Iran Country Report May22 - May, 2022

May 9, 2022

Iran’s economic growth recorded 5.7% in the third quarter of the current Iranian calendar year (September 23 – December 21, 2021), according to a report by the Central Bank of Iran (CBI) on March 14. Iran’s economy has continued to rebound despite US sanctions still levied on it through local production and a boost in exports thanks to high oil and gas prices in the global market.

The CBI’s report said that the country’s gross domestic product (GDP) stood at $13.4bn in the three-month period, showing 5.7% growth compared to last year’s corresponding period. The report put the country’s overall economic growth in the nine months to December 21, 2021 at 4.1%.

This would mean Iran has emerged from the long and bitter three-year recession that set in around May 2018 following then US president Donald Trump’s reintroduction of heavy sanctions on Tehran. Officials have credited higher exports and a general realignment of the economy, necessitated by the impact of heavy US sanctions, with securing the new growth.

Diplomacy between Iran and the US over the potential revival of 2015 nuclear deal, or JCPOA, is still being maintained, Iran's Foreign Minister Hossein Amir-Abdollahian said in an interview with the Yemeni TV channel Al-Masirah on May 3. Tehran and Washington were still exchanging "written messages" conveyed by a European intermediary, he added.

The Vienna talks process aimed at finding a path to restoring the JCPOA has not made any significant progress for more than two months, with issues such as Iran’s demand that the US delist the Islamic Revolutionary Guard Corps (IRGC) from its list of designated foreign terrorist organisations (FTO) not overcome.

Western diplomats familiar with the latest Vienna talks developments were cited in a Reuters analysis on May 2 as saying that their governments were losing hope for an agreement to restart the JCPOA, but were not yet "pulling the plug."

On April 21, an Iranian navy commander said that Iran had no plans to abandon its intention to avenge the assassination by the US more than two years ago of top Iranian general Qasem Soleimani despite "regular offers" from Washington to lift sanctions and provide other concessions should it do so.

Mike Pompeo, a former US secretary of state and also a former CIA director during the presidency of Donald Trump, has vocally supported the assassination of Soleimani. The move was seen as part of the Trump administration’s hardline “maximum pressure” approach to Tehran, which Pompeo helped to draw up.

Teachers took to the streets of several cities in Iran on April 21, including the capital, Tehran, in the latest protests against poor wages, unacceptable working conditions and the continued incarceration of jailed colleagues, according to local reports.

Some reports indicated that the demonstrations went ahead under tight security. Iran in the past year has seen several sizable protests involving street demonstrations, with poor pensions, low wages for energy workers and water shortages among the issues that have drawn angry crowds.

Iranian President Ebrahim Raisi on March 29 approved the public budget for the new Persian year (started March 20). Raisi previously unveiled a state budget that targeted GDP growth of 8%. The budget was also formulated on the basis of crude oil sales of 1.2mn barrels per day (bpd) with the perspective that US sanctions would be kept in place. The growth projects include 4.5% in investment growth and 3.5% in productivity growth.

With US sanctions still in place in an effort at keeping Iranian oil off world markets, Iran has been relying on China turning a blind eye to American demands to import substantial amounts of Iran’s crude on the grey market.

Iran's oil export volume is running at a level 40% higher than was seen a year ago even though US sanctions aimed at the country's petroleum industry are still in place, official news agency Shana on April 3 reported National Iranian Oil Co (NIOC) CEO Mohsen Khojasteh-Mehr as saying.

On April 1, Tasnim News Agency reported Oil Minister Javid Owji as stating that Iran's oil production, at more than 3.8bn barrels per day (bpd), had reached pre-sanctions levels. As progress to expand oil production continues, Owji reiterated plans to increase capacity to 5.7mn bpf by end of the decade.

Iran has commissioned the final refinery under its project to develop the supergiant South Pars gas field, which is aiming to significantly increase supplies to cater to rampant demand.The overall South Pars development includes 37 platforms across the field’s 24 phases to produce 700mn cubic metres per day at present of Iran’s roughly 1bn cubic metre per day total.

Meanwhile, Iran’s non-oil foreign trade in the last Persian year (ended March 20) hit a record value of more than $100bn, according to Iranian Deputy Economy Minister Alireza Moqaddasi, as cited by Tasnim News Agency on March 27. Trade was up 38% y/y, he added. Exports reportedly stood at $48bn, up 41% y/y, while imports were worth $52bn.

Annual inflation is running at slightly more than 40% in Iran but there have been local reports of certain essential food items subject to inflation of much more than that figure. The consumer price index (CPI) inflation figure released by the SCI was 42.4% in the 10th Persian month (ended January 20), a modest improvement on the 43.4% recorded in the 9th Persian month. Food, beverage and tobacco prices moved up 1.7% m/m, while services and non-food prices gained 2.7% m/m.

Looking ahead, Iran can expect GDP growth of 3% this year and 2% in 2023, according to the latest projection of the IMF released in its spring World Economic Outlook update. Those rates would follow last year’s 4%, the Fund said.

As for official inflation, the Fund sees 32.3% this year and 27.5% next year, compared to 2021’s 40.1%.
For the current account balance as a percentage of GDP, the IMF determined last year’s 2%% will be followed by 3.5% this year and 2% in 2023.
Official unemployment would remain at around 10% across this year and next, also according to the Fund’s forecasting.

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