POLITICAL OUTLOOK

If there is one country in the world that would be mightily relieved to see Donald Trump turfed out of the Oval Office it must be Iran. Trump has attempted to put the Islamic Republic in a brutal vice by redoubling heavy sanctions aimed at its economy and his uncompromising stance—which even makes little allowance for humanitarian supplies—has pushed the Iranians back into recession.

Iran, GDP growth & inflation. Source: World Economic Outlook, IMF.

Vocal EU delivers little that’s concrete
The EU has been most vocal in opposing Trump’s decision to scrap participation in the nuclear deal and instead attempt to meet US objectives by throttling the Iranian economy. However, the reality is that European economies and companies are hugely exposed to US secondary sanctions in almost all cases where they decide to continue doing business with Iran, and the practical trade and assistance delivered to Iran by Brussels in the face of Trump’s economic blizzard has thus so far not amounted to very much.

An EU special purpose vehicle (SPV) devised to offer parties wishing to trade with Iran an anonymous and sanctions-shielded channel was supposed to launch in early November. But the European bloc proved unable to find a member country willing to domicile the mechanism. By mid-December US officials had taken to describing it as a “paper tiger” and Iran was busy denying claims that the SPV would be reduced to only offering humanitarian trade. The latest speculation in EU circles was that France and Germany would jointly host the SPV as a means of spreading the risk of a harsh US response.

The first wave of sanctions aimed at Tehran was introduced by the US on August 7. It targets Iran’s automotive sector, purchase or acquisition of US banknotes, trade in gold and other precious metals, graphite, aluminium, steel, coal, and software used in industrial processes, transactions related to Iran’s currency and activities relating to Iran's issuance of sovereign debt.

Iranians would never have imagined a few years back that they would be joining a 'West minus the US president' strategy.

Analysts ask why it is that the Iranian hardliners have not raised hell over Tehran staying in the nuclear deal when so few of its benefits have been preserved despite all the ‘fine words’ emanating from Paris, Berlin and other European capitals. Perhaps there is some real satisfaction in being part of an alliance pushing a ‘West minus Trump’ strategy and a feeling that such a strategy could pay off in the long term should the US president end up in the dustbin of history, as some of his American adversaries insist he will.

Russian oil giants pull out
Russia is another case in point when it comes to nuclear deal signatories treading carefully around the Trump sanctions. Moscow regularly talks about how it will maintain and strengthen trade with Iran, but on the other hand Rosneft has dropped plans to pursue $30bn of investments in Iran and fellow Russian oil player Zarubezhneft has quit Iran citing the onset of the sanctions. How durable the Kremlin’s loyalty to Iran would prove in realpolitik bargaining with the White House is rather open to question.

​

Iran's President Rouhani has heard a lot of fine words on enduring support for the nuclear deal from leaders including Vladimir Putin, but that has not extended to keeping Russian oil giants in Iran in the face of US sanctions.

India is the second biggest buyer of Iran’s lifeline oil exports, thus New Delhi’s evolving position on the sanctions in the months ahead will be another key consideration for Tehran as it attempts to maintain a viable economy.

In early November, the US State Department exempted Iran's oceanic port project in Chabahar from sanctions in recognition of its importance to landlocked Afghanistan’s growth and development as well as to India’s need to bypass Pakistan to trade with both Afghanistan and Central Asia. On December 25, it was announced that India had formally taken over operations at the strategic Indian Ocean port under leasing arrangements.

Iran, meanwhile, has been building up trade with Qatar. The gas-rich peninsular nation is still enduring a land, sea and air blockade mounted by Iran’s regional arch rival Saudi Arabia and its Gulf Cooperation Council allies over a political dispute. Qatar Airways is from January 2019 expanding flights to Iran, which, like Turkey, has helped Qatar survive by providing it with food and other shipments and alternative sea and air routes.

