Country Report Iran December 2008

Outlook for 2009-10

• The president, Mahmoud Ahmadinejad, will continue to enjoy the support of the supreme leader, Ayatollah Ali Khamenei. Criticism over his handling of the economy, however, may damage his re-election prospects in June 2009.
• The Economist Intelligence Unit does not expect Iran's nuclear activities to lead to war in 2009-10. We believe that the incoming US administration may open direct talks with Iran, but only after Iran's presidential election.
• The hydrocarbons industry, which provides over 80% of government revenue, will continue to face investment difficulties as foreign companies remain, in effect, excluded and oil revenue plummets.
• We forecast that Iran's real GDP growth will drop markedly over the outlook period, to 3.5% in fiscal year 2009/10 (March 21st-March 20th) and to 4.5% in 2010/11, as a result of the slowdown in the global economy.
• A strong fall in average consumer price inflation is expected over the outlook period, from an estimated 28% in 2008 to 21.5% in 2009 and 18% in 2010, owing to a sharp drop in international oil and non-oil commodity prices.
• The decline in oil prices in 2009 will have a severe impact on the current account, which we forecast will slip into a deficit of 0.2% of GDP next year. It will recover in 2010, recording a modest surplus of 1.4% of GDP.

Monthly review

• Senior Iranian officials have been expressing cautious optimism over future relations with the US following the election of Barack Obama as the new US president.
• Iran has welcomed the signing of a US-Iraqi security pact, which envisages the withdrawal of US military forces from Iran's neighbour by the end of 2011.
• The global stand-off over Iran's nuclear programme has continued. The UN's nuclear watchdog has once again concluded that the Islamic Republic is continuing to defy demands to suspend its uranium-enrichment activities.
• The mayor of the capital, Tehran, has become the first conservative official to declare his intention to run in the June 2009 presidential election.
• Iran is expected to push for further OPEC oil output cuts at the cartel's meeting in December in order to stabilise international oil prices. The price collapse since July has exposed Iran's economy to significant risks.
• Iran has signed a Memorandum of Understanding for a US$12bn deal with Turkey for the development of phases 22-24 of the South Pars gasfield and for the construction of a 1,800-km pipeline between the two countries.
• Three energy co-operation agreements have also been signed with Malaysia.

This report covers the following industry codes:
SIC Code: 49;15;60
NAICS Code: 22;23;52