On August 25, on a day in Iran when the price of the US dollar broke the dreaded 28,000-toman ceiling, both President Ebrahim Raisi and his new First Vice President Mohammad Mokhber described an “opening” – by which they meant a positive development – in the currency situation.
“There has been a serious opening in currency prices and you will be informed about it later,” Raisi told parliament after the last member of his cabinet was approved. A little earlier, Mokhber had reported that Raisi had talked on the phone with a number of his foreign counterparts about unblocking Iranian funds, adding: “This is certainly going to affect the currency market.”
The market displayed no perceptible reaction to this “news”. Neither Raisi nor Mokhber put forward any details to support their claim and it remains unknown what has happened or is expected to happen. But their comments did raise the question: should we be expecting a downturn in foreign currency prices in Iran?
It might be that Raisi has received a pledge from one foreign party or another about the release of blocked Iranian cash. Last week, for instance, Japanese Foreign Minister Toshimitsu Motegi visited Tehran for talks with high-level Iranian officials. Japan and South Korea alone are understood to hold, respectively, around three and seven billion dollars’ worth of Iranian capital. But the time-frame for its release, any conditions on it and how that might in turn affect the market are all unknowns.
Ultimately, it’s hard to foresee any fundamental changes to the situation before the Gordian knot of the nuclear accords (the JCPOA) is cut. It’s been more than three years since Japan and South Korea blocked Iranian funds along with dozens of other countries after US sanctions were reimposed by the Trump administration. Negotiations to revive the deal were suspended just before Raisi became president and no further talks are currently on the agenda.
As such, even if a given foreign dignitary has made commitments to Iran behind closed doors, there’s no prospect for all the blocked funds to be released soon. Perhaps Japan has been given the green light by the US to release a few million dollars back into the Iranian economy as a goodwill gesture. This being the case it might bolster Iran’s flagging currency market temporarily but it could hardly be called an “opening”.
Inciting More Demand
Iran’s currency crisis is now so profound that the unblocking of a few million dollars will be far from sufficient. Meanwhile, in fact, fears of an unstable economy under Raisi are high so injecting dollars into the market could incite more demand instead of calming it.
Since Raisi first declared his candidacy, the price of the US dollar has risen by about 33 percent. It’s now enough for the price of the dollar in the market to fall by a few hundred tomans for demand to rise again, driving the price back up. Fears for the future, and widely-held expectations of another surge in inflation, have kept foreign currency prices climbing in the past four months.
The day that Raisi registered as a presidential candidate, the price of one US dollar on the open market was around 21,000 tomans. After Raisi’s electoral win the price rose to almost 25,000 tomans, and after his inauguration on August 3, the price went up to 26,000 tomans. It finally broke the 28,000-toman ceiling when his cabinet first met.
If nothing else, this trajectory is a strong indication that the market is deeply concerned about Ebrahim Raisi and his administration. The Iranian economy desperately needs sanctions to be lifted, blocked funds to be released and oil exports to resume quickly. As of now, however, there is no indication that Iran will come to an agreement with the US anytime soon. Indeed, Iranian leaders and especially the Supreme Leader Khamenei have continued to trumpet their opposition to direct dealings with the United States.
On April 14, Khamenei publicly prohibited direct negotiations with the US. On July 28, in his last meeting with Rouhani’s cabinet before his inauguration, Raisi teased the outgoing politicians over the failed negotiations to date. As of now, neither Raisi nor the people around him have said anything that can be interpreted as a serious commitment to reaching a new deal. The ones to have come closest are Amir Abdollahian, the new foreign minister, who said that negotiations with US were “not a taboo”, and Raisi himself, who said “Iran has no problems with the principle of negotiations.”
Iran’s currency crisis and, more importantly, the wider economic crisis will get worse until sanctions are lifted. Until such time, no small wonder that the currency market paid no attention whatsoever to claims of a forthcoming “opening”.