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Iran Economy Update
Issue 64/2017 MONDAY JUNE 19TH
Iran’s Finance minister met Korean counterpart to discuss banking issues Iran’s Minister of Economic Affairs &
Finance Ali Tayyebnia met with Korean Minster of Strategy and Finance Yoo Il-ho and discussed establishing lines of credit, banking correspondent relations, and opening branch offices of Iranian and Korean banks, Shada, the official website of the Iranian ministry reported on Saturday.
The two ministers have also discussed facilitating the transfer and exchange of oil proceeds. According to Shada, negotiations with the Korean banks for LC establishment are being finalized “but in order to resolve some issues, some agreements should be reached by the two ministers.” “Also, the measures previously taken to establish banking correspondent relationships and opening branch offices require more follow- ups and the two ministers have made promise to resolve the issue.”
Ali Tayyebnia is visiting South Korea to attend the 2nd AIIB Annual Meeting of the Board of Governors in Jeju. The government’s news agency IRNA wrote that after the JCPOA implementation, a committee was established within the Ministry of Economic Affairs & Finance with the membership of the CBI and the Management & Planning Organization to accelerate and facilitate establishing LCs and using foreign financial facilities. “South Korea was one of the target countries in LC opening and attracting foreign financial facilities which based on initial negotiations, Korean Exim Bank and KSure provide $8 billion and $5 billion in finance, respectively to Iranian projects,” wrote IRNA.
The saga of unlicensed CFIs continues to bother Rouhani government
The saga of unlicensed Credit & Financial Institutions (CFIs) continues to remain an
unresolved challenge for the Rouhani government. The recent burst of news of bankruptcies of a number of CFIs has caused many to point the finger of blame at the Rouhani government and censure it for not strongly disciplining them.
Tasnim News agency wrote on Saturday that 84 lawmakers have signed a petition to question President Rouhani over his administration’s [mis]performance in the case of the Caspian crisis. On June 13, 80 lawmakers issued an open letter to the president and asked him to raise the issue of unlicensed CFIs on the agenda of the Supreme National Security Council. “If this issue is not resolved urgently, it will turn into a national crisis,” reads the letter of the MPs to the president. One day earlier, 26 MPs had issued an open letter to the CBI governor and asked him accelerate the procedure of reimbursing the depositors of the Caspian institute.
In the past months, large numbers of depositors of the Caspian CFI staged numerous sit-ins in front of the parliament and the CBI in Tehran and in front of the local governor general offices in other cities to protest against the blockade of their accounts and chanted slogans against the CBI that had issued license to this institute.
The daily Shargh on Sunday wrote that the news on a likely merger of Samen and Kowsar, the two other unlicensed credit institutes has caused concerns of their depositors. Last Thursday, the IRIB news agency reported that about 200 customers of Samen Credit Institute gathered in front of Vanak Square branch offices in Tehran in protest to the alleged blockade of their accounts. The news agency wrote that police forces tried to disperse the crowd.
These days, unverified reports are circulating that to resolve the issue, the CBI
2 is going to merge the Samen and Kowsar credit institute with the Mehr-e Eghtesad Bank. A CBI official however has told ILNA that since these institutes are not licensed, the CBI won’t take liabilities for the loss incurred by the depositors.
During the presidential campaign, President Rouhani had distanced himself from the unlicensed credit institute and in the last presidential campaign TV debate aired one week before the Election Day, Rouhani said the mushrooming growth of the unlicensed credit institute took place under the administration of former president Mahmoud Ahmadinejad. CBI Governor Valiollah Seif has recently repeated the same line and in an interview with IRNA said that the illicit credit institutions were inherited from the previous government but some try to politicize the issue [by ascribing it to the mismanagement of the incumbent administration]. Seif ensured that the CBI has [recently] received all the required approvals to implement more stringent supervision and control the CFIs but didn’t explain how.