Larijani ascends to Expediency Council
In Iranian domestic politics, it was announced as 2018 drew to a close that Supreme Leader Ayatollah Ali Khamenei had appointed a conservative ally, Ayatollah Sadeq Amoli Larijani, to head the Expediency Council. The body mediates disputes between parliament and the 12-member Guardian Council, which rules on whether laws are compliant with the Islamic Republic's constitution and vets election candidates. Larijani, who will also retain his seat as head of the country's Judiciary and is thought to have close ties to the country's intelligence and military bodies, has also been given a seat on the Guardian Council.

Moderates in the establishment were not pleased to hear of the further ascent of Ayatollah Sadeq Amoli Larijani.

Larijani's appointment is seen as a blow to the moderates within the establishment. "It demonstrates that Khamenei prefers the extremists to manage the country's affairs," Paris-based political analyst Taghi Rahmani told RFE/RL on December 31.

Larijani's elder brothers also hold top posts in the Islamic Republic. Ali Larijani is Iran's speaker of parliament and Mohammad Javad Larijani heads the Judiciary's human rights council.

Disenchantment at hardship
Even before the Trump’s sanctions targeting went into overdrive, Iran was struggling to contain disenchantment with economic hardship in parts of the country of 80mn. When it is mixed with the unhappiness of those discontented with Iran’s powers that be—the nation’s parliamentary democracy is vetted and supervised by a theocracy headed by the unelected supreme leader—it can lead to widespread street protests. The conservatives are clearly nervous at the potential for mass demonstrations at a time when they are determined that Iranians should present a united front in response to the US attack.

On November 27, Sadeq Larijani issued a warning to restive workers not to overstep the mark by striking and protesting. Several hundred factory employees had been striking over a lack of pay for several months, with workers at some bankrupted plants shouting slogans against the leaders of the Islamic Republic. Sadeq Larijani responded: “The demands of the dear workers must be met in a rational atmosphere… with the involvement of the government and the judiciary branch… [But the] demands will never be met by turmoil, crisis and actions contrary to public order”. He added: “Workers should not allow their demands to become an excuse and an instrument for the enemy and the creation of disorder in the country.”

The new year brought news that officials at Iran’s National Cyberspace Council were preparing to block access to Instagram, the only major social media platform still freely available to Iranians. The semi-official Donya-e Eqtesad newspaper reported the move which would mean Instagram joining Twitter, Facebook, YouTube and Telegram in being banned in Iran, ostensibly for reasons of national security.

Execution for “Sultan of Sovereigns” and “Sultan of Bitumen”
When it comes to persuading ordinary Iranians that their country’s top officials are on their side in tackling profiteers, speculators and smugglers who exploit the economic tumult and roiled hard currency markets, the regime has gone to extraordinary lengths by setting up special courts to deal with crimes in this area. To ram the message home, some cases have been highly publicised. For instance, in November Iran executed a currency trader known as the "Sultan of Sovereigns" and an accomplice by hanging. The pair received the death penalty for hoarding some two tonnes of gold coins to manipulate prices. In late November, a prominent Iranian businessman, known as the "Sultan of Bitumen", was executed for bribery and corruption. He was found guilty of forging documents to secure state-backed loans. News of his execution was given dramatic coverage on Iranian state television with an action-movie-style soundtrack.

Tehran accuses political opponents of working in concert with Washington and regional enemies—the usual euphemism used for Saudi Arabia and its Arab allies—to sow disharmony online in Iran at a time when the US is attempting to bring it to its knees economically (and is suspected by many observers of pursuing regime change).

