News Column

Iran

June 30, 2014



THE ECONOMY



While nearby Arab economies fed off the oil boom, Iran has lurched from one economic crisis to the next. International sanctions played an increasingly important part in this, but another primary cause is mismanagement. Massive spending on subsidies and handouts - about a quarter of government expenditure - has done little to alleviate rural poverty. However, at the end of 2010, former president Mahmoud Ahmadinejad started phasing out the $100 billion annual subsidies that held down prices of fuel and food, garnering praise from the International Monetary Fund (IMF). The crunching effect of international sanctions was blamed in April 2013 for pushing inflation beyond 30 per cent. Iran reached an interim nuclear agreement with the US, Russia, China, France, the UK and Germany in November 2013 to curb some of its nuclear activities in return for $7 billion in sanctions relief, which is set to benefit its oil exports. Tehran has stated that it will be inviting western oil and gas companies to develop its lucrative and underdeveloped oil and gas sector and is looking for investors to develop other neglected sectors of its economy. The lifting of sanctions, coupled with the entry of foreign firms, may end Iran's long seclusion from the world economy.

POLITICS



Iranians went to the polls last year and elected reformist cleric Hassan Rouhani as president to succeed the controversial Ahmadinejad. While controlling inflation and staving off discontent among the youth are among his most pressing domestic tasks, Rouhani has managed to articulate a foreign policy of keeping doors open for engagement. The Iranian leadership has proven amenable to a compromise on its nuclear development. Negotiations are underway to secure a permanent nuclear deal with Iran by 20 July. A more open dialogue with Washington could improve prospects for a comprehensive Middle East peace deal. Iran has also shown increased willingness to engage with countries in the Gulf Co-operation Council (GCC), in a bid to stave off tensions in the Strait of Hormuz.

SOVEREIGN RATINGS



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Source: Gulf, The (Bahrain)


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