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Overview: Iran Analysis Weekly Report Nov 20, 2016

20 Nov., 2016

Vistar Business Monitor

Supreme Leader Ayatollah Ali Khamenei claimed that Donald Trump’s election makes “no difference” to Iran in his first remarks after the presidential election. Khamenei claimed that Iranians are “neither celebrating nor mourning because the elections make no difference to us.” He added that both Republicans and Democrats “have constantly directed their hostility toward the Iranian nation” since the 1979 Islamic Revolution. Iranian officials have expressed skepticism that U.S. policy toward Iran will change under the Trump administration. Senior Military Advisor to the Supreme Leader IRGC Major General Yahya Rahim Safavi, for example, advised Iranian media to “let some time pass” before analyzing the effects of Trump’s victory. Several Iranian officials were cautiously optimistic about the effects of Trump’s victory in the days immediately preceding the elections, however. Supreme National Security Council (SNSC) Secretary Ali Shamkhani, for example, said that he hoped the election would induce U.S. authorities to review “policies based on domination, intervention, and war in other countries.”

In the past week senior regime officials warned against making premature judgments on the impact of Donald Trump’s election. Senior Military Advisor to the Supreme Leader Major General Yahya Rahim Safavi advised Iranian officials to “let some time pass” before assessing the consequences of Donald Trump’s victory for U.S.-Iran relations. Safavi added that candidates in Iran and other countries “speak one way to get votes during their candidacy” before changing their positions after Election Day. Friday prayer leaders also expressed skepticism that U.S. policy toward Iran will change under the Trump administration. Mashhad Friday Prayer Leader Ayatollah Ahmad Alam ol Hoda stated, “It does not matter who the American president is. These are our enemies, and they are not abandoning their hostility toward us.”

Defense Minister IRGC Brigadier General Hossein Dehghan and Chinese Defense Minister Chang Wanquan signed a military cooperation agreement aimed at boosting bilateral military cooperation in training and counterterrorism efforts. Separately, Armed Forces General Staff Chief IRGC Major General Mohammad Bagheri announced that Iranian and Chinese officials have agreed to form a joint military commission between the general staffs of both countries.

President Hassan Rouhani called for Iran and China to increase their military cooperation during a meeting with Chinese Defense Minister Chang Wanquan in Tehran. The Iranian and Chinese defense ministers signed an agreement to increase bilateral military cooperation on November 14.
A delegation of Russian lawmakers traveled to Iran to meet with Parliament Speaker Ali Larijani and other officials. During the visit, the head of Russia’s Federation Council’s defense and security committee, Viktor Ozerov, told reporters that Iran and Russia are currently in talks over an estimated  $10 billion sale of advanced tanks, planes, and helicopters to Iran.

The U.S. House of Representatives voted to renew the Iran Sanctions Act (ISA) on November 15. The ISA authorizes energy, banking, and defense sanctions over Iran’s missile and nuclear activities and is set to expire at the end of the year. Republican Senate Majority Leader Mitch McConnell told reporters that the U.S. Senate will vote on the legislation before adjourning next month.

Supreme National Security Council Secretary Ali Shamkhani warned that any “extension” of sanctions against Iran would be a blow to the nuclear deal. Shamkhani was likely referring to the Iran Sanctions Act, which authorizes energy, banking, and defense sanctions over Iran’s missile and nuclear activities and is set to expire at the end of the year. The U.S. House of Representatives voted on Nov. 15 to renew the Iran Sanctions Act for ten years. Proponents of the legislation assert that it will protect the U.S. government’s authority to impose economic “snapback sanctions” if Iran violates the nuclear deal.

Yukiya Amano, the head of the International Atomic Energy Agency (IAEA), warned Iran that it must meet its requirements under the nuclear deal after the IAEA reported last week that Iran exceeded its permitted heavy water stockpile of 130 tons. Reza Najafi, Iran’s representative to the IAEA, responded by calling the stockpile limit “only an estimate.” Najafi added, “The only stipulated commitment in the JCPOA regarding excess heavy water is that this amount must be offered up for export in international markets.” Iran told the IAEA that it plans to transfer five tons of heavy water out of the country to re-comply with the limit after the IAEA announced that Iran exceeded the stockpile limit on November 9. The JCPOA states that Iran’s heavy water needs “are estimated to be 130 metric tons” and requires Iran to export any excess amount. Iran’s heavy water stockpile has exceeded 130 metric tons twice since Iran began implementing the deal.

The managing director of Iran’s Export Development Bank, Ali Saleh Abadi, stated that the Export Development Bank has regained access of some of its dollar-denominated accounts. In early October, the Office of Foreign Assets Control (OFAC) stipulated that foreign financial institutions can process limited dollar transactions with Iranian entities as long as those transactions do not directly involve U.S. financial institutions, sanctioned entities, or any sanctionable activities. Abadi added, “Banking transactions must not access the U.S. financial system, according to the OFAC statement. For example, if we have dollars in one account, we can transfer those funds to another account... Because these funds do not enter the U.S., we can conduct this type of transaction.”

President Hassan Rouhani discussed the place of foreign investment in Iran’s oil industry during a trip to Khuzestan province. He called for Khuzestan’s oil fields to produce 1 million barrels of oil per day and stated, “We need investment and technology to achieve this level of oil production. But our investment is limited. We need over $18 billion to develop these oil fields.” He added, “We do not doubt that we can do many great things ourselves.... But in today’s world, we must take advantage of the world’s capital and technology.” The Rouhani administration recently passed a new oil contract model aimed at boosting the levels of foreign investment in Iran’s oil sector. Hardliners have criticized the contract model for granting foreign firms too much control over Iran’s oil reserves, however.

President Hassan Rouhani also touted his administration’s economic record during a speech in Alborz province. He stated, “When I started this work, the inflation rate was at 45 percent… But the nation came together and restrained the damage from inflation. We brought inflation to single digits… Our administration is an administration of action, not of slogans. It is the same administration that forced our opponents to lift sanctions.”

This week has been eventful for the oil market. The week began with WTI prices dipping below $43/b. The bearish school of thought warned that prices could fall below $35/b in the event that OPEC fails to finalize a production cut agreement. OPEC announcements have been optimistic, but not overblown. The market is not glossing over the very real difficulties posed by new developments in Iran and Iraq, but OPEC determination to reach an agreement appears to have increased. This is having a bullish influence on the market, probably all the more so because the announcements are not overwhelming, and they are being accompanied by consensus-seeking activity by the OPEC Secretary-General and several other key energy ministers, plus the Russian Energy Minister.

During the past week, TSE stocks mainly recouped losses that they incurred on November 9, after Donald Trump was announced as the new US president. Investors greeted a partial recovery on the Tehran Stock Exchange, with the TSE All-Share Index ending the week up 1.1% at 79,268. The previous week had seen the TSE benchmark finish with a loss of 1.6% which market analysts attributed to the outcome of the US presidential election.