Our next newsletter (Issue 78) will be published next month.
Published: March 2018
In this issue:
- President Rouhani ushered in the Norwuz celebrations with a self-congratulatory speech, in which he identified “trust” as the key to Iran’s success over the coming years.
- His comments could be seen as a thinly-veiled critique of the excessive involvement of the IRGC and other military actors in the economy. Corruption, nepotism, skewed investments and inefficiency stifle the government’s economic policy.
- The IRGC Quds Force unabashed role in the counterfeiting of hundreds of millions of dollars’ worth of Yemeni bank notes is a case in point. Such deceptive, criminal behaviour right under the nose of European regulators poisons the reputation of legitimate Iranian businesses overseas.
- The Central Bank of Iran (CBI) has announced plans to merge Iran’s “military banks” by next Norwuz. Whether this reduces the military dominance of the Iranian financial services sector will depend on how well the new entities are regulated and policed.
- In the context of a hardening US stance on the JCPOA, which is influencing the European posture towards Iran, the banks are the battleground for Iran’s economic survival. Transparency in the sector will be the difference between delivering short-lived returns and long-lasting profits.
- President Rouhani defended his administration’s record, 100 days into his second term. In a new report, the IMF agreed Iran’s economic recovery is becoming broader based, but advocated urgent reform of the undercapitalised banking sector.
- Reintegration into the international banking system is critical to economic stability and Iranian banks have charted some success thanks to improved compliance with international standards on money laundering and terrorist financing.
- But the fragile trust of international banks can quickly be undermined if their Iranian partners are found to be covertly dealing with the “black-listed” entities such as the Islamic Revolutionary Guards Corps (IRGC).
- Verity Iran’s sources suggests that Al-Bilad Islamic Bank, a Baghdad based commercial bank, is accepting lucrative pay-offs to facilitate financial transfers from the IRGC to Hizbollah.
- Following the US President’s “decertification” of the JCPOA in October, some expected the US Congress to “snap-back” sanctions. At the end of the 60-day window, no such decisions were taken.
- Meanwhile, European leaders continue to defend robustly the deal in public and European businesses to live cautiously by its terms in private.
- EU High Representative Federica Mogherini has referred to JCPOA implementation as an “absolute must” and a strategic priority for European security
- Iranian investors are keeping a watchful eye on the US Congress regarding its deliberations on the future of financial sanctions. The Iranian stock market has risen steadily since October, although the Rial has lost almost 3% in value against the dollar.
- Meanwhile in Europe, businesses are studying their options. French oil major, Total, and European aircraft manufacturer, Airbus, remain engaged but sensitive to rising risks.
- The IRGC’s role in the economy is coming under increasing scrutiny. Verity Iran’s sources suggest its pervasive presence in the economy is holding investment up and putting many investors off altogether.
- More generally, Iran’s negative “image” is jeopardising the fragile trust it retains in the international business community. Failure to meet the conditions of its agreement with the Financial Action Task Force in the next two months, to combat money laundering and terrorist financing, could see Iran once again isolated from international banks.
- The escalating diplomatic crises surrounding Iran’s imprisonment of foreign and “dual-national” citizens is also bad for business. The high-profile case of the IRGC’s imprisonment of a British-Iranian mother visiting her family is one of many causing concern in the Iranian diaspora and international business community.
- Hundreds of casualties in the recent, devastating earthquake in Kermanshah Province have been linked to corruption in the construction of government social housing. The use of poor quality
- The US President’s move to stiffen the US posture against Iran and hand the question of sanctions-“snap-back” over to the US Congress has placed the Iranian economy on an uncertain path.
- The financial sanctions now at Congress’ disposal can be a potent deterrent to firms doing business in Iran. Mr Trump’s decision to designate the Islamic Revolutionary Guards Corps (IRGC), by executive order, complicates matters even further.
- Iran’s oil exports, which recovered to around 2.3 million barrels per day after sanctions were lifted, again represent its core vulnerability. New sanctions will be particularly damaging if they throw sand in the wheels of inward foreign investments
- However, a return to the pre-2015 sanctions regime is not a done deal: the international community has loudly and clearly rejected the US position.
- The immediate reaction from President Rouhani reflected the mixture of anger and indifference in the Iranian public, aiming personal attacks at President Trump but reinstating Iran’s commitment to the JCPOA.
- For Iranian businesses and the Rouhani administration, the priority must be to capitalise on goodwill in European and Asian markets and keep non-US trade and financial channels open.
Further issues available via the Archive tab at the top of the page.