Iran International
Iran’s currency has surprisingly risen by 7 percent in recent days despite no improvement in the economy and no clarity over the prospects of a nuclear deal.
The latest round of nuclear talk in Vienna ended on August 8 with the European Union presenting what it called the draft of a final agreement to Iran and the United States for reviving the 2015 nuclear deal, the JCPOA. The Iranian delegation returned to Tehran saying the EU document is not a final deal, but a proposal that Iran will study.
Nevertheless, the rial rose against the US dollar. It traded at almost 300,000 on Sunday, August 14, rising from a low of 320,000 to the dollar.
Since the US left the JCPOA in 2018 and the rial fell ninefold in the following years, its exchange rate has fluctuated with news about the prospects of a nuclear deal, because that would lift crippling US sanctions. In the absence of any sign that Tehran is about to accept the EU proposal, the rial’s rise is hard to explain.
One possibility is that the top leadership intends to accept the offer, which is reportedly very generous. Since the biggest economic players in the country are the same leaders who control 80 percent of the centralized economy, it is possible that insider information is helping the rial to regain some territory.
The other possibility is quite the opposite. The government is pumping dollars into the currency market to defend the rial, which has a direct impact on soaring prices. If the Islamic Republic intends to reject or postpone a nuclear deal, it wants to signal to its restless population that all is well, and the national currency is not about to fall to new lows.
Tehran has also been keen to tell the world that it can survive under US sanctions and is not desperate for a nuclear deal. A stable, though weak currency, can also be a signal to the West that Iran is not under economic pressure to make concessions.
But the economic news is not good and those who follow the ups and downs of the situation in Iran can point to ample evidence of a persisting crisis.
On Sunday, a member of parliament pleading with the Speaker, Mohammad Bagher Ghalibaf (Qalibaf), asked for clarity about the nuclear talks. Speaking about galloping prices, MP Shahbaz Hassanpur said, “Prices are so out of control that talking about them brings shame to us.”
Latest official figures show the annual inflation rate stands at 54 percent, while food prices have risen by more than 100 percent since last August.
There have been almost continuous protests in different parts of the country, but nothing that the regime cannot control with overwhelming military force, killings, arrests and disappearances.
Meanwhile, it has increased the export of its sanctioned oil since the US entered nuclear talks in early 2021. From a low of 250,000 barrels per day in 2019-2020, Tehran is now shipping more than three times that quantity, mostly to China. Higher oil prices have also helped, although Iran offers discounts and undergoes high costs to make illicit shipments.
Having some financial cushion, the regime can hope to maintain its grip on power without getting rid of US sanctions, and even stabilize its currency at low levels.
The economic failure of President Ebrahim Raisi’s government has become clear to most Iranians, including the ultraconservatives or hardliners who fully backed him one year ago as he took office. Mokhber is Raisi’s economic czar who can be easily blamed for a 54-percent inflation rate and rising poverty with its political implications.
The economic crisis did not start with Raisi. Iran’s situation quickly deteriorated when the United States withdrew from the JCPOA nuclear agreement in 2018 and imposed crippling sanction. It was a repeat of early 2010s, when the United Nations imposed sanctions on Iran for pursuing a dangerous nuclear program. However, the Raisi government is being blamed for a high degree of inefficiency, lack of planning and highly questionable appointments.
Proreform daily Arman Melli wrote in a report on its Saturday that a demand to fire Mokhber is a message the conservative camp has been lately sending to president Raisi. According to the daily, this group of Iranian conservatives are determined to prove that the Raisi administration is inefficient.
The paper wrote that some Iranian conservatives wanted a hardliner politician as vice President last year, but Raisi chose to work with Mokhber, who was a key official in the business conglomerates operating under the aegis of Supreme Leader Ali Khamenei.
One year after his appointment as vice president, it is still not quite clear whether it was Raisi who asked Mokhber to join his cabinet or Khamenei, who knew Raisi did not have any executive experience, planted Mokhber in the government to make up for Raisi's shortcomings.
The report says that some ultraconservatives such as Javad Karimi Qoddousi: "I wish to tell the President that Mr. Mokhber lacks the capabilities required for his post. His staying in this position even for one hour will lead to losses for the government."
The ultraconservatives have also mentioned the discord between Mokhber and the other members of Raisi's economic team, particularly Vice President for Economic Affairs Mohsen Rezaei, as another reason for Mokhber's dismissal.