Battle in the Twittersphere
In December, a furious battle erupted in the Iranian Twittersphere as Iranians inside Iran and exiled Iranians weighed into a debate over whether the UK Foreign & Commonwealth Office-funded BBC Persian Service was supporting the ruling clique in Iran. The controversy began after the Twitter hashtag #AyatollahBBC appeared. Royalist supporting accounts attacked the British public broadcaster for its portrayal of events in Iran, with the commotion coming just weeks after heir apparent to the defunct throne of the overthrown Imperial State of Iran, Crown Prince Reza Pahlavi, made a ‘Town Hall’ appearance on London-based pro-royalist satellite TV channel Manoto (“Me and You”) which beams into Iran. One BBC presenter, Farnaz Fassihi, said of the onslaught: “We are harassed & abused on twitter from every side. Especially when you cover politics & places like #Iran where govt. & opposition trolls/supporters are equally vile.”

Iran has also protested about what it claims has been shadowy support from regional enemies for terrorists who have carried out several attacks against civilians and security forces in the past couple of years. A suicide car bomber on December 6 attacked a police headquarters in Chabahar, killing at least two people. The previous September, gunmen disguised as soldiers opened fire on a military parade in Ahvaz, killing and wounding dozens. Arab separatists and Islamic State both claimed responsibility.

Worries that Iran was set to face a rash of terrorist attacks that were previously rare in the country mounted after the June 2017 ‘terrorist spectacular’ in which a twin Islamic State assault on the parliament and the shrine of Ayatollah Ruhollah Khomeini in Tehran killed at least 18 people and wounded more than 50.

Jitters over Strait of Hormuz
When it comes to the potential for sanctions tensions sparking a military clash between the US and Iran, analysts keep a wary eye on the Strait of Hormuz. On December 4, President Rouhani repeated Iranian threats to close the chokepoint to all oil shipments if the US pushed ahead with its plan to drive Iran’s oil exports down to zero. Blocking the strait would potentially play havoc with world oil supplies and prices given that the 21-mile-wide passageway between the Persian Gulf and Indian Ocean is used in the shipping of around one-third of all oil traded by sea.

“America should know... it is not capable of preventing the export of Iran's oil," Rouhani said at a televised rally in Semnan province. "If it ever tries to do so... no oil will be exported from the Persian Gulf," he added.

US special representative for Iran Brian Hook has issued a Strait of Hormuz hands-off warning to Iran.

Since the 1980s, Iran has repeatedly said it would blockade the Gulf in response to international pressure but it has never carried out the threat. Responding to the latest Strait of Hormuz threat, Brian Hook, the US special representative for Iran, said that Tehran did not control the Strait of Hormuz. "The strait is an international waterway. The United States will continue to work with our partners to ensure freedom of navigation and the free flow of commerce in international waterways."

The Hill on November 29 reported the Trump administration as saying military action against Iran could be possible should US sanctions against the country fail to curb Tehran from delivering weapons to hostile groups in the Middle East. "We have been very clear with the Iranian regime that we will not hesitate to use military force when our interests are threatened. I think they understand that. I think they understand that very clearly," Hook was quoted as saying in the article. "I think right now, while we have the military option on the table, our preference is to use all of the tools that are at our disposal diplomatically," he added.

‘Laughable’ idea of trustworthy US diplomacy
To Tehran the idea of trustworthy US diplomacy can easily be derided as laughable, given how Trump unilaterally tore up multilateral commitments signed by his predecessor after years of painstaking negotiations, while evidence that the sanctions regime extends to inhumane consequences is not hard to find—in mid-November, the biggest Iranian charity that supports children with cancer warned in The Lancet medical journal that shortages of drugs caused by US sanctions were likely to impact on the treatment of patients. The independent MAHAK Paediatric Cancer Treatment & Research Centre based in Tehran said it was already experiencing a lack of several drugs needed to treat children with leukaemia.

In criticising the Trump administration’s Iran policy, Tehran can also point to what it sees as US officials’ wrong-headed backing for the fringe Mujahedin-e-Khalq (MeK) organisation. The MeK has no substantial support in Iran. It failed to establish a significant role in the country after the 1979 Islamic Revolution, went on to take Iraq’s side in the Iran-Iraq war and fell into obscurity after making its headquarters a compound in Albania. It was once listed as a terrorist organisation in the US and Europe—and remains so in Iran—and it is still widely viewed as a Marxist-Islamist cult built around the personality of its leader, Maryam Rajavi.

