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Overview: Iran Analysis Weekly Report September 25, 2016

25 Sept., 2016

Vistar Business Monitor

During a speech before IRGC commanders ahead of Sacred Defense Week, which marks the anniversary of the beginning of the Iran-Iraq War, Supreme Leader Ayatollah Ali Khamenei downplayed the nuclear deal’s role in reducing the threat of military conflict. Mr. Khamenei stated that “some officials have credited the removal of the military threat and war to certain political measures… The only factor in removing the military threat has been and will continue to be military and defensive power.” Ayatollah Khamenei’s statement conflicts with Rouhani’s comments in July crediting the nuclear deal and Iran’s negotiating team with helping prevent a “military attack on Iran.” Khamenei and Rouhani have expressed competing views on the nuclear deal’s impact in other arenas as well since its implementation in January. Khamenei has questioned, for example, whether the deal has had any “tangible effect on the people’s lives,” while Rouhani has argued that the deal expanded Iran’s economic choices.

President Hassan Rouhani met with British Prime Minister Theresa May after arriving in New York for the UN General Assembly on September 20. Rouhani urged European governments to “assure major world banks of the possibility of cooperation with Iranian banks” during his meeting with May. Rouhani stated that London can lead confidence-building efforts with banks for partnerships with Iran and added, “As long as some technical problems regarding banking and insurance issues have not been resolved, the obligations of the other party under the nuclear deal have not been met.” May reportedly raised the issue of a detained British-Iranian national recently sentenced to five years in prison.

President Hassan Rouhani criticized America’s implementation of the Joint Comprehensive Plan of Action (JCPOA) during an interview with NBC News on September 21 and a speech at the United Nations General Assembly in New York on September 22. Rouhani accused the U.S. Treasury Department of sabotaging banks and financial institutions’ partnerships with Iran and claimed that America’s “lack of compliance” with the JCPOA should be “rectified.” Rouhani also joined Russian Deputy Foreign Minister Sergei Ryabkov in dismissing U.S. Secretary of State John Kerry’s request to ground aircraft in northern Syria. Rouhani asserted that the Syrian conflict “doesn’t have a military solution.”

Furthermore, President Hassan Rouhani stated that America’s fellow P5+1 members “decisively told the U.S. that it is not closely conforming” to the terms of the nuclear agreement. Rouhani claimed that the U.S. “promised to correct its conduct” and called the admonishment “a major achievement” for Iran. Rouhani’s outspoken criticism of America’s implementation of the nuclear deal was a focus of his visit to the U.S. for the UN General Assembly in New York.

On the economic note, Parliament’s Energy Commission Spokesman Asadollah Qarehkhani announced that a parliamentary panel has approved the Rouhani administration’s third draft of the Iran Petroleum Contract (IPC) for final implementation. Criticism from prominent hardliners, particularly in Parliament, has forced the Rouhani administration to revise the text of the agreement several times. The IPC is designed to provide more incentives for international firms to invest in Iran’s energy sector compared to the terms of the previous “buyback” model. The IPC allows contracts to last up to 25 years, for example, and gives foreign partner companies more control over the development of oil fields. The Iranian government hopes that the sweetened terms of the IPC will attract nearly $50 billion of annual investment into Iran’s energy sector.

Incomes and living expenses of Iranian households almost evened out in the last Iranian year (March 2015-16), according to the latest report of the Central Bank of Iran. The report, which is based on a survey carried out on 12,700 households, indicates that the average annual gross income of urban households increased by more than 12% from 313,930,000 rials ($8,803 at market exchange rates) two years ago to 352,590,000 rials ($9,887) last year. The average annual gross expense of each household increased from 328,760,000 ($9,219) two years ago to 352,650,000 ($9,889) last year, registering a 7% rise. The CBI report on last Iranian fiscal year’s inflation shows the goods and services Consumer Price Index for urban areas in the 12 months ending March 19, which marks the end of the last Iranian year, increased 11.9% compared with last year’s corresponding period. Based on the CBI report, 11.7% of the Iranian population were illiterate, 2.1% knew how to read and write, 20.2% had elementary education, 42.9% had secondary or high-school education, and 23.1% had academic education last year.

Ilse Aigner, the Bavarian State Minister of Economic Affairs, has announced that three private Iranian banks have received approval to set up branches in Germany. These Iranian banks include Middle East Bank, Parsian Bank and Sina Bank. She, however, mentioned that barriers in payments still remain, adding that it has been several months that negotiations between Iran Central Bank and Germany’s big banks are underway to address the issue and these talks are at the final stages. If negotiations bear tangible results, then it would be a turning point not also in in trade relations between Iran and Germany, but also in banking transactions between the two countries. Another benefit that lies in this case for Iran is that it triggers the process for other Iranian banks to set up branches in other European countries as well.

The latest report by the Research Center of parliament [the Islamic Consultative Assembly or Majles] has analyzed the country’s real economy and projected 6.6 percent growth in 1395 [the 12 months to March 21, 2017]. The center’s projection is the highest by a local or foreign institution or even by administration officials. According to this report 3.9 percent of the growth in question seems to stem from a hike in oil sector exports following the termination of sanctions. In other words, the first impact of the Joint Comprehensive Plan of Action would be a leap in economic growth through oil sales this year.

The Tehran Stock Exchange (TSE) followed a more balanced trend last week with its total index dropping four points to close at 76,450. It came as TSE’s total equal-weighted index rose 171 points (1.1 percent) and closed at 14,625. In fact, the equal weighted index, which gives the same weight (importance) to all companies, whether small or large, is a better criterion to measure market performance. This index shows in the week to September 23, the number of TSE stocks in positive territory was more than those in negative territory.

Limited upward fluctuations are dominating the foreign currency market these days. Last week, the foreign currency index registered a 0.25 percent yield, with each US dollar buying 3,565 tomans at the close of the week. As it was expected, a rise in demand for foreign currency by travelers at the closing days of the summer had an impact on the market and was the main driver of last week’s fluctuations. In the coming days, that kind of demand will fade away. Instead, commercial demand, which started in Shahrivar [the 30 days to September 21] and has yet to make its presence felt, is expected to get a boost in the coming weeks.

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