Iran – Minister’s remarks acknowledges regime’s economic problems

The very fact that Tayyebnia recognizes the possibility of a rush on the currency market is a definite sign of trouble for the Iranian economy. It is not the only such sign. Global crude oil prices have recently been linger in the area of 40 dollars per barrel, prompting a series of responses from Iranian officials that are similar in tone to that issued by Tayyebnia on Monday. The regime claims to be capable of managing the shortfall, but financial analysts report that Iran needs oil prices of about 100 dollars per barrel just in order to balance its budget, especially considering that oil exports constitute fully half of the Iranian economy.

In a sign of how Iranian economic policy, combined with international sanctions, affect average Iranians, the Associated Press reports that authorities permitted a 30 percent hike in the price of bread, the fourth such increase in as many years.

Economic sanctions are credited as part of the cause of Iran’s current difficulties, but the country has been granted access to billions of dollars in frozen assets during the course of nearly a year of negotiations over the regime’s nuclear program. The administration of Hassan Rouhani has repeatedly taken personal credit for positive economic indicators during that year, ostensibly doing justice to his campaign promises of economic improvement.

Reuters points out that recent changes indicates that problems in Rouhani economic policies are clearly undermining already shaky business confidence in the country.

What is true of Iran’s domestic businesses is certainly also true of foreign businesses looking to the possibility of investing in Iran. It remains to be seen to what extent the poor economic indicators will affect Iran’s efforts to court those investors and use new foreign investments as a way of weakening international support for sanctions against the regime and its possible pursuit of a nuclear weapon. But the low oil prices and weakening of the Rial come at an inopportune time for the Iranian auto industry, which held the second annual Iran Auto Show on Monday.

The Peninsula points out that the auto industry has been badly impeded by economic sanctions, causing production to be reduced by half between 2011 and 2013. Several European carmakers agreed to attend the conference on Monday, including some that had abandoned the country entirely in the wake of sanctions. Their reentry could be a notable step in the opposite direction of the recent fluctuations, but this is evidently not being helped along by the tone of wealthy and powerful Iranians toward such firms.

Hashem Yekezareh, the chief executive of Iranian car manufacturer Iran Khodro used the occasion of the auto show to say that Peugeot, Renault, and Suzuki will each have to “pay the price” for ceasing operations in Iran when sanctions came into force. “We expect our former partners back in Iran but on the terms that we offer,” he added.

This done is apparently being amplified by Iranian government policy, including what The Peninsula described as anti-competitive practices such as granting exclusive deals to the country’s two largest automobile manufacturers. Moves like this arguably parallel Iran’s stance in nuclear negotiations, insofar as the regime appears to be reaching out to foreign entities with one hand while pushing them away with the other.

Meanwhile, Iran’s relations with foreign companies closer to home indicate that perhaps threats against European car makers should be taken very seriously. The India Times on Monday reported upon new efforts by Indian politicians to secure the release of two engineers who have been detained in Iran for nearly a year, apparently owing to a dispute between their employer, Powers Engineers India Ltd., and a domestic Iranian company.

This sort of reactionary response to economic disputes potentially serves to harm not only the individuals being targeted but also Iran’s broader relations with its regional partners. Despite the fact that Turkey has continued importing oil from Iran during the period of international sanctions, relations have been tense between the two countries owing partly to their backing different sides in the Syrian Civil War.

In the latest sign of those tensions, Iran has begun sealing the fuel tanks of Turkish trucks at the border, according to Trend.az. The move comes after Iran instituted 750 dollar transit fees and then doubled them, for fear of Turkey taking advantage of lower fuel costs in Iran.

Iran may feel comfortable alienating some partners, however, as long as it is making up for those moves by expanding political and economic relations with others, especially with its most powerful and long-standing allies. Russia has previously helped Iran to skirt economic sanctions, and as RT reports, Economic Development Minister Aleksey Ulyukayev indicated on Monday that it was poised to do so again, via a burgeoning oil-for-goods agreement that would use barter and local currency payments to avoid the reserve currency payment system that makes sanction enforceable.