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.
Iran on August 31 claimed to have delivered a “peace initiative” for ending the Ukraine war to Russia. The proposal was said to have come from an unnamed European leader. Iranian Foreign Minister Hossein Amir-Abdollahian announced the handing over of the initiative while standing next to Russian counterpart Sergey Lavrov during a news conference in Moscow.
A growing number of media reports suggest Iran is looking to fill a ‘Russia-sized hole’ in oil sales to Europe if a new nuclear deal with the major powers can be struck. Iran's state oil producer would pursue customers in countries including Greece, Italy, Spain and Turkey should economic sanctions be eased under a fresh nuclear accord.
A big attraction for the West in returning to the Joint Comprehensive Action Plan (JCPOA) is that it would open up world markets to Iranian oil, meaning Tehran would have the potential to ease the crude oil supply stress increasingly felt by countries attempting to turn their backs on Russian oil in response to Moscow’s invasion of Ukraine.
The Intercept on August 31 reported that in the US hawkish Democrats were ramping up a campaign against a possible restored JCPOA.
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. Another concern of Iran is what economic guarantees Tehran will be given as a shield against the impact of a future US president withdrawing from the multilateral JCPOA.
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).
Iran's gas export earnings for the first four months of the Persian calendar year (March 21 to July 21) reached nearly $4bn, higher by 580% y/y, the semi-official ISNA news agency quoted Oil Minister Javad Owji as saying on July 27. 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.
The National Iranian Oil Co. (NIOC) and Russia’s Gazprom on July 19 signed a memorandum of understanding (MoU) covering investment worth around $40bn. Furthermore, Iran and Russia will sign a gas purchase and swap deal in the very near future, according to Iranian Oil Minister Javad Owji on August 26.
Iran's petrochemical exports rose by 38% y/y to $9.14bn in the first five Persian calendar months (March 21 to August 21), state media reported on August 28. Petrochemicals accounted for 44% of the value of Iran’s total exports in the period, according to the Islamic Republic of Iran Customs Administration (IRICA). Petrochemicals provide Iran with its second-largest source of export revenue after crude oil, constituting almost one-third of the country’s non-oil exports.
Iranian President Ebrahim Raisi and Russian counterpart Vladimir Putin have voiced their wish to pursue de-dollarisation in global trade during Putin’s visit to Tehran on July 19. Raisi remarked on June 29 that an independent financial system would make it "impossible for any country to exert influence or pressure on it".
Meanwhile, Iran placed its first official import order using a cryptocurrency, Tasnim News Agency reported on August 9. Such orders could provide a way for Tehran to dodge US sanctions. The type of cryptocurrency used was not disclosed by officials.
The Iranian rial (IRR) hit a record free market low of 332,700/$ 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 a record 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%.
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.
Protests over water scarcity in Iran have become quite commonplace in the past two or three years, with the impacts of climate change combining with questionable water management to leave many regions exposed to a severe lack of water, especially given persistent drought that is afflicting the country.
In June, Abadan, in southwestern Iran, recorded one of the hottest days on Earth since records began, registering 52.2°C (126°F).
Water difficulties and associated protests have also been seen in locations such as Shahrekord in central Iran and Hamedan in western Iran in recent weeks.
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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