Finding old Iran hands who are scathing of Trump’s belligerent strategy for bring the Iranians to hell is not at all difficult.

On November 16, the Guardian published an opinion piece from British ambassador to Tehran between 2003 and 2006, Sir Richard Dalton, entitled “Trump’s economic war on Iran is doomed to failure”.

Dalton wrote: “This policy is based on the claim that Iran is a major security threat to the American people. But that is transparently exaggerated. And the statement by [US Secretary of State] Mike Pompeo that sanctions will be used to ensure Iran ‘behaves like a normal country’ is unintentionally ironic.

“The US is not a ‘normal’ country”
“The US is not a ‘normal’ country. Complicity in a horrifying aggression against Yemen and supporting the extension of Israeli colonisation of Palestine are not acts of normality. The truth is that all who intervene in the Middle East’s regional struggles, including Iran, are doing what states always have done—trying to influence outcomes in the direction of their real or perceived interests.”

In Dalton’s view, Iran is set to remain basically stable despite the surge in inflation and tough recession brought about by the sanctions policy.

He added: “Discontent, and maybe protests, will significantly increase. Iran’s leaders will nevertheless try to weather the storm. The 2020 US election will be crucial for them. They could not live with a four-year extension of the crisis if Trump were to win again. Their aim will be to hunker down until then. I expect them to refrain in the meantime from provoking the US in the region or reopening closed-down parts of their nuclear infrastructure.

“Ayatollah Khamenei is uncompromising. Indeed, all of Iran’s leaders are resolute. The economic damage and popular suffering over the next two years is unlikely to be sufficient to make the government move. And, crucially, there is no internationally agreed campaign against Iran this time. The EU, for example, has designed a work-around to achieve some financial flows, though the Iranians are not relying on this ever working.”

ECONOMIC OUTLOOK

The signing of the nuclear deal (formally the Joint Comprehensive Plan of Action, or JCPOA) which took effect in January 2016 raised hopes that Iran’s major economic potential—drawing on tremendous natural resources, a young, well educated workforce and markets serving a population in excess of 80mn people—could finally be unlocked. Alas, Donald Trump made it to the White House, renounced the JCPOA in May 2018 and sent Iran spiralling back into recession with his punishing sanctions.

During 2016, after the JCPOA lifted crippling international sanctions levied against Iran, the Iranian economy expanded by 12.5%, but after Trump came to power and warned that the US would not be deterred from quitting the nuclear deal, much investor sentiment turned negative and GDP expansion fell to a much less impressive 3.7% in 2017.

In its latest World Economic Outlook released last October, the IMF estimated that the Islamic Republic’s economy would contract by 1.5% in 2018 and 3.6% in 2019. Prior to Trump’s unilateral withdrawal from the nuclear accord, the IMF projected Iran's economy would grow by 4% in both 2018 and 2019.

"This [recession] largely reflects the expected impact of the reimposition of US sanctions on Iran, which is likely to reduce Iranian oil production and exports significantly over the next two years at least," the IMF said.

The report from the IMF also saw Iran’s current account surplus declining from 2.2% of GDP in 2017 to 1.3% in 2018 and 0.3% in 2019 while it forecast that unemployment over those three years would increase from 11.8% to 12.8% to 14.3%, respectively.

Forex war chest
Iran is not particularly forthcoming when it comes to discussing the size of its foreign exchange reserves that might be used as a war chest to fight currency and other ills, but in October a former deputy governor of its central bank told semi-official Tasnim News Agency that the country holds such a large amount of forex reserves that it could take care of economic issues for at least three years without any oil revenues. He valued the reserves at around $100bn.

