40% in Iran but there have been local reports of certain essential food items subject to inflation of much more than that figure.
The consumer price index (CPI) inflation figure released by the SCI was 42.4% in the 10th Persian month (ended January 20), a modest improvement on the 43.4% recorded in the 9th Persian month. Food, beverage and tobacco prices moved up 1.7% m/m, while services and non-food prices gained 2.7% m/m.

A group of Iranian shareholders who suffered losses in recent months held a protest outside parliament in Tehran on January 20, saying a decline in stock prices was due to government policies. Some of the protesters chanted slogans against President Ebrahim Raisi, calling him ‘a liar.’ Raisi and his cabinet ministers have pledged to deal with the stock market swings, partly caused by uncertainty over the fate of the ongoing Vienna talks between Iran and major powers aimed at reviving the 2015 nuclear deal.

Furthermore, Iran this summer suffered its worst drought in 50 years. The country faced ongoing protests over the drying up of a river and water shortages. Mismanagement by the authorities has been cited as a big factor in water crises seen in many parts of Iran. The International Grains Council (IGC) has cut its forecast for 2021/22 global wheat production, with a downgraded outlook for the crop in Iran a particular concern.

Meanwhile, Iran has penciled in 8% economic growth and oil exports running at 1.2mn b/d at a price of $60/barrel in its draft state budget.
President Raisi presented the proposed budget on December 12 to parliament on the assumption that US sanctions would continue. The growth projects include 4.5% in investment growth and 3.5% in productivity growth.

With US 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 is set to kick off gas production from the final offshore phase of its South Pars gas development amid a major gas production push by Tehran, which is aiming to significantly increase supplies to cater to rampant demand.The overall South Pars development includes 37 platforms across the field’s 24 phases to produce 700mn cubic metres per day at present of Iran’s roughly 1bn cubic metre per day total.

Looking ahead, the Institute of International Finance (IFF) forecast that should the signatories to the original JCPOA manage to agree a comprehensive new nuclear agreement that moves beyond the 2015 terms, Iran would see GDP expand by 4.3% this year and by 5.9% and 5.8% in 2022 and 2023, respectively.

If Tehran and the major powers fail to strike any agreement to revive the JCPOA, unemployment in Iran would likely remain in double digits and there would be subdued economic growth of 1.8% this year, the IIF estimated.

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