Meanwhile, Mohsen Jalalpour, the former chairman of the Iran Chamber of Commerce, Industry, Mine & Agriculture (ICCIMA) criticized the mounting pressures on the incumbent administration for the crisis plaguing the illicit credit institutes. “It rubs salts into our wounds seeing how some exploit the patience and excuse of the CBI in divulging the truth about the semi- state organizations/institutions [behind the illicit CFIs]. The very institutions whose own illegal activities have caused money crisis in the country but now encourage the depositors to demand their money back from the CBI,” he wrote on his mobile Telegram application channel last week.
In a similar move, IRNA news agency which is linked with the Rouhani government published on Sunday a report on the crisis of unlicensed CFIs and stated that “the most problem of the CBI [under the Rouhani government] is that most of the CFIs are
affiliate with some institutes and power centers and are not accountable to the CBI.”
The news agency cites Sina, Ansar, Hekmat-e Iranian, Iran-Zamin, and Ghavamin as some of the CFIs that are affiliate with some semi-state [military/religious/charity] organizations that finally were given license by the CBI.
Meanwhile, with the rising of concerns over the fate of the depositors of other unlicensed CFIs, ILNA published a screenshot of the official homepage of the CBI, which shows that only the five CFIs of Tose’e, Caspian, Central Kowsar, Melal and Noor are authorized by the CBI. Some observers believe that the CBI has not performed well in giving sufficient awareness to the public about the risks of parking their money with the illegal CFIs.
OPEC report shows Iran’s May oil output stood at 3.79 mm bpd
The latest report published by the OPEC secretariat shows that Iran’s average production of oil grew by 24% in 2016 and reached 3.518 million bpd, compared with 2.836 million bpd in 2015. The report also shows that the country’s crude production in May 2017 reached 3.795 million bpd, which does not show a significant change compared with the March production of 3.792 million bpd. According to the report, the price of Iran’s Heavy crude oil averaged
$51.01 a barrel in 2017, showing a 55%
increase compared with the average price in 2016, which was $32.76 a barrel.
Meanwhile, according to the statistics calculated by Reuters, Iran’s crude oil exports in May hit the lowest volume in 14 months and reached 1.66 million bpd. This is lower than the 1.8 million bpd exported in April. There are two reasons given for the decline in Iran’s crude exports in May. (1) The Islamic Republic cleared its tanker storages and (2) Asian buyers were set to load less crude in May.
The figures for Iran’s condensates exports in May are not available but in April the
3 country had exported 370,000 bpd of this fuel. In February, Iran’s export of crude and condensates combined was 2.9 million bpd.
Fereidun Fesharaki, an Iranian-born leading international energy expert told American CNBC TV on June 13 that oil prices could sink back to $30 a barrel if OPEC doesn't make any further cuts to production. He also estimated that the Saudi-led attempt to isolate Qatar wasn't likely to have a substantial impact on global oil prices, except in the unlikely event of a military confrontation. "The problem is that there is too much oil on the market. There is too much oil from the U.S., too much oil from Libya, too much oil from Nigeria," Fesharaki told CNBC. "While the demand is robust, there is a serious likelihood that prices will sink next year to $30-$35 a barrel and will stay there for a while," he added. "You have to cut another 700,000 barrels per day right away or prices will sink," he said. "Even if you do this, next year you'll still have to cut more, so it comes down to how far the Saudis are prepared to cut."
Reza Zandi, an Iranian energy journalist wrote on Saturday in the Seda Weekly Magazine that although the OPEC and non- OPEC crude producers agreed last month to continue reducing output by 1.8 million bpd for another nine months, the signatories are unlikely to remain committed to their obligations. “The oil price slump will reduce the income of the next Rouhani administration. During his first years in office in the next administration, Rouhani may get stuck in the whirlpool of oil price falls.”
“Maybe in the short term, the Rouhani government is forced to think about replacing income resources,” he added.
CBI puts 2016 GDP growth rate at 12.5%;
Oil sector accounts for 9.8%
The latest statistics released on Sunday by the CBI shows that the Persian year of 1395 ended on March 20 with an economic growth rate of 12.5% and an inflation rate of 9%, both being unprecedented in 25 Years.