In mid-November, the IMF predicted that annual inflation in Iran would leap to more than 40% by the end of this year. At the time of the forecast, various data from official statistics agencies in the country showed Iran’s inflation rate running just north of 30% y/y. The IMF measured Iran’s 2017 consumer price growth at 9.6%.

Some academics outside of Iran such as economist Steve Hanke at Baltimore-based Johns Hopkins University take issue with the official inflation figures given out by the Iranian central bank. They contend that realistic calculations show that the Iranians are suffering much higher, runaway inflation.

On December 18, Hanke calculated that Iran’s annual inflation rate stood at 161% and urged Iran to address the situation by making the Iranian rial (IRR) “a clone of gold via a currency board”. His calculations use the black market rial rates, although some critics of his approach question the reliability of the unofficial data he is relying on.

Pulverised rial half-recovers
The prospect and advent of the sanctions pulverised the IRR in 2018, but towards the end of the year it made a remarkable half-recovery as the Iranian central bank made interventions and the markets realised Trump’s plan to strangle Iran’s economy was not yet in top gear—an attempt at finding that gear may come towards the spring as 180-day sanctions waivers granted by the US Treasury to eight countries (China, India, Japan, South Korea, Taiwan, Turkey, Greece and Italy) to temporarily continue importing Iranian oil move towards their expiry date.

By the market close on January 4, 2019, bonbast.com reported that a dollar was selling at IRR112,000 on the free market and in mid-December there were even anecdotal reports of trades just below the IRR100,000 threshold. Those rates starkly contrast with the situation in late September when the rial to the dollar rate approached 200,000. At the start of 2018, the rial stood at around 30,000 to the USD.

The authorities have cracked down hard on black market currency traders in Iran.

The Central Bank of Iran (CBI) is thought to have dragged the rial back from its all-time lows by releasing hard currencies into the market, while an intimidating campaign waged by officials to drive black market currency traders and hoarders out of the reckoning is also seen as having contributed to the IRR recovery.

Aligning with the black market
In a report on Middle Eastern economies published on November 13, the IMF's Middle East director, Jihad Azour, said one of the most urgent issues facing Iran as it deals with the consequences of the Trump administration’s sanctions was the need to align the official currency-exchange rates for the Iranian rial with black market rates.

On December 18, it was reported by semi-official Tasnim News Agency that the government was seeking parliamentary approval for a directive that would order exporters to sell their foreign-currency earnings on a government-regulated trading platform. By channelling the earnings into the online platform, more foreign currency would be steered into the system and the measure would thus assist the government in its efforts to "deal with the enemy’s hostility", Economy Minister Farhad Dejpasand was cited as saying.

Surging real estate prices
Iran’s economic woes have also fed through into surging real estate prices. The CBI said they were up 83.5% y/y in October. House prices in Tehran were at that point based on the benchmark of IRR86.1mn per square metre of built-in area or $575 per sqm at the open market exchange rate (sellers often cannot receive cheap dollars based on the government’s official exchange rate so the open market figures are more pertinent).

The real estate price hikes coincided with a huge drop in transactions. In Tehran, sales fell by more than 32% over October.

As observed by Radio Farda, the Persian-language service of RFE/RL, many Iranians now think of the price of a house, and effectively everything else, in terms of US dollars. For those few who can invest in real estate in the midst of an economic crisis, real estate is the safest bet in assets and for those willing to sell, the price has to be higher to account for at least part of the currency devaluation.

‘Do-or-die’ oil
In the final do-or-die analysis of Iran, however, the focus must always be switched back to the success or otherwise of its oil industry and related petrochemical manufacturing (which also delivers indispensable riches from exports).

To some observers, it appeared that the US campaign to demand the world forces Iranian oil exports down to zero misfired in November when it became clear that alternative oil supplies to replace the crude from Iran that would be lost to the market was not yet available. That caused a rise in world oil prices that, if it had not been quickly reversed, would have been hard to stomach for the US motorist. Prices stopped moving upwards partly because Washington agreed the sanctions waivers allowing eight countries to persist with importing Iranian oil for another 180 days with no fear of US reprisals.

