Domestic Economy

Oil Flows But Money’s Stuck

Oil Flows But Money’s StuckOil Flows But Money’s Stuck

A jump in oil exports, business deals signed with global companies and inflation tamed: One year since Iranian negotiators gathered with the world’s top diplomats to unveil their nuclear accord and Iran’s economy is on the mend. That’s the good news for President Hassan Rouhani in the final year of his first term.

Not so welcome are the foreign banks deterred from lending by remaining US sanctions, Congressional threats of new curbs and the billions of dollars held in foreign accounts yet to reach Iran, reads a Bloomberg article published on Tuesday.

The following is the full text:

“On the whole, the economic consequences have been disappointing but there was over-optimism,” says Robert Powell, Middle East and Africa regional manager at the Economist Intelligence Unit. “Many in Iran probably expected too much, too soon.”

Here are four charts to highlight Iran’s economic performance.

  Oil Is the Bright Spot

Oil sanctions were the weapon designed to force Iran to the negotiating table over its atomic program. Six months after they were lifted, Iran is producing 3.8 million barrels a day, 2 million of which are exported.

“Holding out against efforts by some OPEC members to freeze bloc output and lift prices, it has regained 80% of market share held before the US and European Union tightened crude sanctions in 2012,” said Mohsen Qamsari, National Iranian Oil Company’s director for international affairs.

Exports have “arguably surpassed expectations”, says Powell. Yet oil’s slumping value means revenue is expected to be less than half of what it was in 2011. That’s about $50 billion in 2016 against $119 billion five years ago, according to EIU estimates.

  Life Is More Affordable, If You Have Work

Helped by greater monetary and fiscal discipline, prices are rising slower than at any point in the past quarter-century. Inflation slowed into single digits in June, meeting the central bank’s stated goal and delivering on a commitment made by President Hassan Rouhani.

The president has “a clean bill of health” on inflation though the same can’t be said of another policy challenge–tackling chronic youth unemployment, says Ellie Geranmayeh, Middle East and North Africa fellow at the European Council on Foreign Relations.

While authorities expect Iran’s economy to expand as much as 4.5% in the year to March, Rouhani’s target of 8% annual expansion would require major changes, according to Powell.

An “expedited privatization program” would break authorities’ stranglehold on the economy, he says, and offer investors transparent partners. Conservative rivals will likely stand in the way.

  Executive Air Miles

Iran’s 80 million people are a mouth-watering prospect for major companies battling sluggish growth at home. So following the July accord, dozens of chief executives booked flights to Tehran.

The deals have built up: a $27 billion order for 118 Airbus Group SE planes and a contract with Boeing Co. worth $17.6 billion. Siemens AG in March signed a preliminary rail accord worth as much as $2.3 billion.

Foreign direct investment rose to $4.5 billion in the first quarter of this year, with 26 projects, the highest uptick in over a decade in Iran, according to fDi Intelligence, a division of the Financial Times Ltd. That’s still way below the government’s hopes of drawing $30 billion to $50 billion in foreign financial resources a year.

“Real inflows will happen when sentiment toward investing into the Iranian economy improves among global banks and institutional investors,” says Payam Afzali, the head of investment banking at Kian Capital in Tehran.

“When Iran’s risk is efficiently priced in international debt markets, we can expect a more fluid movement of capital.”

  Stocks Get Real

The value of Tehran Stock Exchange has jumped as investment deals favoring local manufacturers such as car company Iran Khodro were announced. But the mood has since turned more subdued.

“There was euphoria all the way to March and then a reality check. What’s happening today is in line with the fundamentals of the economy,” says Reza Soltanzadeh, chief executive of Iran Industries Investment Co., of this year’s roller-coaster ride for Iranian stocks.

“The excitement that zillions of dollars will be coming, that’s not reality.”

The benchmark TEDPIX index slipped 2.8% in June. Commodities represent more than 50% of market capitalization, so falling oil and metal prices have hit stocks, says Florence Eid-Oakden, chief economist of Arabia Monitor.