Dubai: Iran’s interim agreement of November 24 with P5+1 (Britain, China, France, Germany, Russia and the United States) on its nuclear programme will have only limited impact on the Iranian economy long suffering from economic sanctions according to economists and analysts.
“If the terms of the interim agreement are implemented without setbacks, the Iranian authorities could use the unfrozen revenues to relieve some of the constraints on imports. This would bring some relief, albeit limited, to the domestic economy,” said George Abed, Senior Counsellor and Director, Africa Middle East Department, Institute of International Finance (IIF).
Signing of the interim agreement has already been reflected in some recovery in the local stock market, a tightening of the spread between the official and black market exchange rates and a drop in inflation. In particular, the black market exchange rate has continued the appreciation that began with President Rouhani’s election, falling from an average of 35,675 Iranian rials (Dh5.29) per dollar in June to 29,700 rials as of December 16; it has appreciated by a further 4 per cent since the interim agreement.
Analysts say real Iran’s GDP could stabilise and even rise modestly in the current fiscal year (ending March 20, 2014). “The interim agreement could pave the way to an eventual comprehensive nuclear accord, but delays, setbacks and the occasional suspension of talks seem inevitable. A comprehensive agreement on the nuclear issues leading to the lifting of sanctions would revive Iran’s economy,” said Garbis Iradian, Deputy Director, Africa Middle East Department of IIF.
Less constrained
With the interim agreement in force, it is widely anticipated that countries not signatory to the more stringent (US and EU) sanctions could feel less constrained in increasing their oil imports from Iran. Also, recent preliminary discussions with international oil companies on a possible return to Iran could intensify and presage some revival of trade. However analysts say a significant step-up in investment, however, would be unlikely until there is greater clarity on the longer term.
The six-month interim agreement in effect temporarily caps both Iran’s nuclear activity and international economic sanctions at current levels and allows for the release of frozen Iranian funds of about $7 billion. Analysts say a full lifting of sanctions could be several years away even if the West and Iran can eventually reach a comprehensive agreement. “There are several layers of sanctions linked to illicit cross border fund flows involving both Iranian and international banks. Thus, it would be overoptimistic to expect governments withdraw all sanctions before these institutions prove their credibility,” said Juan Zarate, senior adviser at the Centre for Strategic and International Studies said in Dubai last week.
If the interim agreement holds and a final accord on all outstanding issues is reached, both the economic and geopolitical implications would be quite significant for Iran and for the region. On the contrary, failure to agree could bring about new sanctions and do further, possibly irreversible, damage to Iran’s economy.
