Iran is losing but it is far from checkmate

Has the Iranian rial lost more than half of its value against the dollar since the start of this year? It’s routine for this country’s economy that has seen this same thing other times as, since the end of the Iraq war, each Iranian president has effectively been faced with a monetary crisis. From 1989 to 1997, under Rafsanjani, didn’t the official exchange rate of the rial collapse from 72 to 1,755 on the dollar, when on the black market it moved from 1,200 to 4,750? President from 1997 to 2005, Khatami barely did any better as the rial lost 80% of its value under his reign, passing the 9,000 bar to then reach the abyss of 25,000 under Ahmadinejad (2005 to 2013). History is therefore only repeating itself with President Rouhani, who has nevertheless done his best to try to improve the situation since – contrary to the affirmations of Donald Trump claiming that Iranian inflation is reaching its peak – it has been around an exceptionally low level of 10%, even into single figures, for the last two years, which is unprecedented since the Islamic Revolution of 1979. This is because the Iranians have been rather used to an inflation rate in the way of 18 to 20% for about 30 years.

Iran’s economy is therefore showing no sign of liquidation since, despite unemployment stagnating at around 12%, the Tehran stock market has jumped 30% in the last three months. Admittedly, it only accounts – in capitalisation – for a third of national GDP but is showing no sign of panic after renewed tensions with the US. It is of course due to its oil exports that Iran is most vulnerable since this sector accounts for nearly 14% of the country’s economic activity. While they had bounced back to more than 2.3 million barrels per day – the highest since 2008 – these exports are now the biggest victims of this resurgence, having faltered by 25% since America’s announcement it was withdrawing from the nuclear agreement. The US sanctions have effectively caused the withdrawal of many major buyers of Iranian oil, including the European Union that, gross, has bought 40% less from this country since last April. However, it’s the loss of the South Korean market, making up 60% of Iranian oil exports, that will have the worst ramifications on this sector and also on the country’s economy as whole, since South Korea was not obliged to respect the American oil embargo on Iran during the Obama era.

Trump and his administration are gambling on bringing the Iranian economy to its knees and thus forcing the country into an unconditional surrender, or at least one on American terms. Nevertheless, while it’s true that the worst is yet to come for Iran from an economic and financial point of view following the American about-face, this nation is resilient and its economy still seems far from capitulating.