Iranians Ask, Where Is The Money From Higher Oil Exports?

Majid-Reza Hariri told the Iranian Labour News Agency (ILNA) on Monday that US sanctions are preventing the implementation of a 25-year strategic cooperation agreement inked between Iran and China last year.

Hariri in previous interviews published in Iranian media has implicitly called for a nuclear agreement to be concluded with the West, emphasizing that Iran’s economy cannot emerge from its current crisis while US sanctions are in place, hampering oil exports and banking ties with the world.

The well-known businessman presiding over the Iran-China Chamber of Commerce in Tehran said as along as US sanctions are not removed, Tehran’s economic ties with Beijing cannot improve beyond the current point. He estimated that bilateral trade is not less than $30 billion, which could double in the event of a nuclear agreement with Washington.

Since former US president Donald Trump abandoned the Iran nuclear deal known as JCPOA in 2018, Tehran has been emphasizing an Eastern-oriented foreign policy it dubs as ‘Looking East’, probably in an attempt to show Washington that it has alternatives and can draw closer to Moscow and Beijing.

Hariri explained that although China is Iran’s biggest trade partner, 92 percent of what it buys are oil and minerals, not finished goods. He underlined the fact that global inflation, especially in commodities, is rising and Iran’s trade with China can see an uptick in terms of value but not volume.

In case of other trading partners, such as Iraq and Afghanistan, 75-80 percent of Iran’s exports are raw materials.

Iran in recent months has presented figures saying its exports are increasing. But Hariri implied that part of this rise is simply due to global rise in prices, not more exports.

Hariri explained that preparatory work has begun to work out details of cooperation with China according to the 25-year agreement, but besides the impediment of US sanctions, there are issues of securing credit and financing, which have to be resolved regarding each area of cooperation.

One of the processes in expanding trade ties with Beijing is establishing Iranian representative offices in China, which Hariri said is work in progress. Plans are to open four chamber of commerce branches, but he did not say in which Chinese cities. Also, a permanent exhibit of Iranian goods is planned to be set up in China.

Hariri explained that the importance of trade representation is to boost non-oil exports, preferably manufactured goods to China.

Although the Islamic government in Tehran often tries to highlight what it says is close ties with China, Beijing has established wide-ranging commercial relations with other regional countries, including Saudi Arabia and Israel that are the Islamic Republic of Iran’s adversaries.

Saudi Arabia exports 25 percent of its oil to China and recently announced it is willing to accept the Chinese currency as payment for oil, as relations have cooled with the Biden Administration. Already Saudi Arabia is China’s biggest trade partner in the region.

The US dollar rose to 280,000 rials on Monday from 260,000 on March 12, when signs emerged that negotiations in Vienna over reviving the 2015 nuclear agreement known as JCPOA were coming to a halt without an agreement.

Last December, the rial hit a low of more than 300,000 against the dollar but it gradually strengthened as hopes emerged of a nuclear deal that would lift US economic sanctions.

The Iranian government news website Monday morning claimed that a “high-level” regional official would visit Tehran on Tuesday to finalize the release of $7 billion frozen by South Korean banks. However, the foreign ministry spokesman immediately denied any knowledge of such a visit.

Any solid sign of blocked funds being released would boost the rial, which has fallen ninefold since late 2017, as former US president Donald Trump signaled his intention to withdraw from the JCPOA and impose sanctions on Iran.

Tehran has been claiming a 40-percent increase in oil exports in recent weeks, which have been partly confirmed by industry observers, but there are no positive signs of a financial windfall in Iran.

The falling currency has kept inflation at around 40 percent for more than a year, with food prices rising much faster, pushing wage earners into poverty. Even government-controlled media have been full of reports lately about food items rising in price to unaffordable levels.

The IRNA report did not mention who the high-level official is but said the visit would be the last step to execute “the recent agreement” to free $7 billion of Iran’s funds frozen abroad because of United States’ sanctions.

But in an unusual and obvious contradiction, foreign ministry spokesman, Saeed Khatibzadeh in his Monday morning briefing with reporters said his ministry had no knowledge of such a visit. Later, he told the media that an agreement to free some frozen funds does exist.

In the past months, there has been talk of unblocking $7 billion frozen by two South Korean banks after the US imposed banking sanction on Iran in 2018. A Korean diplomat visited Vienna in early January where talks to restore the Iran nuclear agreement were taking place, and met with all delegations.

