Country Report Iran January 2009

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 new 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 now forecast that Iran's real GDP growth will slow markedly, to 2.8%, in fiscal year 2009/10 (March 21st-March 20th), as a result of the slowdown in the global economy, but that it will recover to 4.1% in 2010/11.
• Average consumer price inflation is expected to decline over the outlook period, from 25.4% in 2008 to 21% in 2009 and 17.5% 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 4.6% of GDP. The deficit will narrow to around 0.6% of GDP in 2010.

Monthly review

• Iran has strongly condemned Israel's 22-day military offensive in the Gaza Strip, but with Israel accusing Iran of supporting the Palestinian Hamas movement, concern about an Israeli attack on Iran itself has been heightened.
• Ahead of the Iraqi prime minister's fourth visit to Iran in January, the Iraqi authorities closed down a camp belonging to an anti-Iranian opposition group, which has been branded as a "terrorist" organisation by the US and EU.
• A close aide to Mr Ahmadinejad has confirmed that he will definitely seek re-election in June. He is likely to face challenges from both the reformist and conservative wings of the Iranian political system.
• The president has released his plans for the phased removal of subsidies on "essential" goods. Although the plan is in response to sharply falling government revenue, it is expected to meet stiff opposition from parliament.
• Iran has reiterated its commitment to oil output cuts following an agreement by OPEC to reduce output by 2.2m barrels/day from the beginning of January.
• A new formula has been agreed between Iran and Pakistan for the supply of gas along the "peace pipeline".
• A UAE telecoms firm, Etisalat, has won Iran's third mobile-phone licence.

This report covers the following industry codes:
SIC Code: 49;10
NAICS Code: 22;212