It seems inevitable that some, or perhaps all of the eight nations will apply for a waiver extension. Turkey has already signalled it will do so. South Korea, which has refining facilities with a technical need for the specific crude type Iran can easily supply, seems certain to make a case. But if the US is confident that alternative oil supply capacity has become available to make the loss of Iranian oil tolerable to the world markets—such a situation might depend on new American shale oil capacities that are coming on stream and the White House’s relations with big oil producer Saudi Arabia, currently troubled by Congress’ push to hold Crown Prince Mohammed bin Salman accountable for the murder of journalist Jamal Khashoggi—it may attempt to deny such extensions, or at least insist on greatly reduced purchases of Iranian oil shipments.

Cocking snooks
In the meantime, Iran continues to enjoy cocking snooks at Washington by announcing ‘success stories’ in the bid to keep its oil flowing. State news agency IRNA on December 26 reported Oil Minister Bijan Zanganeh as saying private exporters have had “no problems” selling Iranian oil, and three million barrels of crude could be sold soon to non-government traders, despite the US sanctions.

The US campaign to drive Iran's oil exports down to zero may begin in earnest towards the spring as import waivers awarded to buyers near the expiry date.

Iran reopened its oil bourse and began selling oil to private companies for export in late October. “Those who bought oil on the bourse have been able to export and there have been no problems in this regard,” Zanganeh was quoted as saying. “A buyer can choose to pay with hard currency or rials for the crude oil on the bourse,” Zanganeh added.

Analysts have noted that any barrels sold via the exchange could allow smugglers to take oil out of Iran. From that point they could launder it into global market channels and use transportation logistics invisible to tracking systems.

FINANCE AND BANKING

Iran suffered a wounding blow in early November when SWIFT, the world's biggest interbank-transfer network, announced under pressure from the US that it was taking the "regrettable" step of suspending some Iranian banks' access to its messaging system "in the interest of the stability and integrity of the wider global financial system".

Fearing a blanket ban on Iranian banks being connected to SWIFT, French officials have been working to keep at least one Iranian bank connected to the financial telecommunication system.

Belgium-based SWIFT (Society for Worldwide Interbank Financial Telecommunication) did not specify which “certain Iranian banks” it was referring to in its disconnection announcement. The move came as a disappointment to those trying to protect Iran’s trading activities, particularly given the potential disruption the loss of the system could cause to supplying the country with basic foods, medicine and other humanitarian shipments. There had been hopes that the Trump administration would tolerate Iranian banks using SWIFT—a report in a conservative media outlet, The Washington Free Beacon, said US officials had been persuaded by European counterparts who pointed out the danger of Iran suffering food shortages as a result of an ejection from the system.

Iran’s central bank has claimed the SWIFT disconnection will “have no effect on Iran’s bank accounts and its foreign exchange settlements since it is “only an interbank messaging system”. Its governor Abdolnasser Hemmati told reporters that the regulator had made preparations for the disconnection, but did not explain what alternatives to the system would be employed.

The chairman of the Iran-China Chamber of Commerce in late November announced the resumption of bilateral business banking that came to a halt after the reintroduction of the sanctions. Asadollah Asgaroladi, sometimes described as Iran’s richest man, said merchant banking issues between the two countries were now solved and that banking would proceed.

Second rejection of anti-terrorism financing bill
New Year’s Day brought news that Iran’s Guardian Council had for a second time rejected an anti-terrorism financing bill aimed at bringing the lending sector closer to international standards as outlined by the Paris-based Financial Action Task Force (FATF). The IMF has been pushing for Tehran’s adoption of the legislation.

