Economic Trends: March and April

 

 

 

 

Growth: The International Monetary Fund projected that Iran’s economy will grow 0.6 percent in 2015 and 1.3 percent in 2016. The figures are lower than the October 2014 projections, due to the impact of low oil prices. Iran’s economy grew 2.8 percent between the third quarter of the last Iranian fiscal year and the year before, but the growth was too slow to significantly reduce unemployment and mitigate other effects of international sanctions. "If we have a successful conclusion to [the nuclear] negotiations, we would see more of a positive impact in terms of higher growth, lower inflation, and lower unemployment," said Valiollah Seif, governor of the Central Bank of Iran.

Taxes: Iran’s tax income rose 49 percent in the first 11 months of the Iranian calendar year compared to the same period last year. Iran’s Finance and Economic Affairs Minister Ali Tayyebnia said Tehran intends to reduce its dependence on oil by improving the tax system.

 

Oil: Oil prices fell four percent on April 2, as Iran and the world’s six major powers announced a nuclear framework that could lift sanctions on Iran’s oil industry, though they rebounded slightly the next day. Even before the announcement, Iranian officials began discussing plans to increase oil production. In March, Oil Minister Bijan Namdar Zanganeh claimed that Iran could ramp up its oil production to pre-sanctions levels “within months” of sanctions being lifted, increasing output by one million barrels per day.

 

Some energy analysts, however, are more cautious. The U.S. Energy Information Administration estimated that Iran holds 30 million barrels of crude oil in storage, and could increase crude oil production by 700,000 barrels per day by the end of 2016, if sanctions are lifted. But Iran would require new investments and greater production capacity to significantly increase output beyond that.

 

Zanganeh also called upon the Organization of Petroleum Exporting Countries (OPEC) to reduce oil production by five percent to offset new Iranian oil on the market and prevent a further drop in oil prices. "We expect the members of OPEC to pave the ground for (an) increase of Iran's oil production that will reach global markets when sanctions are lifted," Zanganeh said in a meeting with the Venezuelan oil minister in Tehran.

 

Gas: Managing Director of the National Iranian Gas Company Hamid-Reza Araqi said that Iran exported eight percent more natural gas in the last year compared to the year before, an increase of one billion cubic meters. Araqi also announced that Iran will begin exporting natural gas to Iraq in late May, and will explore the possibility of exporting gas to Kuwait in the future. In April, Zanganeh announced that Iran plans to increase gas production to 200 million cubic meters per day by April 2016. “This is what we planned by assuming that the sanctions will remain in place,” he said. “If the sanctions are removed, things will proceed much faster.”

Inflation: The inflation rate dropped to 15.6 percent by the end of the Iranian year, down from more than 40 percent two years ago, according to the Central Bank of Iran. In response, Iranian banks announced they will cut lending rates by at least two percent. Akbar Komeijani, a deputy governor for the Central Bank of Iran, said “the rates need to be lowered in pace with the drops in the inflation rates so there would be a better balance between developments in the national economy and the return of investments in various markets.”

 

Unemployment: Iran’s youth unemployment rate is expected to drop from 25.7 percent to 24.7 percent in the second quarter of 2015, according to Trading Economics.

 

Banks: Iranian bank lending to businesses increased significantly in the past year. Lending spiked by 35 percent, and businesses borrowed $94.2 billion between March 2014 and March 2015, exceeding projections.

 

Stock market: The Tehran Stock Exchange surged more than eight percent in the five days following the April 2 announcement.

 

Car production: Car production increased 58 percent in the first 11 months of the Iranian fiscal year.

 

 

Russia: Russia has taken several steps to solidify economic ties with Iran in the wake of the April 2 announcement. In April, Russia began implementing an oil-for-goods deal with Iran. “In exchange for Iranian crude oil supplies, we are delivering certain products,” said Russian Deputy Foreign Minister Sergei Ryabkov. “This is not banned or limited under the current sanctions regime.” Moscow and Tehran had been negotiating the deal since early 2014. Iran and Russia also signed an agreement to create a joint body to regulate financial transactions between the two countries, which will help reduce the effects of international sanctions.

 

On April 13, Russian President Vladimir Putin signed a decree lifting a ban on the sale of advanced air defense missile systems to Iran. Russian Foreign Minister Sergei Lavrov said that the embargo was no longer necessary given progress in nuclear talks between Iran and the world’s six major powers.

 

 

United States: The U.S. Census Bureau reported that value of goods traded between the United States and Iran amounted to $30 million in January and February, up from $24.2 million during the same period the previous year.

 

With the prospect for a nuclear deal, American companies are also exploring the potential of the Iranian market. On April 16, a delegation of 22 American businessmen and investors made a rare visit to Tehran to discuss post-sanctions business opportunities. U.S. car manufacturers have also reportedly indicated an interest in Iran’s auto industry. “The Americans have expressed willingness for presence and investment in Iran’s market, and they are waiting for the Lausanne statement to become an agreement,” said Mohammad Reza Najafi-Manesh, member of Iran’s Car Manufacturing Policymaking Council.

 

Sanctions: Deputy head of Bank Melli Iran for International and Foreign Affairs Gholam Reza Panahi met with European bank representatives in Tehran in April to discuss resuming financial transactions if sanctions are lifted. “Once sanctions are removed, the ground will be prepared to provide brokerage services as well as international money transfer and other banking services for imports and exports,” he said.

 

China: Oil Minister Bijan Namdar Zanganeh affirmed China’s role as a key energy partner for Iran. China is the largest buyer of Iranian crude oil, and Iranian oil accounts for 12 percent of China’s annual oil consumption. Officials have indicated that sales of Iranian oil to China would likely increase if sanctions are lifted as part of a nuclear deal, even with more potential buyers on the market.

 

Trade: Iran exported $49.74 billion and imported $52.48 billion in goods over the past 12 months, according to the Iranian customs office. The value of exports increased by nearly 19 percent compared to the previous year. On March 18, President Hassan Rouhani announced that non-oil exports exceeded expectations, despite international sanctions.

 

Switzerland: A Swiss business delegation met with Gholam Hossein Shafei, head of Iran's Chamber of Commerce, on April 28. The two sides discussed expanding bilateral trade. "We would like to find out how the Iranian government wants to proceed until negotiations are concluded, and after sanctions are lifted," said former Swiss ambassador to Iran Livia Leu, who accompanied the delegation.

 

Germany: A group of German businessmen met with senior Iranian officials for the second time in several months to explore investment opportunities if sanctions are lifted. Shafei said that Germany could potentially become a reliable trade partner for Iran's saffron, carpet, and dried fruits exports.

 

France: France’s Total indicated that it would be interested in reviving oil and gas investments in Iran, if sanctions are lifted. “Iran has the world’s second largest gas reserves after Russia, and we will consider returning to this country once sanctions are lifted,” said Total CEO Patrick Pouyanne.

Turkey: On April 7, Rouhani and Turkish President Recep Tayyip Erdogan signed eight agreements to increase bilateral trade, aiming to increase trade volume to $30 billion by the end of 2015. Iran imported $875 million in commodities from Turkey – including gold, jewelry, produce, and leather goods – in the last quarter of the Iranian year, ending on March 20. But Ankara rejected Tehran’s offer to double Iran’s natural gas exports to Turkey at a discounted price. Turkey imports around 27 billion cubic meters of natural gas from Iran each year, accounting for 95 percent of Iran’s gas exports.

 

Asia: Iran is reportedly in talks with three Asian buyers to increase crude oil sales if sanctions are lifted.