Iranian markets nervous as early elections loom following Raisi's demise

Iranian markets nervous as early elections loom following Raisi's demise
Iranian forex traders have been spooked by Raisi's death. / bne IntelliNews
By bne Tehran bureau May 22, 2024

Iranian traders and business groups have been spooked by the sudden death of Iranian President Ebrahim Raisi on May 19, with markets going haywire despite being officially closed. 

Raisi, an ultra-conservative leader, was widely expected to secure re-election next year despite his poor economic record, which saw the Iran rial (IRR) reach record lows and the stock market struggle during his three-year tenure. However, he achieved significant GDP growth, influenced by a surge in oil income during the Ukraine conflict.

Iran is on five days of mourning ceremonies for the president and his colleagues in the accident, including Iran's Foreign Minister Hossein Amir-Abdollahian, who was on board the aircraft. Markets were closed on May 22, and the following two days are the current weekend. Markets should reopen on May 25. Despite the closure, the black markets have consistently changed prices on the country's border. 

First vice president of Iran Mohammad Mokhber has assumed the President's power. A council consisting of the parliament's speaker, the judiciary's head, and the first vice president has also been formed to arrange the snap July 28 general election.

Raisi's administration had aimed to stabilise the volatile Iranian economy, but his unexpected passing has reshaped the economic landscape, presenting significant challenges for the next government.

The coincidence of Iran's presidential election with the upcoming US election has added another level of further complexity, forcing investors and market players to reassess their expectations in light of his administration's sudden stoppage.

Rial goes up, rial goes down

The immediate market reactions were stark to Raisi's helicopter downing. Following the confirmation of Raisi not returning to Tehran, the forex market experienced a rapid spike in the dollar's value, reaching above IRR 600,000 by the afternoon of May 20 before Central Bank of Iran (CBI) intervention managed to curb the increase to IRR 580,000 by May 21.

However, despite the CBI's best efforts to pump hard currency into the forex markets, dealers down on Ferdowsi Street in Tehran are factoring in increased risk over the next six weeks with all to play for and still no clear idea who is going to replace the former president by the end of July. 

Gold markets, always a haven in Iran considering the tumultuous political climate, also saw a spike in purchases. Outside the country, gold markets on May 20 also saw a spike in prices in part due to Raisi's passing, according to reports from London.

Meanwhile, the stock market, already under pressure from market dynamics, faced additional turmoil, with trading halted on 20 May and restrictions imposed on 21 May. The market has pulled back on some losses following the crash, but the feeling is still tentative. 

Local market analysts are now closely watching for signals from the incoming administration. Financial analyst Homayoun Darabi highlighted the profound impact of the president on Iran's economic policies in an interview with Ettelaat newspaper.

"This incident is significant both nationally and internationally, with substantial implications for all sectors of the economy," he noted.

The transition to a new government complicates the economic outlook, especially under these sudden circumstances.

The upcoming elections and the formation of a new government, alongside a new parliament with potentially different priorities, add layers of uncertainty. The next president's approach to economic freedom versus state control will be pivotal for market stability.

Darabi emphasised that the new administration's interest rates and liquidity policies will be crucial, as current high interest rates and liquidity shortages have stifled investment.

Bne IntelliNews local analysts believe the country will unlikely face structural or functional challenges following President Raisi’s unexpected death. However, they cautioned that a wild card situation with the upcoming election could cause complications in the medium term.

Donya-e Eqtesad daily noted the increased revenues from crude oil sales over the past year, suggesting that the next government is unlikely to face tight financial conditions in the short and mid-term, as the growth in oil revenues has recently bolstered government reserves.

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