Last week, a big gaffe by Mokber led to a lot of public ridicule. A lookalike of American actor Johnny Depp showed up at a religious mourning ceremony and Mokhber tweeted, praising Depp for taking part in a Shiite religious event. When social media users and politicians reminded him that the person was only a lookalike of the US actor, Mokhber's office claimed that his tweet was somehow fabricated.
All these could be more meaningful with a report in reformist Shargh newspaper that went viral on Saturday. The report by its editor Ahmad Gholami said that "the Raisi administration is a continuation of the government of populist President Mahmoud Ahmadinejad and that it will inevitably sink in the same quagmire that Ahmadinejad's administration faced."
Gholami argued that both Ahmadinejad and Raisi started their terms of office by promising they would change everything, but Ahmadinejad gradually failed as economic conditions worsened in the early 2010s with UN sanctions.
Shargh's editor predicted that the Raisi administration will eventually suffer the same fate. However, to be fair and on the safe side, Gholami observed that the Raisi is shouldering a heavier burden of all sorts of economic problems that have accumulated during his predecessors and it is highly unlikely that he could find a way out of those problems as all roads ahead inevitably lead to the same quagmire.
Mohsen Khojasteh-Mehr, who also serves as the head of National Iranian Oil Company (NIOC), told Fars news agency that converting the memoranda of understanding (MoUs), sealed between NIOC and Russian Gazprom cover various fields, including petroleum and gas swaps.
Iran and Russia in July agreed to $40 billion in trade and investment projects.
A swap means that Iran would import gas from Russia and deliver a certain quantity to another country that has a gas purchase deal with Moscow if it makes sense geographically or in terms of available infrastructure. In this case, among Iran’s neighbors only Turkey has a gas deal with Russia, but it has its own pipelines, much shorter in distance than a 2,000-kilometer longer route from Iran.
Buying Russian gas to cover shortages
This makes the Iranian claim of a gas swap strange. What appears to be more likely is Iran buying Russian gas to cover its own production shortages.
Russia, in turn, which has been buying gas from Central Asian countries as a middleman and exporting it, has a shrinking market after sanctions following its invasion of Ukraine. Existing pipelines that send the cheap gas from Central Asia to Russia can now be reversed and pump it to Iran.
Last year, Russia imported 10.5 billion cubic meters (bcm) of Turkmen and 4.6 bcm of Kazakh gas through these pipelines, according to BP statistics.
There are also two pipelines, connecting Turkmenistan to Iran's northeastern regions with 20 bcm/yr capacity together. Currently Turkmenistan delivers only 1.5 bcm/yr of its gas via these routes.
Fars news agency says Iran can import 20 bcm/yr of Russian gas for both domestic consumption and delivery to Iraq and Turkey.
It seems the first variant is feasible, because Iran had 250 mcm/d gas deficit last winter (equal to Turkey's total daily gas demand in 2021) and every year the gap between its gas production and demand is growing.
Fars says Iran has consumed 9 billion liters of diesel and 6 billion liters of mazut in electricity generation last year, due to gas shortage. Iran can consume Russian gas in power plants to be able to export more diesel and mazut, making more profit, if the Russian gas is below regional prices.
Russia helping Iran in gas production?
Fars reported that another important MoU between NIOC and Gazprom is related to pressure enhancement of South Pars gas field in the Persian Gulf, shared between Iran and Qatar.
In the absence of Western technology, Iran has been unable to keep up production at the field, steadily losing out as its domestic consumption has increased.
Fars said if the sides finalize the MoU and sign an agreement, the contract value would be $10bn.
According to the NIOC, the Iranian section of South Pars gas field would pass the half-mark point of its life by 2023 and every year its production would decline 10 bcm. Iran and a consortium headed by French Total signed a $5-bn contract in 2016 to develop the South Pars, including the installation of a 20,000-ton platform with two giant compressors to prevent production decline.
Iran needs at least 10 to 15 such giant platforms (15 times bigger than the current active platforms) in South Pars. Each new platform costs $2.5 billion.
It is not clear how Gazprom would enhance the pressure of the gas field as only large Western energy companies can build the giant platforms with huge compressors.
When Total left the South Pars contract due to US sanctions, Chinese CNPC also abandoned the project due to its inability to build larger platforms. Gazprom also has no experience or the technology for such a project in the sea.
Qatar installed huge platforms, through contracts with Western companies, especially Total, and not only prevented a decline in production, but it has started new drillings to increase gas output by 30% in the next five years.
Regarding Iran's inability to prevent production decline from South Pars - a field that accounts for 70% of Iran's total gas output- it seems the country eyes Russian imports to compensate for the decline in South Pars and prevent further gas shortages in cold seasons.