Economic Trends : Month of April

May 1, 2014

Garrett Nada

      The biggest news in April was a gasoline price hike as President Rouhani began long-delayed subsidy reform. The cost of a liter jumped 75 percent; consumption reportedly declined by half within days. The move follows Supreme Leader Ayatollah Ali Khamenei’s warning that Iran will have to develop an “economy of resistance” to handle hardships. Additional cutbacks planned for food, water and electricity subsidies may have deep political and social impact—and potential opposition. But if consumption of water is not curbed, Iran could face water shortages this summer because of misuse or overuse of a dwindling resource.

            The International Monetary Fund reported that Rouhani’s government has taken effective steps toward economic stability. But economists also warned that more comprehensive reforms are needed to spark growth and create new jobs. The Statistical Center of Iran reported that youth unemployment averaged 24 percent during the previous Persian year, which ended on March 20. 
 
            Despite the uncertain outlook for Iran’s economy, several European delegations – from Austria, Britain, France and Switzerland—visited Tehran in April to strengthen bilateral ties and explore future trade. Iran’s non-oil exports actually rose by 10.4 percent compared to the same month in 2013. But oil exports fell for the second month in a row, down to 1.1 million barrels per day from 1.3 million in March. The following is a run-down of the top economic stories, with links, and videos of Rouhani’s comments in April.
 
 
DOMESTIC DEVELOPMENTS
 
Subsidies: 73 million citizens — some 95 percent of Iranians — signed up for cash handouts, despite government attempts to discourage affluent and middle-class families from registering for the $18 monthly payments. Tehran is projected to save some $482 million per month after some 2.4 million waived the handouts. Rouhani pledged to be transparent about how the money will be spent.
 

 

Gasoline: Subsidy cuts on gasoline raised the price of gasoline 75 percent to 7,000 rials for the first 60 liters, up from 4,000 rials. The price of each additional liter beyond 60 was raised to 10,000 rials from 7,000. Gasoline consumption was nearly halved in the days following the April 25 subsidy cut.
 
Natural gas: Iran is on course to become the world’s largest importer of natural gas by 2025 unless it controls rising consumption, according to the head of Iran’s Ministry of Petroleum Research Center.
 
Utilities: Electricity and water prices have risen by 20 percent on average since March.
 
IMF report: The International Monetary Fund reported that Rouhani’s administration has taken important steps to lower inflation. But economists warned that “Iran’s near-term economic outlook remains uncertain.”
 
Corruption: Iran’s judiciary has given Babak Zanjani until March 2015 to pay back his $2 billion debt to the National Iranian Oil Company. The businessman was allegedly involved in skirting oil sanctions and financial corruption. He never forwarded the oil revenue to the oil ministry, citing sanctions-related difficulties
            
Military’s role: Chief of Staff Genearl Hassan Firuzbadi claimed that the armed forces have “no economic mission” but will fully support Rouhani’s government with its workforce and resources.
 
Inflation: The Statistical Center of Iran reported that inflation dropped 5.7 percent during the second half of the previous Persian calendar year, which ended on March 20. By the end of the year, inflation was down to 34.7 percent.
 
Rouhani announced that serious steps will be taken to curb inflation this year and that price hikes would be minimal.
 
Unemployment: The Statistical Center of Iran reported that the average unemployment rate for the Persian year that ended on March 20 was 10.4 percent. Female unemployment was 19.8 percent, more than double the rate for men – 8.6 percent. Youth unemployment was even higher at 24 percent for those between ages 15 and 24.
 
Exchange: The official exchange rate hovered around 25,500 rials to the dollar for much of April. Vice President for Planning and Strategic Supervision Mohammad Baqer Nobakht announced that Iran will take a phased approach to unifying the multi-tier exchange rates.
 
Housing: Minister of Housing and Urban Development Abbas Akhundi announced that some 700,000 Mehr housing units would be allocated to low-income families.
 
Water: “Tehran, along with 10 other major cities, is at risk of water shortage,” according to Deputy Energy Minister Rahim Meydani. He warned that water shortfalls could impact half of Iran’s population in summer 2014 if consumption isn’t cut by as much as 20 percent.
 
