Iran Country Report Jul17 - July , 2017

August 9, 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.

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 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.

Numerous milestone deals between big EU companies and Tehran have blossomed in early July. French major Total announced its delayed South Pars 11 deal, the first multi-billion-dollar Western energy investment in Iran in over a decade; Germany’s Volkswagen declared that it was returning to Iran after 17 years; the Paris Air Show saw a wealth of deals struck between Iranian airlines and Airbus, and also Boeing, one US company always nervously awaiting Trump’s next word on Iran given the billions in dollars now at stake following a slew of contracts it’s agreed with the Iranians; and, as a final example, Finland’s Nokia signed up to a cooperation with the Mobile Communications Company of Iran (MCI) to roll out fifth generation (5G) internet services.

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