In vetting the proposed new law, the council said the bill was not yet compatible with Iran’s constitution and Islamic law, Tasnim reported. President Rouhani and his cabinet say the bill is necessary to reform the Iranian banking sector as part of efforts to bring it in line with international standards and lower its risk profile

Opponents of the drafted legislation point out that FATF requires Iran to withdraw support from groups such as Lebanon’s Hezbollah, the Shi’a Islamist political party and militant group which is designated a terrorist organisation by the US.

“Cruel” US measures shrink budget
On December 25, Rouhani presented the annual budget to parliament. In doing so, he said it had been adjusted to take account of Washington’s "cruel" measures. The dollar-size of the $47.5bn budget is less than half of last year's, given the severe depreciation of the rial triggered by the Trump sanctions.

On January 3, Iran’s health minister, Hassan Ghazizadeh Hashemi, resigned over proposed cuts in the budget, IRNA reported. He was regarded as the key official who stood behind the 2014 launch of a plan for universal medical insurance sometimes referred to as “Rouhanicare”.

Rouhani did not specify whether a budget deficit was anticipated.

The government plans to fund 35% of the budget with oil revenues. It forecast exports of up to 1.5mn barrels a day (Iran was selling up to 2.5mn barrels per day before the sanctions kicked in) at a maximum of $54 a barrel.

The budget provides for a 20% increase in public sector wages.

"America's goal is to bring Iran's Islamic system to its knees... and it will fail in this, but sanctions will no doubt affect people's lives, and the country's development and economic growth," Rouhani said live on state television, adding that the sanctions would mainly impact on Iran's economic development and its poorer citizens.

In mid-December, the Tehran Stock Exchange (TSE) launched futures contracts for local buyers with seven companies officially on the ticket, Mehr News Agency reported. The TSE said that by launching the futures market in Iran it was hoped that people deterred by share prices undermined by currency depreciation would continue to buy into the stock market at set future prices.

BUSINESS AND TRADE & INVESTMENT POTENTIAL

Cargill, Bunge and other global traders have halted food supply deals with Iran because the US sanctions have paralysed banking systems required to secure payments, industry and Iranian government sources were cited as saying by Reuters on December 21.

Western and Iranian trade sources reportedly said US groups Cargill and Bunge, as well as Singapore’s Olam, were among those unable to conclude new export deals for wheat, corn, raw sugar or other commodities because Western banks would not process payments with Iran.

“There is no real chance of being paid using the existing mechanisms and many international traders are unable to do new business for the moment,” one European source with knowledge of the situation said.

For many foreign banks, it is presently simpler to stop any Iranian activity than try to navigate the sanctions rulebook and run the risk of slipping up and facing penalties, bankers told the news agency. “There is super caution now,” said a European financial source involved in Iranian transactions in the past, saying rules on food and other humanitarian dealings were complex.

Iraqis secure electricity imports waiver
December 21 also saw news that the US State Department had granted a 90-day waiver to Iraq to continue paying for electricity imports from Iran. The State Department has said it is working with Iraq to end its dependence on Iranian natural gas, and increase its energy independence.

Prior to the reimposition of sanctions, Iran only took delivery of a couple of Airbus aircraft out of an order for 100. Efforts to obtain the remainder look doomed to fail.

Given how strictly the US is applying the sanctions regime, a call from Iran to the European Union to press US authorities to allow the delivery of Airbus passenger aircraft purchased by Tehran is unlikely to result in progress.

Under Washington’s reimposed sanctions regime targeted at Tehran, the US Treasury revoked licensing that would have allowed Airbus to deliver 100 ordered aircraft to help IranAir upgrade its ageing fleet. The national carrier was also seeking 80 planes from Boeing and 20 from Franco-Italian turboprop maker ATR, but all the Boeing orders and seven planes in the ATR order have also run up against the sanctions. Three Airbus planes were delivered to Iran before the sanctions kicked in.

Though they are European, Airbus and ATR aircraft are subject to the sanctions because at least 10% of their components are US-made. Russia’s Sukhoi, which has been exploring supplying Iran with short-haul airliners is facing the same dilemma. However, there have been local reports of Russian officials saying Sukhoi is working on scaling down the number of US parts with an eye on winning an Iranian order for up to 100 aircraft.

