Amid a record-low voter turnout, Ibrahim Raisi won the presidential election. His cabinet lineup, awaiting parliament’s approval, includes four ministers who are on the US’s and EU’s sanctioned lists.
While the US is still imposing sanctions on companies affiliated with Iran, the Taliban takeover in Afghanistan could complicate nuclear deal negotiations. However, Raisi has contacted the French president to initiate discussions.
Meanwhile, economic challenges have intensified. Inflation remains high at 38%, while the rial continues to depreciate, reaching IRR 260,000 to US$ 1. Record-high daily death tolls combined with slow vaccination rates have forced the country to go into a six-day lockdown ending on August 21. The risk of further lockdowns and restrictions is still elevated, as the healthcare sector remains highly pressured.
Our View
With the US and Iran still committed to securing a nuclear deal, FrontierView expects one to be reached in 2022. However, regional political risks could delay this timeline and should be monitored. The economic outlook remains challenging, with rising inflationary pressures and currency depreciation amid a difficult COVID environment. Iran’s recovery will depend on sanctions relief following the nuclear deal negotiations. We expect a moderate improvement in 2022, with inflation softening to 18%, but prices will remain highly elevated.
Business Implications
Amid strict sanctions and rising political risks, MNCs will find it difficult to access the market until H2 2022. The loss in general consumer purchasing power has substantially decreased consumer confidence. While potential sanctions relief will aid Iran’s recovery, domestic demand and business sentiment will remain subdued in the short term. The severity of economic damage caused by the pandemic and US sanctions necessitate long recovery timelines; MNCs should expect markedly weaker purchasing powers when Iran returns as a viable market. Businesses could consider offering flexible pricing strategies to incentivize consumers. In addition, the B2B and B2G environments will see moderate improvement as the country’s assets are unfrozen.
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