Iran's economy likely to ride out U.S. sanctions storm

Tehran, Nov 8, IRNA - Iran is likely to ride out the storm from U.S. oil sanctions, suffering recession but no economic meltdown, thanks to rising crude prices and deepening divisions between the United States and other major powers, officials and analysts say.

“Iran’s situation is better than pre-2016 because of high oil prices and the fact that the U.S. is isolated this time,” said a European diplomat who asked not to be further identified, according to Reuters.

Iran emerged in early 2016 from years of global sanctions under a deal with world powers that curbed its disputed nuclear program. But President Donald Trump withdrew the United States from the deal in May, calling it flawed to Iran’s advantage, and reimposed far-reaching U.S. sanctions in phases, with the most damaging oil and banking penalties taking effect on Nov. 5.

But the broadly united front of world powers that enforced sanctions on Iran previously, pushing Iran into nuclear restraint, has unraveled since Trump took office and clashed with allies over everything from trade to collective security.

The other signatories to the nuclear deal - Germany, France, Britain, the European Union, Russia and China - have condemned Trump’s walkout from the pact. The EU is preparing a special mechanism to enable payments for Iranian oil and other exports without U.S. dollars, possibly through a barter system.

“It will be a difficult period but Iran’s economy will withstand it for various reasons,” a second diplomat said, “including (the fact of) Russia being under (U.S. and EU)sanctions, Saudi Arabia having its own financial and political issues, and (trade war) between China and the United States.”

Big power disunity and EU moves to circumvent Trump’s sanctions regime have given Tehran a psychological boost - but not dissuaded foreign businesses ranging from oil majors to trading houses and shipping concerns from pulling out of Iran for fear of incurring new U.S. penalties.

Still, while the U.S. clampdown will probably trigger recession in Iran next year, economic meltdown should be avoided, with a reduced but still significant volume of oil exports continuing, a Fitch solutions analyst said.

“Tehran is still likely to see a substantial share of its foreign exchange earnings maintained,” Andrine Skjelland told Reuters. “This will enable Tehran to continue subsidizing imports of selected basic goods, keeping the costs of these down and thus limiting inflation to some extent.”

In hopes of mitigating the immediate economic hit, Iranian authorities have hinted that Tehran might have to sell its oil at a discount to entice buyers going forward.

“Oil revenues might decline but (they) will still be enough to run the country,” said an official involved in Iran’s international commerce. “If we sell our oil for $1 less than market price, it will have tens of buyers.”

In another counter-measure made possible by state control of the oil sector, Iranian authorities are using special exchange centers to sell dollars at cheaper rates to importers of basic foods, medicine and other essential goods.

But Iranian officials are defiant, citing Trump’s isolation in repudiating the nuclear deal, climbing oil prices and Trump’s agreement to grant sanctions waivers to eight countries especially dependent on Iranian crude.

“Crude prices are rising. Even if Iran’s oil sales drop to 800,000 barrels per day (bpd), we will be able to run the economy. But we will send much more than that. Our economy will be far from collapse,” said a senior Iranian official.

“Our budget is based on oil of $57 per barrel and is now over $75 per barrel.”

Trump granted 180-day sanctions waivers to China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey, which together took in over 80 percent of Iran oil exports last year, Refinitiv Eikon data shows.

Still, Iran demonstrated considerable resilience and ingenuity in coping with earlier international sanctions, and there is little to suggest Tehran could not do this again.
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