The significance of this development becomes more recognized when one knows that 4 years ago, the Persian year of 1392 ended with an inflation rate of about 35%
and an economic growth rate of (-1.9%).
The most important factors that contributed to the significant economic growth rate in the last Iranian year were the impact of the ease of sanctions on the petroleum sector, the increase in the global prices of some of export goods, and the increase in the production volume especially in the automobile sector. However, as predicted by the World Bank and the IMF, it is believed that this unprecedented economic growth rate will not continue in 2017 and will be limited to around 4%.
The following table shows the breakdown (sector-by-sector) of the components of Iran GDP growth in the Persian year of 1395 (20 March 2016 – 20 March 2017).
Table 1- Breakdown of GDP growth components (sector-by-sector) in 1395 (2016)
sector percentage
unit
oil 9.8
industry 0.8
restaurant and hospitality 0.7 transportation, inventory and communications
0.7 resultant (combined effect) of other sector
0.5
GDP Growth 12
Source: CBI
As the table above shows, oil sector has had a dominant effect in accelerating the pace of economic growth rate in Iran in 2016. According to the CBI, Iran’s economic growth rate was 3.3 percent in 1395 if the oil sector being excluded from the calculations.
As such, since no further robust jump is expected to happen in Iran’s crude oil output and exports in 2017, the country’s GDP growth would relatively be modest in 2017.
4 The economic daily Donyay-e Eghtesad has published a table which shows the growth rate of different economic sectors in Iran in 1395 (2016), and compares them with the preceding year.
Sector 1394 (2015) 1395 (2016)
Agriculture 4.6% 4.2%
Oil 7.2% 61.6%
Industry & Mine -6.1% 2.2%
Service -2.3% 3.6%
GDP Growth -1.6% 12.5%
It is notable that in its report, the CBI underscores that the construction sector, which is included in the Industry & Mine category, was the only sector which contracted in 1395, and continued its five- year slump.
NIOC adds four Russian companies to list of 29 eligible IOCs for oil/gas tenders The English-Language Platts energy news website reported on June 16 that the National Iranian Oil Company (NIOC) has added five more International Oil Companies (IOCs) in its list of prequalified companies for Iran's oil and gas upstream projects. Platts also states that the deadline for attending the Azadegan oil field development is June 19.
The five oil majors that have recently been qualified by NIOC include Russia's Gazprom Neft, Rosneft, Tatneft and Zarubezhneft, as well as Azerbaijan's state- owned Socar. This will take the NIOC list of prequalified companies to a total of 34.
Of note, NIOC announced at the start of January 2017 that it had prequalified 29 IOCs to bid to develop upstream oil and gas projects, but it later stated that a second list will soon be released. The original list did not include Russian firms ZarubehNeft and TatNeft, both of which had signed MoUs with NIOC to develop oil fields.
On the importance of the development of Azadegan field, Platts has quoted Iman
Nasseri, an energy expert from the Fact Global Energy (FGE) as saying that “the upcoming tender is perhaps the most important event the government has been looking forward to for months now, if not years." Explaining the reason for the recent inclusion of four Russian firms in the list of eligible companies, Nasseri says "Iran seems to be in favor of having a Chinese/Russian partner in key developments to keep the project alive together with the local contractor should a 'snap back' of sanctions pull the European partner back out of the project."
Azadegan is one of the Iranian oil fields located 120 km west of Ahvaz. The field was discovered in 1999, and is adjacent to the giant Majnoon field in neighboring Iraq. It is among the three largest oil fields in the world, and has between 33-37 billion barrels of in-situ oil reserves. Initially, a contract was signed in 2003 with Japanese Inpex for developing the field but with the intensification of international restrictions against Iran, the Japanese company officially pulled out of the project in 2006.
Three years later, in July 2009, NIOC awarded the project to China’s National Oil Company (CNPC) by escaping tender procedures. According to the contract, the Chinese firm was supposed to increase crude production from the field to 320,000 barrels per day in 52 months. However, in 2014, Iran canceled the contract with China citing frequent delays of the company.
