Is Iranian oil approaching the last breath?
International sanctions hit the most important sectors and the main source of revenue with the loss of control over price increasesIndependent Arab
Wednesday 9 October 2019 13:00
Iranian oil tanker (Reuters)
Under the weight of U.S. sanctions and the suspension of most oil revenues as Iranian officials persist in their refusal to bow to international resolutions, the Iranian economy is hard to come by with renewed crises.
Tehran is suffering from financial and economic distortions that may take a long time to recover even if the sanctions were lifted, amid the flight of foreign investors and the boycott of international trade.
Recognition of the crisis of the oil sector
Iranian Oil Minister Begin Zanganeh acknowledged the decline in the oil sector as a result of the US sanctions, stressing at the same time that his country "will resist," the semi-official Mehr news agency reported.
"Every few years, the oil industry in Iran is hit hard and economic sanctions are among them," Zanganeh said.
Between Trump's announcement of his withdrawal from the nuclear deal in May last year to August last year, the administration has restored all previous sanctions on Iran. As the Iranian challenge continues and Tehran does not heed calls to negotiate a new deal that would ensure it does not threaten its neighbors, stop supporting terrorism and militias in other countries and curb its missile program, the United States has stepped up sanctions.
The emphasis has been on sanctions against most of Iran's industrial sectors, mainly the oil sector. In May, Washington canceled the exceptions it had granted to some countries to import Iranian oil to prevent Iran from exporting any oil.
Indeed, Iranian oil exports have almost reached zero (less than 200,000 barrels per day, compared with exports of 2.5 million barrels per day before the reimposition of US sanctions last year).
In the last year, the decline in the oil sector by 14%, the manufacturing sector fell by 6.5%, and the construction sector fell by 4.5%. The agricultural sector, which accounts for about 10% of GDP, declined by 1.5%, while the growth rate in the services sector, which constitutes about 55% of GDP, remained unchanged.
Withdrawal "China National Petroleum Corporation"
Zanganeh announced on Sunday that CNPC had withdrawn from the development of phase 11 of the Pars field, stressing that Tehran's Petrobars would take over the project alone.
Total and CNPC of China were supposed to cooperate with Iran's Petrobars to develop Phase 11 of the Pars field under a $ 4.8 billion deal signed in July 2017.
The deal was reached after the conclusion of a nuclear deal between Tehran and major powers, which provided for the lifting of sanctions against Iran in return for curbing its nuclear program, ending the economic isolation suffered by Tehran for years.
Total pulled out of the project three months after US President Donald Trump's decision to abandon the nuclear deal in May and reimpose sanctions on Iran's oil and other vital sectors.
According to data and figures, Iran's crude oil exports and registered oil condensate fell in September to the lowest level since July 2016, while the Iranian fleet of oil tankers is uncertain due to US sanctions. This makes it difficult to assess Iranian exports accurately.
Meanwhile, the International Energy Agency said in its latest report that Iran's oil production fell by 40 thousand barrels per day in August to 2.19 million barrels per day, near the lowest level in 30 years.
Before the 1979 Khomeinist revolution, the country was producing more than 6 million barrels per day, but now, 40 years later, Iran is producing nearly 2 million barrels, as international companies refuse to invest in the oil-rich country in US sanctions. Larger.
Exchange market distortions
In a recent study of the Future Center for Advanced Studies and Research in Cairo, he said that "the central bank's tendency towards zeroing the currency seems to be limited in the face of the deterioration of the exchange rate, unless further measures can be taken to address the current distortions of the exchange market."
"The exchange market in Iran has been distorted for a long time, the most prominent of which is the same rigid and bilateral exchange rate regime. Central bank authorities do not allow the currency to move according to supply and demand mechanisms, meaning that they control exchange rate movements, which is This allows a relatively stable official exchange rate to determine the prices of imports and some government transactions, and another exchange rate that is widely traded in the market of licensed exchange offices as well as the unlicensed black market and determines, in most cases, the rest of transactions between individuals and companies.
According to the Center, "Iran's tendency to exchange its currency and delete several zeros can be explained in the light of the considerations of four main, the first is the limited effectiveness of the current monetary policy to contain the deterioration of the exchange rate. Among various measures, the central bank pumped $ 5 billion in the market Exchange rate from March to July, but this has not prevented the riyal's decline against the US dollar recently.
The second consideration is aimed at strengthening local and international confidence in the currency, as deleting these zeros can strengthen the relative confidence and local credibility in the value of the currency, and will enhance the global reputation for it, as it is likely to have a positive psychological impact on dealers in the local markets Internationals who will see the value of a currency relatively stronger than the previous price of more than tens of thousands.
He pointed out the impact of the decision on the facilitation of financial and commercial accounts, as this step will make the accounting and auditing of financial and business transactions are done in a smooth manner rather than settled with very large transaction values both for the private and public sectors and for the public.
As for the fourth consideration, the Future Center stressed that it is related to reducing the cost of printing banknotes. When the local currency exchange rate to be launched in the future improves, the need to print more banknotes or new categories of banknotes will be relatively reduced. Last January, the cost of printing a banknote of 5,000 riyals reaches 80%.
The dollar's exchange rate against the local currency has more than tripled, leading to a deterioration in the value of income for Iranian families and high prices.
Currency exchange will not contain inflation
The center confirmed that the initial positive psychological impact of currency exchange short-term, and will not succeed in containing the high rate of inflation in the country unless the authorities tend to address the real causes of the devaluation of the local currency, the most important of which is the decline in foreign exchange liquidity due to sanctions by the United States of America to Iran exports crude oil to international markets.
Replacing the riyal with the new currency is a complex and time-consuming process. Old banknotes will be withdrawn and new securities will be printed, which could take up to two years, according to the central bank.
According to the latest report by the Statistical Center of Iran (Govt), the inflation index recorded about 42.7% on September 22, amid the most severe economic crisis experienced by the country in more than 40 years. 47.4%, compared to 41.9% of the urban population who endured inflation.