New Beginning for Iran’s Economy

The latest report published by London-based provider of strategic market research Euromonitor International titled “Economy, Finance and Trade: Iran” focuses on one of the Middle East’s largest and most promising economies, according to the group’s website.

Highlights from the report are presented below:

The intensification of international sanctions over Iran in 2012 and the fall in oil prices since mid-2014 took a toll on the Iranian economy. However, short-term relief from sanctions and the rise in private consumption provided some support for the economy in 2015. The country largely benefits from its abundant hydrocarbon reserves, rising household consumption and well-educated, tech-savvy populace.

The removal of international sanctions in January 2016 is projected to boost trade and investment in the economy. However, low productivity, high state intervention and accumulation of bad loans are key challenges for the economy.

Rise in Investment, Exports & Lower Costs of Financial Transactions

Iran has experienced double-digit inflation and in 2013 it reached the highest level since 1995, owing to the intensification of economic sanctions. During this period, the country had limited access to foreign exchange assets, which resulted in increased costs of trade and financial transactions. The removal of sanctions, coupled with gradual fiscal consolidation and prudent monetary policy, brought down inflation to single digits in 2016;

Iran’s car manufacturing industry is very large and has great potential as a regional export hub, owing to the availability of abundant raw materials such as zinc, copper, natural gas and crude oil. Numerous major car manufacturers are attempting to enter or reenter Iran’s automotive market. After the sanctions were lifted in January 2016, PSA Peugeot Citroen was the first company to acquire a license from the government to invest in the country’s largest car manufacturer, Iran Khodro Company. However, outdated technology will be a major drag on the automotive industry in Iran;

Prior to the intensification of the sanctions over Iran’s nuclear program, the European Union was one of Iran’s major trading partners but Iran’s trade relations with the bloc deteriorated. Between 2010 and 2015, Iran’s total goods exports to the EU declined by 93.0% and total goods imports from the EU declined by 72.8%, in US$ terms.

However, two-way trade bounced back in 2016. According to the European Commission, the EU exported over €8.2 billion worth of goods to Iran last year, up 27.8% year-on-year. During the same period, the European bloc imported about €5.5 billion worth of goods from Iran, up 344.8% YOY.

Uptrend in 2017

The uptrend intensified in 2017 as Iran exported €2.77 billion worth of goods to the European Union in the first quarter of 2017, registering a sixfold rise compared with the preceding year’s corresponding period, according to Eurostat.

The country imported €2.52 billion worth of commodities from the EU in Q1, recording a %56 rise YOY. Iran is expected to benefit from various new trade agreements with France, India, Australia, South Africa and Pakistan. On April 2016, South Africa and Iran signed eight agreements on various areas, including trade, under which they have agreed to boost non-oil trade. In March 2016, Iran, India and Afghanistan signed a three-party deal to turn Iran’s port of Chabahar into a transportation hub;

The intensification of international economic sanctions in 2012 coupled with the plunge in oil prices since mid-2014 and weakness in tax revenue has deteriorated Iran’s public finances. However, with the removal of sanctions, oil exports will increase and access to foreign assets will be restored. This should help ease government finances.

Gov’t Reforms Needed

The removal of international sanctions along with the government’s continued privatization drive will open new investment and trade opportunities for Iran, in both its oil and non-oil sectors, such as infrastructure, automotive and transportation.

Yet, the lifting of sanctions will not be enough to boost investment and economic activity in the long run. Major reforms are needed to improve Iran’s banking sector that has a buildup of bad loans and streamline its business environment.


Iran, Russia sign Caspian oil exploration deals

Iran, Russia sign Caspian oil exploration deals

Iran has signed two agreements with Russia’s Lukoil to jointly look for hydrocarbon reserves in the southern parts of the Caspian Sea – a groundbreaking move that could have significant economic as well as political outcomes for both Tehran and Moscow.

The agreements were signed during a visit to Moscow by Iran’s Petroleum Minister Bijan Zangeneh and followed, as the domestic media reported, “several months of negotiations”. No details regarding the documents have been publicized.

This would be the first time for Iran and Russia to cooperate over an energy-related project in the Caspian Sea.

Also, the agreements are significant given that Iran and other littoral states of the Sea – Russia, Azerbaijan, Kazakhstan and Turkmenistan – are yet to determine its maritime and seabed boundaries.

Despite extensive negotiations, the legal status of the Caspian Sea has been unclear since the breakup of the Soviet Union in 1991.

To the same effect, the littoral states refrain from conducting oil and gas exploration operations in border areas that could put them into an ownership dispute with the neighbors. Therefore, chances are high that Iran’s partnership with Lukoil could eventually help demarcate the basin boundaries between the five countries.

