FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
TEHRAN STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
Despite growing internal opposition to his
presidency, Mr Ahmadinejad retains the
crucial backing of the supreme leader, as well
as the support of a significant proportion of
poor Iranians. The president’s populism and
the judicious allocation of government
contracts to key sectional interests will enable
him to wage a powerful campaign for re-
election in June 2009. However, support for
the president’s political program has
weakened, particularly as a result of criticism
from powerful hardline conservatives, upon
whose goodwill and backing he is reliant.
The US has, in effect, assumed a leadership
role in the international response to Iran’s
nuclear program. However, the publication in
December 2007 of a report by 16 US
intelligence agencies, which concluded that
Iran stopped developing nuclear weapons in
2003, has increased doubts about the scale
and timing of a potential security threat posed
by Iran. In the absence of an imminent threat
(such as an active Iranian weapons program),
international opinion has become even more
divided over how best to curtail the Islamic
Republic’s activities. The US intelligence
report also reduced the likelihood of an
imminent US military attack against Iran, which
the US administration has long held out as a
possibility. The risk of an Israeli strike against
Iran’s nuclear facilities, although not
immediate, remains, however, given Israel’s
fear of the Islamic Republic’s nuclear and
regional ambitions.
The government is increasingly eschewing
foreign investment and seeking to make Iran
more self-reliant, favoring local companies
where possible, especially in the energy and
petrochemicals sectors. Although Iran is
unlikely to stop trying to attract foreign
investment into these sectors altogether, it is
probable that the combination of a nationalist
policy stance and the dispute over the
country’s nuclear ambitions will slow progress.
As a result, Iran’s oil production target of 5.6m
barrels/day (b/d) by 2010, up from an
estimated 4m b/d at present, will not be
realized. Iran is expected to push for a
significant cut in OPEC output in 2009 in
response to a sharp decline in international oil
prices. However, it is expected to ramp up its
own production levels over the outlook period
to help to cushion itself against a potentially
significant fall in oil revenue. If the nuclear
dispute worsens markedly–leading to an
eventual embargo on Iranian oil exports or an
Iranian cessation of output, or worse, military
–action–the impact on economic policymaking
would be severe. Cutbacks in government
spending would be required, and the ability of
Iranian industries to source capital goods or
raw materials from abroad would be
disrupted.
Economic Performance
International oil prices will fall in 2009, with the
benchmark dated Brent Blend averaging
around US$75/barrel, as demand falls on the
back of a weakening global economy. Prices
are forecast to rise slightly in 2010.
Geopolitical turbulence in some of the world’s
major oil-exporting economies, particularly
Iran, over its nuclear program, could cause
prices to climb strongly, however.
Iranian real GDP growth is likely to narrow
over the outlook period as a result of falling oil
prices. The drop in oil earnings in 2009 will
complicate the government’s plans for an
expansionary fiscal policy, which in turn will
affect the rate of private consumption and
investment growth. To add to the
government’s woes, net oil export revenue
growth will be held back by a lack of refining
capacity, which is largely a result of political
interference and subdued foreign investor
interest. This will leave Iran increasingly reliant
on fuel imports, which have been rising,
despite the imposition of petrol rationing in
2007. In view of this, we have revised our
forecasts for real GDP growth significantly
downwards. We now expect it to slow to 3.8%
in 2009/10 and to 4.5% in 2010/11.
Inflation reached 29.4% in the Iranian month
ending September 22nd, up from an annual
average of 17.1% in 2007, according to Bank
Markazi (the central bank). Anecdotal reports
suggest that the prices of essential goods and
services have risen sharply, and that import
costs are growing.
The central bank has hitherto allowed the
Iranian rial to weaken in nominal terms in
order to support the competitiveness of non-
oil exports. However, in real trade-weighted
terms the rial will continue to appreciate
against the US dollar.
In 2008/09 high global oil prices are likely to
have raised oil export earnings by around
10%. However, import growth is also
estimated to have risen following an increase
in fuel imports, which have picked up again
despite the imposition of petrol rationing. As a
result, the trade surplus is estimated to have
fallen to US$ 38.6 billion. Over the outlook
period, oil export volumes will barely increase
and imports will rise, in line with grow.*
* The Economic Intelligence Unit Ltd., October 2008
Key Information Contacts
Tehran Stock Exchange Corporation; http://www.iranbourse.com
Securities and Exchange Organization; http://www.seo.ir
Iranian Privatization Organization; http://www.en.ipo.ir
TSE’s Technology Management Company; http://english.tsetmc.com
Central Bank of the Islamic Republic of Iran; http://www.cbi.ir
Iranian Chamber of Commerce, Industries and Mines (ICCIM); http://www.iccim.com
Organization for Investment, Economic & technical Assistance (OIETAI) a division of the Ministry of Finance; http://www.investiniran.ir
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