Iranian officials have previously pointed out there is a humanitarian angle to aircraft supply in that if Iranian airlines cannot get hold of new civilian aircraft there is a higher risk of accidents occurring.

Germany bans Mahan Air
Germany on December 21 said it is to ban flights in and out of the country by Iran’s Mahan Air. The airline was placed under US sanctions over allegations it transported troops and supplies into Syria in support of President Bashar al-Assad. Bild reported that Berlin had taken the decision to stop Mahan Air from operating its flights to Dusseldorf and Munich after intensive deliberations on US demands.

Iran’s automakers seem set for another rough year with sanctions, the rial devaluation and surging inflation having disrupted parts supply chains and driven up the cost of available components. Iranian car buyers have been hammered by price increases in the past six months. Some brands have undergone price jumps of around 100% for both new and used vehicles. Making the situation worse, many parts makers that supply companies like Iran’s number one and number two automakers—Iran Khodro (IKCO) and SAIPA, respectively—have collapsed due to producers failing to honour debts from months back.

State selling largest football clubs
Privatisation officials are arranging the sale of Iran’s two largest football clubs, Tehran’s Esteghlal and Persepolis, known for contesting the major crosstown derby in the Persian Gulf Pro League, known as the Red-Blue Derby. International standards set by Fifa on television broadcasting rights and ticket sale rules are among requirements that must be safeguarded and met as part of the process.

The block sale of 68.09% of Bistoon Petrochemical Company has also been announced by privatisation chiefs.

In southern India, Iran is to invest around 15 billion rupees in the expansion of a refinery run by state-controlled Chennai Petroleum Corp, Bloomberg reported on January 1. The company is boosting capacity at its Nagapattinam facility by nine-fold and the investment is reportedly Naftiran Intertrade Co.’s share of the 275bn rupees ($4bn) expansion plan.

Four-place tumble in Doing Business

Source: Doing Business 2019, World Bank.

Iran fell four places in the World Bank’s Doing Business 2019 survey. It placed 128th of 190 economies. In the ranking’s sub-categories, the country was 173rd for starting a business, 99th for getting credit, 173rd for protecting minority investors and 149th for paying taxes.

Smuggled goods with a value of at least $12bn flowed into and out of Iran during the 2017/2018 Persian calendar year (ended March 21), IRNA reported the head of the Iranian Anti-Smuggling and Currency Trade Commission as saying in late November. Iran’s borders with Iraq, Pakistan, Azerbaijan and Afghanistan are seen as rather porous, while the country also has a large maritime border on the Persian Gulf. Smugglers’ boats often conduct night runs from the tip of Oman on the Arabian peninsula with pre-purchased goods delivered to order.

The Caspian Sea littoral states—Russia, Kazakhstan, Azerbaijan, Iran and Turkmenistan—will in 2019 continue with talks aimed at dividing oil and gas-rich resources under the seabed. In August, the group of countries finally came to an initial agreement over the surface ownership of the body of water but the trickier issues of rights to explore for, and produce, hydrocarbons remain unresolved. According to Western estimates, there are reserves of 30bn tonnes of oil and 145 trillion cubic meters of gas under the Caspian Sea.

New hope for the 7,200-km INSTC corridor
Export officials will hope 2019 brings more progress in advancing the envisaged International North-South Transport Corridor (INSTC). Russia lately agreed to open a €3bn credit line to finance the INSTC, planned as a 7,200-kilometre, multimodal corridor stretching from India to northern Europe via Iran, Azerbaijan and Russia.

Direct sea routes from western India to Iran’s sole oceanic port, Chabahar on the Sea of Oman, are crucial to the project’s success, while rail routes running from Iran and through Azerbaijan’s Baku peninsula to Moscow and St. Petersburg would also be fundamental to the INSTC.