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IRAN


 

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 136,833 107,522 114,100 34
         
GNI per capita
 US $ 2,000 1,710 1,680 110
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 122 - (26/02/12)

The oil storm begins
As of February indications started emerging that the oil sanctions against Iran were beginning to have an impact even before they actually came into place. EU purchases 600,000 bpd of Iranian oil and Iran started shutting off deliveries in retaliation even before the Europeans implemented their ban. Iran’s situation is compounded by the fact that Chinese purchases of its oil are running low now, due to price disputes; it is estimated that in this quarter China will end up buying only half the amount of Iranian oil it bought a year ago. In all likelihood, Chinese imports will recover once the terms of the contracts are sorted out – the Chinese seem to be exploiting Iran’s diplomatic weakness to extract better conditions. However, one of China’s two main importers has said that it expects to reduce imports from Iran somewhat this year. The cost of Iranian oil has been going up because of the sanctions, the Chinese say, so they want the Iranians to make up for the Chinese losses somehow. Such costs will increase further in the future, as the Society for Worldwide International Financial Telecommunication (Swift) bans the sanctioned Iranian banks for using its facilities. It seems unlikely that at this stage even the Iranian Central Bank will be affected, as in this case Iran would be nearly cut off from international banking, but the costs of banking are going to go up significantly anyway.

The Indians on the other hand have reached an agreement to pay for the oil they buy in Iran in rupees; this decision covers purchases for US$10 billion of oil and has been resented in Washington as it is a major blow to the sanctions strategy. The Chinese probably expect a reward of similar value for their readiness to keep trading with Iran. A number of other Asian purchasers seem to be shifting some of their supplies away from Iran to hedge bets in case the situation in the Straits of Hormuz deteriorates: more purchases from Russia and Africa and less from Iran. Taiwan for example cut its imports by half last year in anticipation of sanctions.

The rial struggles
In the meanwhile Teheran suffers from the crisis of its currency, the rial, affected by a strong black market demand for the dollar as well as by the fear of a military escalation around Iran, with the Israelis making more and more threatening noises. Teheran was forced to devalue the rial by 8% in February, while at the same time cracking down on illegal currency exchanges. The new rate is fixed at 12,260 rials to the dollar, but the black market rate was 20,000 before the devaluation and the crackdown, although it has since fallen to 17-18,000. Another measure that the government was forced to take despite strong initial resistance by President Ahmadinejad has been the raising of interest rates; rates paid by banks are now at 21%. Another problem that has been re-emerging recently is inflation: after a long decline, in recent months inflation has been accelerating again and is now at 21%, up from 20.6% in December.

Reforms and disputes
Teheran is also accelerating its subsidy reforms, despite the unpopularity of the matter. It wants to cut off from cash handouts in compensation for higher energy and food prices for about 3 million of the 72.5 millions of Iranians (out of a total 75 million) who receive them. The difficult economic environment does not prevent different factions within the regime from keeping on trading blows. In the latest development of discord, Supreme leader Khamenei humiliated his rival, president Ahmadinejad, by having a presidential aide, Ali Akbar Javanfekr, sentenced to 6 months for insulting the Supreme Leader.

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