As Iranian businesses were reeling from the previous round of US sanctions -- scrapped as part of the historic 2015 nuclear deal -- little did they know that something more problematic was around the corner.
US’ mercurial President Donald Trump delivered on his election promise to abandon the 2015 Iran nuclear accord and re-imposed harsher restrictions on the economy.
Trump's move in May unleashed new challenges and chaos for Iran's economy with private sector at the receiving end of the Trump tantrums. The decision by international banks to stop processing Iranian transactions is reminiscent of the previous sanctions’ regime. However, this time around the Chinese, ostensibly more accommodative with Tehran in the past, opted for a tougher posture.
Adding insult to injury were the haphazard decisions and the avalanche of new regulations that made the squeeze tighter for the businesses community.
Pedram Soltani, vice president of the Iran Chamber of Commerce, Industries, Mines and Agriculture has been a vocal advocate of private sector interest.
In an interview with the Financial Tribune, Soltani recalled the draconian restrictions of the recent past and how clouds of uncertainty were gradually disappearing after the US in November granted waivers to eight major importers of Iranian oil and allowed some banks to process payments for Iran's humanitarian trade.
"Before November 4 there was a lot of uncertainty as foreign banks felt no obligation to work with Iran. But in the past months there has been some new action by these banks," Soltani said.
Austria, Switzerland and Italy are among the European states that sent messages to banks in Turkey, China and India that previously acted as the main conduit for Iran transactions.
"If the SPV [Europe's special trade mechanism for Iran] becomes operational, import of food and medicine will be eased," he said.
Major European powers have said they are working on a plan to establish a special purpose vehicle in order to shield Iranian trade from the long and hostile reach of US sanctions.
The crucial mechanism was meant to be in place by November but nothing has happened.
Officials in Tehran have expressed frustration with Europe dragging its feet in launching the SPV. Foreign Minister Mohammad Javad Zarif said recently that while the Europeans ascribe the delays to the fact that they want to really make the mechanism "operational", the underlying reason is that “they are not yet ready to pay the cost of defying the US.”
Switzerland has also said it is launching its own mechanism for facilitating food and medicine trade with Iran.
On the flip side, Soltani referred to the more stringent compliance with US sanctions regime by Iran's traditional trade partners, particularly China.
The compliance also includes China's observance of money laundering rules set out by the Financial Action Task Force, which practically excludes Iranian students and non-merchant expats from China's financial system.
Iran's private sector also must wrestle with cumbersome laws at home as well something that has come to be known as 'self-sanctioning
As China’s Bank of Kunlun officially resumed its transactions with Iran after a one-month pause in December, the bank's scope of work fell short of what Iranian businesses had hoped for as the bank hews strictly to the US sanctions regime.
In an official notice of the bank outlining its new strategy for Iran, the bank made clear that it will handle “only humanitarian and non-sanctioned goods and services for bilateral trade between Iran and China."
In a tweet Soltani regretted the incident as a sign that "Iran has no strategic partners."
Domestic Battle
As Soltani and his colleagues point out, Iran's private sector also must wrestle with cumbersome laws at home as well— something that has come to be known as 'self-sanctioning.'
This includes next year's contractionary budget bill, which Soltani says could bring back recession for the private sector simply because the government is the biggest spender on infrastructure projects.
General revenues in the 2019-20 budget bill have grown by 7.98% compared to the previous year's budget. But after adjusting for inflation (forecast at 34.1% in 2019 by the IMF) the revenues will shrink in real terms.
Another factor that could undermine the economy next year is the caps the government has imposed on bank transactions to be able to better manage the foreign exchange market.
The red tape involved in buying currency from Nima (an online regulated platform set up by the central bank for currency trade between exporters and importers) is another common gripe of the businesses.
Soltani holds the opinion that government obduracy in fighting free market mechanisms has almost always backfired and policymakers learn things the hard way.
A recent manifestation of such observations was the chaos in the currency market. Unheeding calls from the private sector, the government fixed a rate of 42,000 rials on the US dollar in April of last year only to walk back three months after demand for the artificially cheap currency skyrocketed.
The government rigidly ignores the persistent demand of businesses that it liberalize currency rates at Nima and let it move toward market rates providing incentive to exporters to sell their earnings via Nima.
"In the current conditions and as a way to take pressure off the currency market, the government should allow exporters to sell their currency on Nima at free market and competitive rates," the ICCIMA deputy said.
