As business activity picks up after the summer, we offer a summary of some of the stories we're following at the Arab Bankers Association.
Round-up of Iran Economic News
ABA member Fieldfisher has issued a new note on Iranian sanctions in the light of Donald Trump's victory in the US Presidential election. Entitled 'Don't Jump Ship' the note points out that although Trump has said he would 'rip up' the JCPOA, he is also on record as saying that he does not generally favour economic sanctions, since they restrict opportunities for American companies. Fieldfisher also points out that abandoning the JCPOA would put Trump into conflict with Russia, one of Iran's allies, while Trump has repeatedly said that he will seek a better working relationship with President Putin. The note comments that Trump's election has not detered companies from seeking business with Iran: Norwegian oil and gas operator DNO, Schlumberger, and Total have all announced deals since Trump's election. The note also summarises updated guidance on sanctions provided over the Autumn by the US Office of Foreign Assets Control. One element in this guidance was that non-US institutions are not generally required to conduct due diligence on their customers' Iranian customers unless there is reason to believe that their customers' due diligence is inadequate. A pdf of the full note is attached below.
The Iranian Central Bank has announced plans to make the Toman the country's unit of currency, replacing the Riyal. A Toman is equivalent to ten Riyals. In practice, Iranians have been valuing transactions in Tomans for some time – a ten Riyal coin is generally referred to as a 'one Toman' coin. In mid-December, the official exchange rate was about 32,000 Riyals to the dollar (the unofficial rate was about 39,000). In addition to changing the unit of exchange, the Central Bank plans to delete three zeros from bank notes – so a 'new' one Toman note would be equivalent to 100 old Tomans or 1000 Riyals. The changes will need Parliamentary approval and Parliament is expected to discuss the move in the next few weeks.
Iran and Boeing have signed an $18bn deal under which Boeing will supply Iran with 80 new commercial aircraft – 50 737s and 30 777s. The first plane is due to arrive in April 2017. This is the biggest commercial contract signed between the US and Iran since the Iranian revolution in 1979. The Guardian newspaper reported that Iran Air has a fleet of 250 planes, of which only 162 are operational. Exports of commercial airliners was specifically facilitated under the updated US sanctions regime on Iran that came into force following the Joint Comprehensive Plan of Action (JCPOA), agreed in July 2015. US sanctions that forbade the export of spare parts for commercial airliners caused particular resentment in Iran since they were seen as putting lives of civilians at risk. Most of Iran Air's fleet was purchased before the revolution, 36 years ago.
The December edition of APICORP Energy Research analyses the increase in Iranian oil production over the last few months. Output reached 3.7mn b/d in October which is ahead of pre-sanctions levels. Exports, at 2.2mn b/d have more than doubled over the last year. Exports to Asia have increased to 1.7mn b/d, compared to around 1 mn b/d during sanctions, while Iran is also regaining market share in Europe. Under sanctions, Iranian exports were concentrated on China, India, Japan and South Korea, who by-passed the US dollar by trading in local currency, APICORP says. (For example, Bank of Kunlun was created specifically to ease Chinese oil payments to Iran, with 40% of payments being made in cash elsewhere in Asia and the remainder used to finance projects in Iran or for the purchase by Iran of Chinese goods.) Exports of crude and condensate to Europe were 700,000 b/d in September (compared to 600,000 b/d before sanctions). Refiners Hellenic (in Greece) and Cepsa (in Spain) have signed long-term contracts with the National Iranian Oil Company and Total has signed an initial agreement to buy up to 200,000 b/d. The recent OPEC agreement sets Iran's production quota at 3.8mn b/d which is slightly higher than its recent production, according to secondary sources. APICORP believes that Iranian production is unlikely to increase further in the short term so the new quota will not act as a constraint. Iran's long-term ambition to reach 5mn b/d will be dependent on foreign investment and technology but bureacratic delays, red tape and an unfriendly business environment will prevent this been achieved soon, APICORP says. The full report is attached below.
Total became the first the major international oil company to sign a contract to develop an Iranian petrochemical field as a result of the lifting of sanctions under the JCPOA. Total signed a 'heads of agreement' in early November to develop the South Pars Gas Field. Total will initially invest $1 bn in the project.
President Rouhani presented his budget statement to the Iranian parliament on 4 December. He is proposing spending of $112 bn during the final year that will begin on 20 March 2017, based on an average oil price of $50/b and an exchange rate of $1=IR33,000. The budget assumes oil exports of 2.42 mn b/d, which is a little higher than current rates. Revenues from oil exports are budgeted at $33bn (a 33% increase in the current year) and revenues from taxes at $34b (about the same as the current year) according to Middle East Economic Survey. The budget also envisages bond issuance by the governance and various ministries of IR 320 trn ($9.7bn), some of which wil be used to repay arrears owed to private sector companies. Parliament must approve the budget before it becomes law and Parliament generally makes changes to the draft presented by the President.
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The Directors and staff of the Arab Bankers Association send best wishes to members and their families on the occassion of Eid el-Adha. The holiday was due to begin in most countries on 12 August and will last for four days.