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◢ The combination of reimposed sanctions, a slowing economy, and a devalued currency have put Iran’s automotive sector under severe pressure With nearly 1 million jobs linked to the automotive industry, the price of a new car could be even more important than the price of oil for the Iranian economy. In an interview with Bourse & Bazaar, Saeed Madani, the former CEO of SAIPA, warned that price controls are squeezing state-owned automakers.
◢ Technical work on Europe’s SPV for Iran trade continues to move forward. Meanwhile, the Iranian government seems content to exercise “strategic patience” as it waits for the new mechanism to come online. But while this patience is commendable, Iran should be taking a much more active role in shaping the SPV to suit its needs.
◢ On 5 November, the Trump administration’s latest and most significant wave of sanctions against Iran came into effect. The US Treasury has issued a list of more than 700 Specially Designated Nationals (SDNs) and Blocked Persons, which includes roughly 300 entities that did not feature in Obama-era sanctions. The new sanctions impact Iran’s oil and transportation industries and banking sector in important ways.
◢ China has halted its financial transactions with Iran as part of an unexpected gamble on the future of its trading relationship with the Islamic Republic. According to Majid Reza Hariri, deputy president of the Iran-China Chamber of Commerce, China is hoping to sustain its trade with Iran without putting its financial system in the crosshairs of US authorities by joining the special purpose vehicle being devised by Europe for this purpose.
◢ In an exclusive interview with Bourse & Bazaar, CEO of Iran’s Parsian Bank, which was sanctioned last week by the US Treasury, has described the designation of the bank as a Specially Designated Global Terrorist (SDGT) a “mistake.” The move against one of Iran’s leading private sector banks by has many in Iran’s banking sector worried about the ongoing viability of humanitarian trade.
◢ With just two weeks until Trump reimposes secondary sanctions on Iran, administration officials are under increasing pressure to prove that the returning sanctions will not adversely impact humanitarian trade. Looking to US Census Bureau export data, a clear pattern emerges—the export of humanitarian goods like food and medicine remains significantly lower than average monthly values registered during the Obama years.
◢ A new report from TankerTrackers.com indicates that Iran exported an average 2.2 million bpd of crude oil in the first two weeks of October, a 10 percent rise from the September average. October’s higher export volumes could reflect long-standing customers buying more oil ahead of planned reductions in November, when sanctions are expected to prevent many refiners from taking Iranian crude.
◢ On Tuesday, the US Treasury Department’s Office of Foreign Assets Control (OFAC) applied new sanctions on “at least 20 corporations and financial institutions” associated with Bonyad Taavon Basij. While the designation of bonyads has been a common feature of US sanctions policy for over a decade, yesterday’s action reflects a significant break with sanctions policy under the Obama administration. Included among the targeted entities is Parsian Bank, one of Iran’s leading private sector banks and a vital conduit for trade with Europe, especially humanitarian trade.
◢ In a remarkable joint editorial published Monday, the editors of four of Iran’s leading newspapers—Iran, Hamshahri, Etelaat, and Sazandegi—have invoked the United States Declaration of Independence to decry the reimposition of sanctions as a violation of the “unalienable rights” of the Iranian people to “life, liberty and the pursuit of happiness.”
◢ With US sanctions on Iran’s banking sector due to come into effect soon, European countries are now considering measures that would facilitate trade transactions with Iran through a new legal and institutional structure. European governments have been reviewing this legal entity, known as a Special Purpose Vehicle (SPV), for months. The timing of this public announcement suggests that they have a degree of confidence that the SPV can become operational, and that Europe can use the model to showcase its ability to deliver on its commitments.
◢ Iran is resorting to “Houdini tricks” to sustain oil exports as US sanctions loom and new data suggests the magic might be working. While S&P Global Platts has reported Iran’s September exports at about 1.7 million bpd, marking an 11 percent decline from August, data from TankerTrackers.com, puts the export volume at just over 2 million bpd. The divergence in the datasets represents not merely 300,000 bpd, but also the difference between two narratives about the state of Iran’s exports in the face of returning US sanctions.
◢ Over the last six months, the public debate in Iran around FATF-related reforms has reached a surreal crescendo. Seldom do countries experience such intensive political debates over measures as technical and obtuse as financial regulations. But 143 lawmakers voted bravely to pass the final of four bills required by the FATF action plan, in a landmark vote that may increases chances that Iran maintains ties with international financial institutions in the face of returning sanctions.
◢ The second and final sanctions deadline of November 4 is drawing near. After this date, unilateral US sanctions on Iran’s financial sector will once again come into force. According to Iranian bankers and government officials, this could mean that Iran struggles to import humanitarian goods, including basic foodstuffs, despite longstanding exemptions for trade in these goods.
◢ For over a year, European governments have been struggling to determine how they can create a financing facility for projects in Iran. But what if it is a mistake to focus on “external” finance? One underreported effect of Iran’s currency crisis has been the rapid expansion of liquidity in the market. In this environment, a local currency bond offered by a European-owned, Iranian-registered development bank would be highly appealing.
◢ In the coming weeks, the US administration will intensify its economic pressure on Iran through sanctions designed to curtail the country’s oil exports. Given that these exports account for a significant percentage of state revenue, the measures will hit Iran hard. Yet the sanctions will also have an impact on energy markets far beyond Iran, and may lead to a rise in global oil prices.
◢ The experience of countries such as China show that currency devaluation can be managed and even turned beneficial for the economy by enabling the growth of exports. But in Iran, the devaluation of the rial has never been proactively managed, and subsequent administrations have only sought to respond to repeated currency crises, about once each decade. As Iran faces another such episode, it remains to be seen whether a real monetary policy might finally emerge.
◢ There is a growing sense that Iran has squandered its chance to join the ranks of the BRICs—Brazil, Russia, India, and China—which count as the great emerging markets of the world. As sanctions return, as the rial sheds value, and as protests become routine, Iran is increasingly portrayed as an economic basket case where state collapse is just around the corner. But comparing Iran’s macroeconomic performance with Brazil, another country that has contended with widespread protests and economic angst for over three years, paints a very different picture.
◢ A crisis is looming in Iran’s healthcare sector: patients are reporting shortages in life-saving medicine. The situation is expected to worsen once US sanctions on Iran are reimposed in November. European and US companies that can provide the advanced medicine and equipment needed to treat chronic diseases inside Iran are grappling with how to sustain their operations. New US sanctions will put the health of ordinary Iranians at risk. Europe can take concrete steps to minimize this—steps which also support its ongoing commitment to the nuclear deal.
◢ This month, the European Commission approved an initial tranche of EUR 18 million in development funding from an larger package of EUR 50 million that has been allocated to support projects in Iran. This represents a highly significant, “first-of-its-kind,” intervention to support Europe-Iran trade and investment. However, the funding is not primarily intended as an attempt to mitigate the effect of returning U.S. secondary sanctions. As made clear in the “action document” which details how the development funding will be distributed, the European Commission has allocated the funding “in line with the European Consensus on Development” to provide “targeted support in the areas of Prosperity, Planet and People.”
◢ Venmo is a “digital wallet” connected to one’s bank account that allows users to instantly send and receive money. Venmo users commonly include little messages when sending money to friends. But as a recent experience shows, including the words “Iranian” or “Persian” in a memo, even in reference to a pizza dinner among Iranian friends, can have transactions blocked for further review. Yet including the word “cocaine” in a payment memo will not lead to a compliance review, despite the violation of Venmo’s user agreement. This reflects the unique stigma around Iran transactions.
