Traders at Tehran stock Exchange in 2019.

Iran's Stock Market Decline Shows Unease Over Nuclear Talks

10/31/2021

Author: Mardo Soghom

Another big decline in Iran’s stock market on Sunday has highlighted the precarious state of the economy amid uncertainty over the future of nuclear talks.

The Tehran stock market index dropped by about 30,000 points, bringing it close to 1.2 million points, down from more than 1.4 million in early August when President Ebrahim Raisi (Raeesi) took office promising to boost capital markets.

Fararu, a leading news website in Iran, said that economic uncertainty resulting from a lack of progress in nuclear talks with the West is the main reason for the continuous decline of the stock market. An expert in capital markets told the website that there is a lack of investment capital and market lethargy.

The government which faces a huge budget deficit issued more bonds in August, which drained the capital markets. One expert said that the government and the central bank are using the stock market as a source of financing.

At the same time, First Vice President Mohsen Rezaei, who is one of Raisi’s top officials in charge of the economy told parliament on Sunday that the government will never print more money without proper backing, which would mean hard currency reserves. Iran has been spending its reserves to make up for lost oil exports, banned by US sanctions.

Iran has accelerated its money printing since 2018 when the United States withdrew from the 2015 nuclear agreement (JCPOA) and imposed sanctions on Iran. Liquidity has quadrupled since 2017, dragging down the value of the national currency ninefold.

The rial is hovering around 275,000 to the dollar, showing no appetite for appreciation.

While Rezaei was promising a cap on liquidity, hardliners were demanding that the Central Bank of Iran (CBI) not to deny money to an ambitious Raisi project of building one million affordable homes in the next 10 months. Most economists in Iran have called the project an impossible plan, given the fact that it would need $10-15 billion dollars the government does not have.

But Rezaei, who has a military background in the Revolutionary Guard with no economic management experience tried to sound upbeat in his meeting with the parliament. He said people can expect good economic news in December. But what he mentioned were old formulas of more government control over prices and compensating ordinary people who have to endure a 50-percent inflation rate.

He even invited expat Iranian to bring their “intellectual and financial capital back to Iran” and invest in the future. This seems to be another optimistic expectation given the fact that up to $100 billion is said to have left the country in the past decade.

President Raisi’s first three months in office is coming to a close next week with no visible improvement in the economy. Critics already began demanding action instead of words in mid-October, while the president appeared to be issuing daily orders to officials to solve deep-rooted problems that cannot be addressed without the lifting of US sanctions.

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