Risk Stalking Iran’s Sanction-Scarred Currency Is Off the Charts
(Bloomberg) -- Iran’s currency is under more duress now than when a European and U.S. oil embargo was in place seven years ago.
Oxford Economics’ FX Risk Tool, a composite measure of vulnerability to a currency crisis, shows the rial as the most exposed in the Middle East and North Africa.
Iran’s score is above the level in 2012 and suggests a 23% chance of a currency crisis in the next two years, the consultancy said. Although its value is officially fixed, the rial is estimated to have lost more than 60% on the parallel market in the last year.
“Iran now has the region’s highest risk of currency distress, signaling further devaluation, amid a deepening sanctions-induced recession and shrinking domestic policy space,” Maya Senussi, senior economist at Oxford Economics, said in a report Tuesday.
The noose of American penalties is tightening as the Trump administration seeks to drive Iranian oil exports to zero to force Tehran to abandon support for militant groups in the Middle East and renegotiate the 2015 nuclear accord the U.S. quit a year ago. On Monday, President Donald Trump further raised the stakes by imposing sanctions against Iran’s supreme leader and other top officials.
Even before the latest round of tensions, the International Monetary Fund was warning that Iran’s inflation could reach an average of 50% this year, the most since 1980, coupled with an economic contraction of 6%. Price growth in Iran is currently estimated at more than 50%, according to Oxford Economics, which expects a recession to be as severe as in 2012.
Iran’s gross domestic product shrank almost 4% last year, the most since a decline of over 7% in 2012, according to the IMF.
“Collapsing oil exports, the main source of hard currency, coupled with sanctions on the metal industry -- the main source of non-oil export revenues -- is pushing the economy into deep recession this year,” Senussi said.
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