Our next newsletter (Issue 66) will be published in January 2017.
Issue 65.Iran’s response to any change in US policy will shape its relationship with the global economy
In this issue:
- The fate of the JCPOA in the “Trump era” is not yet known but there are signs that even if the US chooses to change course, Iran might adequately rely on its relationship with the rest of the world to continue the path of economic integration.
- Foreign investors remain cautious about Iran on the whole, but some big players are sending a clear message that regardless of the politics, they want to do business. Boeing, Shell, Total, CNPC and Gazprom have signed deals in the last month.
- It is telling that whilst many agreements are signed in principle, few if any are finalised, and the five month run-in to the Iranian election will be a crucial test.
- Regardless of the US position, Iran’s sympathetic business partners are waiting to see if it is committed to the path of the JCPOA and integration into the global economy or poised to revert to the path of isolationism.
- In the meantime, the Rouhani administration continues to focus on the economy, with an optimistic and expansionary budget for 1396.
In this issue:
- Despite the hype of the campaign, our central expectation is that the election of Donald Trump will not undo the JCPOA deal or reverse Iran’s reintegration into the global economy.
- The nuclear agreement initiated something that is very difficult for a new US administration to put back in the bottle. International firms from around the world have revived relationships with Iranian firms and will not be easily deterred from making them a success.
- The US President-elect’s position on Iran may become more nuanced after fuller intelligence and policy briefings on Iran and the wider regional context.
- The agreement itself is multilateral, underpinned by a UN Security Council resolution and is seen as a success in each of the other signatory countries. Russian and Chinese authorities are highly reluctant to undo it, European leaders feel the same way.
- Nevertheless, the downside risks for the Iranian economy are certainly heightened since the US election, especially if postures harden in Tehran and Washington over the future of the relationship.
- But the main challenges that faced the Iran’s economy on the 8th November remain the same today: reform, diversification and the fight against corruption. Iran must be careful to adhere to the JCPOA terms so as not to divert from those priorities.
- The gradual normalisation of Iran’s role in the international community is marked by Iran’s first post-JCPOA ministerial meetings and first attendance to the World Nuclear Association annual meeting.
- President Rouhani used his attendance at the United Nations General Assembly to seek sympathy for the lethargic attitude of Western banks to rebuilding relationships with the Iran’s financial sector and pressed Western leaders in the side-lines to do more.
- Back in Tehran, the government kicked off next year’s budget process and set out the challenging reform agenda for the final year of Rouhani’s first Presidential term.
- Central to the budget plan is the creation of a sovereign bond market, which will provide a valuable source of income for the government and will alleviate the public sector burden on the banking sector, both potentially stimulating growth prospects.
- The Iran Petroleum Contract (IPC) was finally signed off by Parliament and the first new deal is in place. International Oil Companies are being courted for investment in 50 oil and gas projects worth US$10 billion.
- Iran’s dual exchange rates are to be unified within two or three months according to the Economy Minister. The Minister also defended Iran’s engagement with the Financial Action Task Force in front of Parliament, drawing parallels between the FATF principles and Iran’s long standing fight against smuggling, tax evasion, financial corruption and other illegal economic activities.
- The refusal of two of Iran’s largest banks to do business with the Islamic Revolutionary Guards Corp (IRGC) has caused considerable controversy in Iran, with critics accusing the authorities of “self-sanctioning” Iran’s banks.
- On the contrary, Banks Mellah and Sepah are spearheading efforts to reassert the international reputation of Iranian banks. The result will be of benefit to the entire Iranian economy, and should be applauded.
- The toxicity of the dispute reveals the scale of the challenge facing the Rouhani administration’s economic reform agenda. “Opening up” will mean compliance with many more international regulatory and legal frameworks, designed without Iran’s own sensibilities in mind.
- The Central Bank of Iran has taken positive measures to strengthen the financial sector: further widening access to the open market foreign exchange rate and establishing a stress-testing system for Iran’s domestic banks.
- Finally, thirty percent of Iranians are hungry or do not have nightly bread, according to the Ministry of Health, serving a stark reminder of the real costs of foot-dragging over economic reforms.
Further issues available via the Archive tab at the top of the page.