INTERNATIONAL NEWS
 
Oil: Reuters reported that Iran’s oil exports fell in April for the second month in a row. Exports were down to about 1.1 million barrels per day from 1.3 million in March, perhaps due to lower demand from Indian buyers.
 
Chinese contract canceled: The National Iranian Oil Company cancelled a $2.5 billion deal with China National Petroleum Corporation for developing the giant South Azadegan oil field. The project had been stymied be repeated delays.
 
Energy deal with Iraqi Kurdistan: Rostam Ghasemi, head of the Iran-Iraq Economic Development Committee and a former oil minister, traveled to Erbil and signed an agreement with the Kurdish Regional Government to build oil and natural gas pipelines. The Kurdish government would receive 3 to 4 million liters of refined oil and natural gas in return for pumping crude oil to Iran.
 
Exports: Non-oil exports rose by 10.4 percent to $2.82 billion in the first month of the new Persian year (March 21 to April 20) compared to the same period in 2013.
 
Imports: Imports grew to $2.51 billion during the first month of the Persian year, up 21.53 percent compared to the same period in 2013.
 
Spare aircraft parts: Boeing and General Electric announced that they received licenses from the U.S. Treasury to export certain spare parts for commercial aircraft to Iran. Sanctions relief for Iran outlined in the interim nuclear deal allowed the Treasury to issue the licenses.
 
Russia oil-for-goods deal: Iranian officials have reportedly made progress on brokering a $20 billion oil-for-goods deal with Russia. Moscow would buy up to 500,000 barrels a day in exchange for equipment and goods.
 
Turkey free trade zone: Iran’s ambassador to Ankara, Alireza Bigdeli, announced that Tehran is planning to start talks on setting up a free trade zone in Salmas city near Turkish border.
 
Indian payments: India is expected to pay Iran $1.65 billion in oil payments during the next three months thanks to limited sanctions relief under the interim nuclear deal, according to Reuters.
 
Foreign Delegations: Diplomats, lawmakers and businesspeople from the United Kingdom, France, Austria, Switzerland, Nicaragua, Latvia, and Azerbaijan visited Tehran to boost bilateral ties and trade.
 
Pakistan pipeline: Pakistani Foreign Ministry spokesperson Tasnim Aslam denied reports that plans to complete the multi-billion dollar natural gas pipeline from Iran to Pakistan have been scrapped. She blamed delays on international sanctions on Iran and lack of investment.
 
Garrett Nada is the assistant editor of The Iran Primer at USIP. 
 
Photo credits: Gas station in Arak by SaMin SAmIN (Own work) [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons
 
EVENT: The Rubik’s Cube (tm) of a Final Agreement

The clock is ticking on a nuclear deal with Iran. The deadline is July 20. An unprecedented coalition of eight Washington think tanks is hosting three discussions on the pivotal diplomacy to coincide with the last three rounds of talks. The first event — "The Rubik’s CubeTM of a Final Agreement" — on May 13 will explore the 10 disparate issues to be resolved and the many formulations for potential solutions.
 
The coalition includes the U.S. Institute of Peace, RAND, the Woodrow Wilson Center, the Arms Control Association, the Center for a New American Security, the Stimson Center, the Partnership for a Secure America, the Ploughshares Fund, and staff from the Brookings Institution and the Center for Non-Proliferation Studies.
Agenda:
 
9:30- 9:35 AM: Welcome
 
    Ambassador William Taylor
    Vice President, Center for Middle East & Africa, U.S. Institute of Peace
 
9:35- 10:15 AM: Moderated Panel Discussion
 
    Robert Einhorn
    Senior Fellow, Brookings Institution and former Special Advisor to the Secretary of State
    Alireza Nader
    RAND Corporation and author of Iran After the Bomb
    Joe Cirincione
    President of the Ploughshares Fund
    Colin Kahl, Moderator
    Center for New American Security and former Deputy Assistant Secretary of Defense
 
10:15-11:00 AM: Q&A