However, IRNA said that “a framework” has already been agreed to free “a considerable part” of Iran’s blocked funds within a certain time period. It was not clear if the gradual release it mentioned would be about the $7 billion, or more money will be released by other countries, such as Iraq and Japan.

IRNA and other Iranian media reported last week that an agreement was reached, presumably with the US, to free the blocked funds, in what appears to be a deal to free dual nationals kept as hostages in Iran.

Washington has not commented on the Iranian reports, but last month the United Kingdom b paid more than $500 million of an old debt to Iran to free two dual nationals who returned to Britain.

In a proclamation sent to the heads of Iran’s three branches of power and the Expediency Council on Sunday, Khamenei on Sunday issued the policies aimed at improving social welfare, removing poverty, and supporting the vulnerable strata of the society in compliance with the first clause of Article 110 of the Iranian Constitution.

He ordered the presidential administration to cooperate with the parliament and the judiciary and mobilize all the relevant entities to provide a comprehensive plan for the implementation of these policies, including legislation, devising regulations and necessary executive measures, within six months.

Khamenei’s directive is a brief and general guideline issuing a series of orders that is meant to expand services to underprivileged people living in urban and rural areas.

In his decree, Khamenei called for establishing a comprehensive, integrated, transparent, efficient and multi-layered social security system, as more reports emerge of deepening poverty amid a 40-percent inflation rate.

The policies include reforming subsidy schemes, promoting job creation, providing all members of the community with access to social services and public resources, and paradoxically offering fertility services to increase the population growth rate.

The directive makes no mention of needed financial resources to expand the social security net. The Islamic Republic has for years provided general energy and food subsidies, but its centrally controlled and closed economy has stifled growth and made it vulnerable to oil export sanctions.

Four state-owned banks including Bank-e Melli, Iran's largest bank, published the list of their major debtors on Saturday, six months after the ministry of economy ordered them to publish quarterly lists of major debtors.

The ministry of economy defines a 'major debtor' as persons or entities that hold loans worth at least 10% of the bank's total resources but have not paid instalments for loans estimated to total around $10 billion in today’s exchange rate, but much more in US dollars when the loans were received.

"At first glance this can be interpreted as an important and positive step in battling corruption and recovering the money owed to state banks," Eghtesad Online (Economy Online) wrote Sunday, but it added that the lists are extremely vague and do not offer any details.

The lists show no information other than names of individuals and companies. It is very hard to trace the background of these individuals or the ownership of the companies, that appear to be subsidiaries or front companies set up by unknown firms, some connected with state enterprises with well-connected managers.

"None of the lists include information on the time the loans were granted to persons and entities that have a long record of getting loans and not paying back. It's also not clear if the banks decided on their own to grant the loans or were ordered [by other entities]. The information also does not reveal what the collateral for the loans were," Eghtesad Online wrote.

The publication also said it is equally important to know who endorsed the loans and bring them to account. It also said the purpose of publishing the lists is meant to enable the government to convince people that President Ebrahim Raisi is delivering on his election promises of fighting corruption and establishing transparency.

Officials say the move is proof that Raisi is delivering on his election promise of fighting corruption in the banking system. "One more of the President's promises was implemented. Melli Bank, the largest bank in the country, published the names of its major creditors," Government Spokesman Ali Bahadori-Jahromi said in a tweet Saturday.

Others such as Malek Shariati, a Tehran lawmaker in the parliament, say the publication of names of major creditors is proof that the administration and parliament are steadfast in establishing transparency and battling corruption.

Based on the budget bill, the government was mandated with publishing all information on major creditors on the central bank’s.

In 2017, outspoken reformist lawmaker Mahmoud Sadeghi published a list of major debtors of Sarmayeh Bank who has defaulted. In some cases, he said, the collaterals for the loans had been evaluated at a much higher price than their real worth.

Sadeghi called the phenomenon widespread in Iran 'crony capitalism', meaning those who have connections with centers of power could easily get loans that others find extremely difficult to secure. Many of the debtors had received low-interest, subsidized loans from banks.

Major debtors to banks with bad credit have allegedly used the money to speculate in the housing, foreign currency and gold markets rather than invest in production and have thus contributed to higher inflation.