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06/21/12

Vesta Monitor's Iran Economic Report: May 2012

Source: Vesta Monitor

Iran Economic Report (Monthly) - Number 5, May 2012

Vesta Monitor has published its May 2012 issue of “Iran Economic Report”. Executive Summary follows. To see and download the full report, please go to www.vestamonitor.com.


1 Executive Summary

After what the foreign exchange and gold markets went through in 1390 (March 2011 - March 2012), the consequences are showing their ugly faces in rising inflation in the Iranian economy today. An inflation wave is hitting the economy while the economic growth rate is practically zero and unemployment is soaring. All economic indicators point to worsening economic circumstances. Government economic mismanagement and international sanctions are striking the economy very hard.

The United States, the European Union and the U.N. have imposed tough economic sanctions against Iran - stalling access to the international banking system and hurting sales of Iranian crude oil - in order to force Tehran to abandon its uranium enrichment for its nuclear program. A European Union embargo on purchases of Iranian crude is also set to come into force on July 1. On 23 January 2012, the EU agreed to an oil embargo on Iran.

Iran’s oil revenue encounters three challenges and expected to fall significantly in coming months. First, the US has put considerable pressure on the countries that import Iranian oil to either reduce the amount of oil they purchase or completely stop their oil purchase. Furthermore, no EU member countries will buy Iran’s oil beginning July 1. Second, Iran’s hydrocarbon industry suffers from years of underinvestment, due mostly to its inability to entice the necessary international capital and expertise. A number of foreign companies that were investing in Iran's upstream have halted their activities as a result of previous sanctions against Iran that have made it difficult to do business with the country. The estimated fall in Iran’s oil production is the annual 400,000 bpd. Third, Europe’s debt crisis is slowing economic growth in the world and reducing oil use. Oil prices have already come under pressure and the continuation of the situation will certainly reduce prices further. All of the above conditions will create a decline in Iran’s oil earnings. For a country whose economy is heavily dependent on oil revenue, such a slump would be a severe blow.

Iran and the P5+1 held talks in Istanbul after a 15-month-long pause. They agreed upon the preliminary details for further talks to resolve the misunderstandings and come to a comprehensive conclusion. However, talks between Iran and the five permanent members of the UN Security Council plus Germany in Baghdad last month made little progress. Iran says its nuclear program is for civilian purposes and denies that it is building weapons. With only a few days left to key talks between 5+1 group and Iran in Moscow, it remains to be seen whether any progress will be made.

In this issue of the “Iran Economic Report”, we review Iran’s nuclear negotiation teams in the past decade and direct our focus on Iran’s present macroeconomic conditions.

Table of Contents
1 Executive Summary .......................................................................................................4
2 Important News Flow - April 2012 to May 2012 ................................................................ 5
3 Current Affairs ............................................................................................................... 6
3.1 A Review of Iran and 5+1 Nuclear Negotiations .............................................................. 6
3.1.1 The first nuclear team ............................................................................................... 6
3.1.2 The second nuclear team ...........................................................................................7
3.1.3 The third nuclear team ............................................................................................. 8
3.1.4 The recent nuclear developments ............................................................................. 9
4 Macro-economy .......................................................................................................... 11
4.1 Iran’s Economy Faces Stagflation .............................................................................. 11
4.1.1 The Economy in a Coma ........................................................................................ 11
4.1.2 Deteriorating Economic Growth.............................................................................. 12
4.1.3 Liquidity and Inflation ............................................................................................. 12
4.1.4 Economic Growth in the MENA Region .................................................................. 13
4.2 Oil-Dependence and Corruption in Iran ....................................................................... 14
4.2.1 Iran’s Experience .................................................................................................. 15
4.3 A New Wave of Inflation Hits Iran’s Economy ............................................................. 17
4.4 A Look at the Status of Unemployment in Iran ........................................................... 19
4.4.1 Statistical inconsistencies .....................................................................................19
4.4.2 Unprecedented rise in jobs in the service sector .................................................... 20
4.4.3 Bitter disappointment of the quick-return enterprises (QRE) plan ........................ 21
4.4.4 QREs’ deviation? ................................................................................................. 22
4.5 Iran’s National Production Issues ............................................................................. 23
5 Oil, Gas and Energy ................................................................................................. 25
5.1 Iran Oil Sanctions .................................................................................................. 25


About: Vesta Monitor is a wholly independent economic research group under the management of Vesta Capital, LLC (www.vestacapitalllc.com). With a focus on West and Southwest Asia (currently Iran, Iraq, and Afghanistan), VM offers clients a complete perspective into the dynamics and developments of its covered regional economies and current affairs. The group reports include:

Periodic economic and business review reports: VM’s periodic reports comprise current economic and business events and the corresponding analyses. The reports are published monthly and quarterly;

General economic and business analysis reports: VM’s general reports include macroeconomic analysis and forecasts as well as industry and business analysis.

For more information please refer to the Vesta Monitor website www.vestamonitor.com.

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