Iran Country Report Jun17 - June, 2017

July 12, 2017

Iran’s economy has experienced an “impressive recovery” since international sanctions were lifted in January last year and delivered an annual economic growth of 12.5% in the last Persian year ended March 20. According to the Central Bank of Iran, the strong growth was driven by expanded oil sales, which presently make up 30% of Iran’s overall GDP.

The Trump administration on May 17 announced it would continue with Obama-era waivers on sanctions linked to Iran’s nuclear programme. However, taking something of a carrot and stick approach, it simultaneously imposed new measures aimed at punishing Tehran for its ballistic missile development programme, human rights record and support for the regime of Syrian President Bashar al-Assad. The growing tensions between Iran-US could undermine economic expansion.

Iran’s economy has started to see the benefits of foreign investment. For instance, auto sales data suggest that Iran now accounts for 86.5% of all sold PSA-branded vehicles in the wider Middle East and North Africa region thanks to its Iran re-entry. In the year that followed the removal of sanctions, over 200 foreign investors invested cash in the main indices.

Western investors will have been encouraged by the re-election of reform-minded Hassan Rouhani as Iran’s president on May 19. Rouhani’s clear victory over conservative rival Ebrahim Raisi is widely seen as public backing for his competent management of the economy and engagement with the West following the 2015 nuclear deal.

Although investors have been slow in coming, oil exports have surged, enabling Rouhani to point to significant economic progress. In the year to March 2017 Iran’s GDP grew by around 12.5%, its current account surplus rose to around 6% of GDP over the same period, and inflation has tumbled from a 2013 high of 45% to 7%.  

Having the second-largest gas reserves and fourth-largest oil reserves in the world has made Iran substantial economic headway largely thanks to a doubling of its oil production since sanctions were removed. Iran’s oil production reached 3.796mn b/d in Q1 2017, rising from 3.741mn b/d in the previous quarter, according to OPEC’s report.

Iran has signed a long-awaited multi-billion-dollar contract on July 3 to develop part of its giant South Pars gas field in the Persian Gulf with French energy major Total and China's China National Petroleum Corporation (CNPC). The deal, focused on developing Phase 11 of what some estimates say is the world's largest gas field, is valued at up to $5bn and marks the first major Western energy investment in over a decade.

Iran has been slowly negotiating deals with several aircraft manufacturers including France-based Airbus and America’s Boeing. National flagship carrier IranAir finalised a deal to buy 20 turboprop aeroplanes from Airbus subsidiary ATR. The deal between the two sides is estimated to be worth €540mn at the full list price.

The president and parliament, dominated by reformist and moderate conservative allies, have some scope to introduce economic reforms, which include plans to restructure the banking and tax system and improve the business environment. But, Iran’s entrenched power structure means that Rouhani is unlikely to be able to persuade the hardliners to change their ways, in particular the Iranian Revolutionary Guards Corps’ (IRGC) support for insurgents in Syria, Lebanon and Yemen.

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