As the US ramps up its hostility against Iran, several economic sectors have taken a hit. One among many is the global risk rating.
Among the benefits of the 2015 nuclear deal Iran signed with world powers in 2015 was the lowering of the country's Country Risk Classifications by the Organization for Economic Cooperation and Development.
OECD in January upgraded Iran's rating in the key classifications of the Participants to the Arrangement on Officially Supported Export Credits (CRE) from 6 to 5. The belated move was welcomed by Tehran and heralded better days for Iran's trade with the outside world after nearly a decade of unstable ties.
But the decision by US President Donald Trump to unilaterally withdraw from the Joint Comprehensive Plan of Action–as the Iran deal is formally called–torpedoed almost all that that the deal had promised and a negative impact on Iran's rating in the risk classification followed.
The OECD decision is by cull consensus, nevertheless European countries have considerable clout in shaping any decision
As per the decision by OECD members, Iran's risk rating was downgraded again to 6 following a meeting on June 26. That move was based on an increase in the country's convertibility and transfer risk.
Unending US Animosity
As of October, OECD decided to keep Iran's risk rating unchanged, but according to Arash Shahr-Aeini, deputy head of Export Guarantee Fund of Iran–the country's Export Credit Agency– Iran's immediate outlook leaves much to be desired in the face of the open-ended and visibly unending US animosity.
"However the expected trade mechanism which the European Union is working on could have a positive effect on risk rating outlook, Shahr-Aeini told the Financial Tribune.
Voicing opposition to US policy on the day Washington announced the new sanctions on Iran, the European Union earlier this month said it was setting up a so-called special purpose vehicle.
A senior US official for financial intelligence said the United States is not concerned by Europe’s idea for a SPV to get around US sanctions with Iran as companies are already withdrawing from the country in droves.
Trump tore up the historic nuclear deal Iran had signed with six powers and reimposed a first round of sanctions in August in what he said was his bid “to bring Tehran back to the negotiating table” for a new agreement.
Trump’s moves target Iran’s main source of revenue - oil exports - as well as its financial sector, essentially making 50 Iranian banks and their subsidiaries off limits to foreign banks.
Shahr-Aeini said at its next gathering in January 2019, the OECD may adopt a new decision on Iran and that is when Europe could tilt the scales in favor of Iran.
"The the OECD decision is by cull consensus, nevertheless European countries have considerable clout in shaping any decision," he said.
Issue of Financial Prowess
According to Shahr-Aeini, part of Iran's country risk emanates from the fact that Iranian businesses might not be able to meet their financial commitments with their peers in other countries.
"A lot of this has to do with the restrictions that Iranian businesses face in obtaining hard currency," he said.
As the currency market got more volatile and exchange rates hiked around the time of the sanctions snapback, the government limited access to foreign currency and banned some imports.
Repatriation rules that call for export earnings to be returned to the country has further complicated the business landscape.
Shahr-Aeini said Iran's status with the anti-money laundering body the Financial Action Task Force is also influential in reducing the country risk. The Paris-based body in June gave Iran until October to complete reforms that would bring it into line with global norms or face consequences that could further deter foreign investors.
Iran has been trying to implement standards set by FATF in the hope it will be removed from a blacklist that makes foreign investors reluctant to do business in and with Iran.
