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Overview: Iran Analysis Weekly Report Oct 09, 2016

09 Oct, 2016

Vistar Business Monitor

A subsidiary of Setad will sign the first oil contract modeled off of the Iran Petroleum Contract (IPC) on October 4. Setad, also known as the Execution of Imam Khomeini's Order (EIKO), is a business conglomerate under the control of Supreme Leader Ayatollah Ali Khamenei and is estimated to be worth more than $95 billion. Reports did not identify the specific subsidiary involved in the contract. The nuclear deal lifted U.S. secondary sanctions on Setad as well as around 40 of its subsidiaries, paving the way for Setad to expand in the post-nuclear deal environment.

In a meeting of the representatives of Tehran Chamber of Commerce, Industries, Mines and Agriculture, Masoud Nili, an economic advisor to President Rouhani, said that Iran’s national budget for 2017-18 will be prepared based on unified exchange rates. Plans to unify foreign exchange rates are moving ahead. A flexible forex regime is needed, which hopefully will be implemented by the end of the current fiscal year in March 2017. Unification of forex rates is considered a crucial requirement for the reintegration of Iran into the global banking system and payment networks. Iran was forced to revert to the controversial double exchange rate regime after nuclear-related sanctions unleashed turmoil in the forex market in 2011-12 in which the national currency lost almost 70% of its value within days. The Central Bank of Iran has already started plans for launching a single foreign exchange rate regime. The CBI also has an eye on reducing fluctuations in the foreign exchange market. It has also been working to bring the two rates closer, mainly through lifting the official exchange rates in the past few months.

The International Monetary Fund in a concluding statement by the International Monetary Fund visiting staff on Monday said, Iranian economy is improving in the post sanctions era. According to the IMF website, a concluding statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. The statement said that “Economic conditions are improving substantially in 2016/17. Real GDP rebounded strongly over the first half of the year as sanctions eased post-JCPOA implementation.” It noted that “Oil production and exports rebounded quickly to pre-sanction levels, helping cushion the impact of low global oil prices. Increased activity in agriculture, auto production, and trade and transport services has led the recovery in growth in the non-oil sector.”

On the foreign policy note, Foreign Minister Mohammad Javad Zarif defended the nuclear deal and the Foreign Ministry’s conduct before Parliament on October 2. Zarif “angrily” denied an accusation from hardline parliamentarian Javad Karimi Ghodousi that “pressure from foreigners” prompted the Foreign Ministry to remove Hossein Amir Abdollahian from his post as deputy foreign minister for Arab and African Affairs in June 2016. Iranian news outlet Alef wrote that Ghodousi “tried to bring back the atmosphere of the [conservative-dominated] previous Parliament, but the majority of parliamentarians did not back him” during the October 2 session. Hardline politicians have repeatedly criticized the Rouhani administration for removing Abdollahian from the post and have suggested that the decision was intended as an overture to Saudi Arabia.

The head of Iran’s Passive Defense Organization (PDO) called Saudi Arabia Iran’s “main threat.” PDO Head IRGC Brigadier General Gholam Reza Jalali accused “inexperienced Saudi leaders” of adopting “offensive strategies against Iran.” He specified that the two countries are competing in “military, economic, and cyber fields.” Iranian officials have increasingly prioritized the improvement of Iran’s cyber capabilities over the past several years. Saudi Arabia, meanwhile, held live-fire drills on October 4 in the Persian Gulf in a move likely to inflame tensions between the two countries.

In the meantime, the IRGC Navy issued a statement warning Saudi Arabia that Iran “will not tolerate any provocative movement” of Saudi vessels in the Persian Gulf. Saudi Arabia began naval wargames in the Persian Gulf on October 4. The IRGC’s statement accuses Saudi Arabia of “undermining security” and “escalating tensions” in the Persian Gulf, where Iran has repeatedly asserted itself as the guarantor of security. The statement is the latest iteration in tension between the two countries.

IRGC Quds Force Commander Qassem Soleimani praised Iran’s role in Syria as defending the region from ISIS and criticized Saudi Arabia’s deputy crown prince for downplaying the threat of terrorism. IRGC Major General Soleimani spoke at a mourning ceremony for an Iranian brigadier general killed in Syria last year. He stated, “We are not just defending Syria. We are defending Islam and the Islamic Republic... If we had not faced these groups in Syria, all of these regions would be fighting ISIS.” He also claimed that Mohammad bin Salman al Saud, the deputy crown prince of Saudi Arabia, is “hotheaded” and considers the Iran-Syria relationship to be more dangerous than ISIS. Soleimani has become increasingly vocal on political issues over the summer but recently indicated that he will not run for office.

Senior Foreign Policy Advisor to the Supreme Leader Ali Akbar Velayati reiterated Iran’s support for Syrian President Bashar al Assad and its opposition to any partition of Syria or Iraq. Velayati praised Iranian support for the Assad regime during a meeting with Syrian “economic activists” in Tehran, stating, “We do not see another example in the region of two governments being so committed to each other.” Velayati asserted that the Syrian government will be “victorious in the battle over the fate of Aleppo” and criticized the U.S. for seeking “the partition of Syria and Iraq.” Other senior Iranian officials have similarly voiced Iran’s opposition to political solutions that involve partitioning the states.

In the stock market, the TSE All-Share Index, recorded a negative return at the end of the week, closing at 77,183, recording a weekly drop of 0.2%. In the FOREX market, the US dollar continued its slight increase versus the Iranian rial by 0.25% to close at IRR 35,920.

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