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.
There are indications that Iran and the US are moving towards an acceptance of something towards the “coma option”—or an interim agreement—to break the current deadlock over how to resurrect the 2015 nuclear deal, or JCPOA. Biden’s Iran negotiator told the congressional hearing that ‘nuclear talks aren’t dead, but almost’. An interim deal could still salvage the accord and potentially provide the basis for full compliance by both sides after the US elections this November.
The Vienna talks process aimed at finding a path to restoring the JCPOA has not made any significant progress for more than two months, with issues such as Iran’s demand that the US delist the Islamic Revolutionary Guard Corps (IRGC) from its list of designated foreign terrorist organisations (FTO) not overcome.
Iranian Foreign Minister Hossein Amir-Abdollahian appeared at the World Economic Forum in Davos on May 26 and declared: Either US President Joe Biden ends his predecessor Donald Trump’s “maximum pressure” strategy against Tehran and guarantee Iran economic relief from the lifting of sanctions or the window for diplomacy might close.
Western diplomats familiar with the latest Vienna talks developments were cited in a Reuters analysis on May 2 as saying that their governments were losing hope for an agreement to restart the JCPOA, but were not yet "pulling the plug."
The Iranian rial (IRR) hit a year-to-date free market low versus the USD on May 31. The currency touched IRR312,200 for the first time this year. The impasse in efforts to find a way to revive the 2015 nuclear deal, or JCPOA, which would mean an end to heavy economic sanctions on Iran, has soured market sentiment in recent weeks.
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, 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.
The consumer price index (CPI) inflation figure released by the SCI was 42.4% in the 10th Persian month (ended January 20), a modest improvement on the 43.4% recorded in the 9th Persian month. Food, beverage and tobacco prices moved up 1.7% m/m, while services and non-food prices gained 2.7% m/m.
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.
Protesting crowds consumed by grief and fury took to the streets of the southwestern Iranian city of Abadan in Khuzestan Province on May 24 as the death toll from the collapse of an unfinished 10-storey building mounted to 31. Many in Abadan are blaming city officials for the tragedy, with rumours of poor construction work that was given the go-ahead to cut costs.
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) this week 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, Iran can expect GDP growth of 3% this year and 2% in 2023, according to the latest projection of the IMF released in its spring World Economic Outlook update. Those rates would follow last year’s 4%, the Fund said.
As for official inflation, the Fund sees 32.3% this year and 27.5% next year, compared to 2021’s 40.1%.
For the current account balance as a percentage of GDP, the IMF determined last year’s 2%% will be followed by 3.5% this year and 2% in 2023.
Official unemployment would remain at around 10% across this year and next, also according to the Fund’s forecasting.
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