Iran’s economic growth recorded 5.7% in the third quarter of the current Iranian calendar year (September 23 – December 21, 2021), according to a report by the Central Bank of Iran (CBI) on March 14. Iran’s economy has continued to rebound despite US sanctions still levied on it through local production and a boost in exports thanks to high oil and gas prices in the global market.
The CBI’s report said that the country’s gross domestic product (GDP) stood at $13.4bn in the three-month period, showing 5.7% growth compared to last year’s corresponding period. The report put the country’s overall economic growth in the nine months to December 21, 2021 at 4.1%.
This would mean Iran has emerged from the long and bitter three-year recession that set in around May 2018 following then US president Donald Trump’s reintroduction of heavy sanctions on Tehran. Officials have credited higher exports and a general realignment of the economy, necessitated by the impact of heavy US sanctions, with securing the new growth.
The chances of reviving the 2015 nuclear deal between Iran and the major powers are worse after indirect US-Iranian talks held in Doha this week that ended without progress, a senior US official told Reuters on June 30. The talks saw European Union officials shuttle between the two sides trying to revive the nuclear deal, or Joint Comprehensive Plan of Action (JCPOA), under which Iran curbed its nuclear development programme to guarantee it was kept entirely civilian in nature. In return for doing so, Iran was granted relief from economic sanctions.
Iran, however, has presented the Doha talks as a positive development. At the same time, it has pointed the finger at the US for not providing guarantees that a new US administration would not again abandon the deal Trump-style.
The talks between Iran and the US have been deadlocked since March and ended without an agreement. Tehran's insistence that Washington remove the Islamic Revolutionary Guard Corps (IRGC), a state entity, from its Foreign Terrorist Organizations (FTO) list is thought to be the key obstacle preventing Iran and the US from sealing an agreement.
The three European countries that signed the JCPOA seven years ago, namely France, Germany and the UK, on June 30 urged Tehran to seize an offer that is on the table to reinstate the nuclear deal.
Britain, Germany, and France told the UN Security Council that negotiations to restore the JCPOA “have resulted in a viable deal being on the table since early March". They added that they regretted that Iran “has refused to seize this diplomatic opportunity and continued its nuclear escalation."
Iranian President Ebrahim Raisi and Russian counterpart Vladimir Putin met in Turkmen capital Ashgabat on June 29 calling for trade independent of the Western financial exchange system. Raisi remarked that an independent financial system would make it "impossible for any country to exert influence or pressure on it".
The Iranian rial (IRR) hit a record free market low of 332,700/$ on June 12 as market sentiment further soured on prospects for the talks aimed at keeping alive the nuclear deal. The euro and the pound sterling also fell to all-time lows at IRR349,900 and IRR400,000, respectively. The pound broke the 400,000 barrier for the first time in 2022.
The worsening “street rate” of the dollar and other hard currencies in Iran are a further burden to the consumer faced by painful inflation, officially at around 40%. Prices for wheat-based, dairy and pasta products in Iran have been rising at a far faster rate.
Iran’s official annual inflation rose 13.2 pp to 52.5% in June from 39.3% in May, the Statistics Center of Iran (SCI) announced on June 28. Price growth in food, beverages and tobacco grew by 32.2 pp to 81.6% in June, while nonfood goods and services prices moved up by 2.8 pp to 36.8%.
Iran, the Middle East’s top wheat producer, is expected to see production drop 20% this year to 12mn tonnes, which is 17% below the 5-year average, according to Gro Intelligence. The country’s wheat-growing areas have experienced “severe” levels of drought since mid-2021.
Iran could also see mass closures of poultry farms in the next three months as a result of a government plan to rein in food inflation with price caps. Farmers were losing the incentive to keep operating with such farm-gate prices, despite promises from officials that subsidies would buoy their working capital, according to the National Union of Broiler Farmers.
In early May, Iran was hit by unrest after the government cut subsidies for eggs, chicken, dairy products and cooking oil.
Social tensions in Iran have risen amid surging inflation, including steep hikes in food prices, and a series of strikes mounted by workers including teachers and bus drivers in Tehran. In the past year, the country has also been hit by protests over water shortages.
The blow to Iranian consumers came a day after Iranian oil and petrochemical workers began a strike for higher wages, with their industries becoming the latest of several in Iran to be plunged into turmoil by cost-of-living protests.
Meanwhile, the Ukraine conflict has reportedly resulted in a surprising surge of trade flows from Europe to the East and South via Iran, which saw Iranian goods transit increase 52% in March and creates something of a political quandary for both the European Union and United States, as Iran, like Russia is also under significant US sanctions.
With sanctions still in place in an effort at keeping Iranian oil off world markets, Iran has been relying on China turning a blind eye to American demands to import substantial amounts of Iran’s crude on the grey market.
Iran's oil export volume is running at a level 40% higher than was seen a year ago, according to the National Iranian Oil Co (NIOC).
However, an estimated 40mn barrels of Iranian crude oil is currently stuck offshore in ports around Asia looking for a buyer. As prices of Russian crude have fallen in the weeks following Moscow’s invasion of Ukraine, more and more oil cargoes from Iran have found themselves without end destinations.
The National Iranian Oil Co. (NIOC) last month confirmed the signing of an investment deal with a foreign company for the development of the oil layer of the supergiant South Pars gas field. The Islamic Republic has expanded gas output significantly at South Pars in recent years and supplies are estimated to flow at an average of 850-950mn cubic metres per day, topping out at 1bn cubic metres.
Looking ahead, the World Bank in the June edition of its Global Economic Prospects report has upgraded its 2022 GDP growth forecast for Iran to 3.7% from the 2.4% it anticipated six months ago, citing higher oil prices.
Nonetheless, the institution observed the threat that drought poses to Iran as well as a growing number of cost-of-living protests which saw its official inflation rate remain elevated.
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