Iran Economic Outlook
Economic activity so far this year has exhibited a dual picture. On the one hand, the non-energy sector has likely been constrained by one of the region’s highest inflation rates, water shortages dampening agricultural output, and socially repressive government policies aimed at quelling unrest. In contrast, the energy sector has gone from strength to strength thanks to surging oil purchases from China, Iran’s exclusion from OPEC+ production cuts and a looser enforcement of U.S. sanctions. Oil output increased uninterruptedly from January to 2.83 million barrels per day (mbpd) in July, the highest level since late 2018; in the same month, oil exports to China more than doubled year on year. In August, the U.S. agreed to unfreeze USD 6 billion in Iranian assets held abroad, which will boost Iran’s FX reserves. Further piecemeal sanctions relief is on the cards ahead.
Inflation rose to 39.7% in August from 39.4% in July but is still down around 15 percentage points from its April peak. The Consensus is for inflation to average the second-highest in the region this calendar year due to sustained money printing—in part to finance the large fiscal deficit—and a weaker average parallel-market FX rate compared to last year.