Iran Country Report Jun18 - June, 2018

June 4, 2018

Iran’s real GDP growth is forecast to edge down to 4.0% in both 2018 and 2019 after coming in at 4.3% in 2017, according to the latest edition of the World Economic Outlook issued by the International Monetary Fund (IMF) on April 17. IMF noted that higher investment growth will be offset by lower oil production growth and limited access to finance.

Nonetheless, this figure is a shortfall from the impressive 12.5% economic growth recorded in the last Persian year ended March 20 since international sanctions were lifted in January 2016. Besides the effect of a slowdown in its oil sector following an exceptionally high 2016 surge, activity in Iran was dampened by weak foreign investor confidence associated with geopolitical tensions (including new sanctions and a hardened nuclear-deal stance by the United States).

The Trump administration on May 8 unilaterally walked out of the multilateral Iran nuclear deal and warned foreign companies that chose to remain involved with the Islamic Republic that they would be exposed to Washington’s reintroduction of heavy sanctions against Tehran. Whatever the rights and wrongs of the move it leaves Washington and the five other signatories who in late 2015 agreed to the deal with Iran—the UK, France, Germany, Russia and China—on a collision course with the Trump administration. And, just for starters, Iran’s plans to source $200bn of investment for its oil, gas and petrochemical industries and spend $38bn on Boeing and Airbus aircraft purchases may be doomed.

As the accord entirely unravels, Iran's hopes for economic expansion in the years ahead would take a much greater hit through impacts on trade, investment and available financing. A Swiss bank on May 29 suspended new transactions with Iran and said it was winding down Iran-related activities while two Indian banks reportedly asked exporters to complete their financial transactions with Iran by August. Several sizeable European companies such as Poland’s PGNiG, Germany’s Wintershall and French energy major Total look set to avoid irking Washington. They seem unlikely at this point to keep their current business ties with Iran.

Iran retains firm hopes that at least China and India—the two biggest markets for its vital oil exports—will pay little heed to the US sanctions while the European Union and Russia are working out what practical protection they can offer their firms from secondary sanctions stemming from the American action against Iran.

Meanwhile, the euro has been confirmed as the preferential currency for trade between Iran and the EU after the IRR plummeted to a record low of 70,000 to the dollar on the free market in the build-up to the US withdrawal from Iran nuclear deal.

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