Iran Country Report Sep17 - September, 2017

September 7, 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 July 19 announced new sanctions against groups, companies and individuals with ties to Iran, a day after certifying the Iranian government is complying with the November 2015 nuclear deal. These new measures are aimed at punishing Tehran for its ballistic missile development programme, human rights record and support for the regime of Syrian President Bashar al-Assad. For now, the Iranians are showing patient restraint, despite contending that certain supposedly non-nuclear deal-related sanctions introduced by the Trump administration actually breach the JCPOA. The growing tensions between Iran-US could undermine economic expansion.

Despite intense pressure from the Trump administration to isolate Iran, it seems that France, Germany and several other EU member states, along with Russia, China and Japan, are quite happy to pursue growing investment ties with Iran. For instance, early August saw yet another move by a French major Renault to invest €660mn in car production joint venture, after energy major Total having in early July decided to plough an initial billion dollars into developing Iran's South Pars gas field phase 11. Early July also saw Germany’s Volkswagen return to Iran after 17 years. Iran is also attempting to hugely and quickly upgrade its rail infrastructure, having signed major investment deals with European and Chinese firms in recent months, the latter - including high-speed route electrification between Tehran and second city Mashhad - as part of a tie-in to China’s gigantic One Belt One Road project.

Western investors will have been encouraged by the August 5 inauguration of reform-minded Hassan Rouhani as Iran’s president. 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 nuclear deal.

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.

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