Economy, Business And Markets

Ex-Banker Cautiously Sanguine

Ex-Banker Cautiously SanguineEx-Banker Cautiously Sanguine

Implementation of the nuclear accord and the lifting of sanctions should reduce the cost of money and trade for Iran, Ahmad Hatami Yazd, former CEO of Bank Saderat said. Foreign bureaux de change and banks used to charge 10% for conducting transactions for banks and/or companies, a prohibitive amount that is coming to an end as the economic restrictions fade.

“Ending the long-standing sanctions will free Iran’s foreign assets and allow the government to increase oil exports to 1.5 million barrels per day from the current 1 million bpd,” ILNA quoted him as saying.

The Oil Ministry has declared that it is willing and able to add half a million barrel to its crude export in the next few days and raise the volume by another one million barrels per day in about six months.

However, giving the plunge in international crude prices, market observers and oil analysts have cast serious doubts about Tehran’s future oil policy noting that it would further harm the barrel that is now languishing near $30 and is expected to fall in the below twenty dollar territory if present trends continue, even without Iran’s extra barrels.

During the sanctions, imposed more than a decade ago, Iranian banks were barred from transferring money to and from other countries. To bypass the tough sanctions lenders paid extra to third parties to get the foreign job done. Iran was also allowed to export only 1 million barrels per day of its crude oil.

Hatami pointed to the plummeting oil prices now at a 12-year low, saying that the government will have a hard time plugging the deep holes in its budget due to the lower oil revenues. “With crude showing no sign of recovery, only 70% of the government’s oil revenues predicted in the budget will materialize leaving the budget deficit gap wide open.”  

“The oil price in the government’s next year budget (2016-17) is set at $35-40 which is far-fetched given the realities of the international oil markets,” the former banker said.

He also pointed to the gap between the rate of the US currency in next year’s budget and its parallel market rate which is about 6,000 rials and predicted that the market rate would surge further.

The budget shortfall could compel the government to issue bonds and Sokuk in order to make up for the deficits, which he said will not be without downsides. “Such a measure would fuel inflation and disrupt the government’s anti-inflationary policies.”