Comments On The Iranian Economy - 24th January 2014

By Dr. M. Javad Ardalan (ardalan@oxpe.co.uk)

Director of Oxford Persian Institute (www.oxpe.co.uk)

For the last Iranian financial year (March 2012- March 2013), Iran's biggest import partner was the UAE, with imports worth US$10 billion, followed in second place by China with imports worth US$8 billion. UK imports ranked 21st, and were worth less than US$400 million. In the current Iranian financial year, imports from the UK ranked 10th and increased to US$521 million. Imports from the UAE, still ranked first, slumped to US$5.5 billion. China and Iraq were the biggest export destinations for Iran in both 2012 and 2013.

After the election, Iranians hoped for a much improved economy. This was the overwhelming desire of electorate. In December 2013, the inflation rate decreased by 0.4% to 40%. Economic disruption is a result not only of sanctions, but also the consequence of the previous government's economic policies.

The Targeted Subsidy Law, passed in 2010, aimed to substitute subsidies on food and energy with cash handouts. However, President Rouhani's economic team is working on a plan to replace cash handouts with the distribution of basic goods as a means of controlling liquidity and inflation.

Akbar Hashemi Rafsanjani, the most influential supporter of President Rouhani, in an interview with the newspaper 'Entekhab' on Wednesday announced that one cannot expect the government to do much too soon, as the treasury is empty.

Normal banking system seemed to have been replaced by middlemen for transfer of oil funds, and this has now given rise to numerous allegation of dishonest and corrupt practices.

President Rouhani has formed a committee to tackle the problem of corruption, chaired by Deputy President Jahangiri.

Recent agreements between Iran and the P5 + 1 countries leading to the relaxation of some sanctions are supported by the Iranian government and Supreme Leader Ayatollalh Ali Khamenei, so opposition to the agreements from hardliners is of less consequence at present. For instance, while the Majlis intended to establish a supervisory committee to oversee the details of nuclear agreement, on 22 January it was announced that no such committee would be formed.

After the interim agreement between Iran and the P5 +1 on 23 November 2013 about relaxation of the sanctions, purchases of Iranian crude oil underwent only a slight increase to 1.15 million barrels a day, compared with 1.10 million barrels a day during the preceding month. Iran's oil exports in 2012/2013 had slumped by about 60% compared to the previous years as a result of US and EU sanctions in late 2011 and early 2012.

The oil and gas sector, as Iran's main exports and source of income, is at the centre of the new government's attention.

The Oil Ministry has prioritized the collection of payments for oil from all buyers. Oil Minister Zangeneh announced on 9 January that he has sold US$34 billion worth of oil, of which US$32 billion has been received.

Minister Zangeneh is keen to increase the number of customers for Iranian oil and initially intended to hold a conference in London in March 2014 to interest buyers and investors. However, on 22 January it was announced that the conference would not take place before the middle of 2014, to allow more time for its preparation.

The Iranian economy will require much time before it improves significantly, however, the government has determined to take action for its improvement over time.

This content does not necessarily express the views of The British Iranian Chamber of Commerce. The views and opinions expressed are those of the author.