Iran has already discovered an oil field – Sardar-e Jangal – in the southern parts of the Caspian Sea.

Sardar-e-Jangal field contains an estimated 1.4 trillion cubic meters of natural gas in-place and some 500 million barrels of recoverable crude. Experts believe it could become Iran’s first major oil/gas field development project in the Caspian Sea, as the country has already made progress in studying the field’s geological structures and its reserves, Iran’s English-language newspaper the Financial Tribune wrote in a recent report.

The Caspian region is one of the oldest oil-producing areas in the world and is an increasingly important source of global energy production. It holds an estimated 48 billion barrels of oil and more than 8 trillion cubic meters of natural gas in proven and probable reserves.

According to the US Energy Information Association, between 2000 and 2012, Turkmenistan produced more than 70 billion cubic meters of natural gas from the Caspian basin, followed by Russia, Kazakhstan and Azerbaijan. Iran’s production has been zero, the Financial Tribune added.

Zangeneh arrived in Moscow on Tuesday to attend the 19th ministerial meeting of the Gas Exporting Countries Forum (GECF).

The 12 main members of the forum are Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, Venezuela and the United Arab Emirates.

Countries like the Netherlands, Norway, Iraq, Oman, Peru and Azerbaijan Republic are observer members of the forum.


Danish companies ready to finance Iran renewable energy projects: Official

renewal energy

Hashem Oraee told Tehran-based English newspaper Iran Daily that giant energy companies including Siemens and Vestas will contribute to implementing wind energy projects in Iran.

He added that Majlis (Iranian Parliament) has also approved the Danish investment plan, but it is yet to materialize.

The official pointed to the development of renewable energy in the past decade and said by increasing the share of renewables, Denmark currently meets 43 percent of electricity demands from renewable sources.

‘The US, China and many European countries plan to cut dependence on fossil fuels,’ said Oraee adding that by 2025, all of the electricity will be met from renewable energy sources.

Most countries prefer to establish fewer thermal power plants, the official stated, noting, ‘Wind and solar energy are replacing the oil and gas in generating power.’

Referring to the differences of wind energy and solar energy, he said wind energy is usually generated in large-scale wind farms whereas solar panels could produce solar power on every roof-top.

‘About 18-20 percent of air pollution come from thermal power plants which use fossil fuels,’ said the IRWEA head adding that the figure is close to nil in power generated from renewable energy sources.

Wind energy meets only 150 MW of Iran’s total electricity demand, said the official noting that given the country’s potentials, the figure is not satisfactory.

He added that based on the Sixth Five-Year Development Plan (2017-22), Iran’s installed capacity of renewable-energy generation will amount to 5,000 MW.

‘Iran has 10 wind corridor zones with suitable speed of wind in Khorasan Razavi, Sistan-Baluchestan, Qazvin, East Azarbaijan and West Azarbaijan,’ he said.

Iran can generate 50 percent of its electricity from wind and solar energy by enabling its capacities, Oraee noted.

He added that the Iranian government plans to cede renewable energy projects to the private sector and will support Iranian companies in this respect.


Iran-Georgia trade balance increases by 50 percent in 2 years

Iran-Georgia trade balance

Baku, Oct 10, IRNA – Iranian Chairman of Iran-Georgia Joint Economic Commission Ali Rabiei said on Monday that the two countries’ exchanges over the past two years have reached $131 million, showing an increase of 50 percent.

After a meeting with Georgian Prime Minister and Minister of Finance Giorgi Kvirikashvili in Tbilisi, he told IRNA that during the meeting it was agreed to raise volume of trade transactions by twofold.

Referring to certain obstacles in the way of mutual cooperation, Rabiei also said that transit of the Iranian lorries through Georgia which has increased from 4,000 to 12,000 faced problems due to method of obtaining permissions, but it was agreed that Iranian lorries drive through the country without the need for obtaining any permission.

He further noted that Georgian premier declared during the meeting that he is pursuing monetary and banking exchanges enthusiastically.

Rabiei also proposed establishment of Iranian bank branches in Georgia but final decision thereof will be taken later, Rabiei said.

Both sides expressed their political support for each other and voiced readiness for cooperation in various fields, including economy, energy, transportation and other joint projects, Rabiei said.

Sixth Meeting of Iran-Georgia Joint Commission kicked off in Tbilisi on Monday and will continue until Tuesday.

Iran-Georgia exchanges over the past two years have reached $131 million of which $83 million are exports from Iran to Georgia.

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