“Iran to feel foreign exchange shortage sooner or later”

Azerbaijan, Baku, Feb. 8 / Trend S.Isayev, T. Jafarov/

Iran will start feeling foreign exchange shortage sooner or later, although Iran's Central Bank has recently announced that it possesses deposits in the amount of $100 bln, experts believe.

U.S. Northeastern University Professor Kamran Dadkhah says if sanctions continue and Iran encounters further obstacles in exporting oil and receiving its revenues, sooner or later it will experience shortage of foreign exchange.

"Assuming strict adherence to recently announced sanctions, Iran may have enough foreign currency to pay for necessities in the next two years," Dadkhah told Trend on Thursday.

"The mentioned sum of Central Bank's deposit may be somewhat of an exaggeration," he said. "Given the Iranian government concern over the cutoff of oil revenues and given that the price of oil has hovered above $80 a barrel since September 2010, Iran may have reserves of between $60 and $100 billion."

Dadkhah believes that Iran should be expecting much higher prices for imported goods as well as some shortages. He added that it would be also difficult to obtain foreign exchange for travel and for study abroad.

The U.S. officials believe Iran is struggling under the weight of sanctions, as country's currency, rial has depreciated and the inflation is rising.

Iran, world's third-largest exporter of crude oil, was imposed with the harshest sanctions by far, as the U.S. banned any transactions involving Iran's central bank, and the European Union has banned the import, purchase or transport of Iranian oil, cutting off its main foreign currency earner.

In January, the 27-member EU bloc also agreed to freeze the assets of Iran's central bank to try to persuade Iran to stop its nuclear program, which the West says is aimed at producing an atomic weapon.

American Enterprise Institute Research Fellow Ali Alfoneh agrees that the $100 bln amount is estimated, or "more correctly - rumored".

Iran's foreign exchange reserve may be well below $100 billion since President Mahmoud Ahmadinejad's government has pumped money from the foreign exchange reserve into the economy in order to keep the economy afloat, Alfoneh told Trend.

Alfoneh added that a few months ago, during the first wave of the rise of the foreign currency and gold price on the Iranian market, the Central Bank of Iran made a few attempts to stabilize the rial by flooding the market with gold and U.S. dollar.

However, the demand for gold and foreign currency was so great that the Central Bank aborted its plan causing further panic in the foreign currency and gold market in Iran, he added.

"Re-introduction of the multiple exchange rate regime for the foreign currency - first since the end of the war with Iraq in 1988 - is another indicator of the extraordinary circumstances the Iranian economy is going through," Alfoneh said.

He noted that restricted access to foreign currency may hamper Iran's imports, but on the other hand, the oil for imports exchange scheme may keep the Iranian imports running for some time.

International relations expert Davoud Hermidas-Bavand believes that even if Iran does not experience any foreign currency deficit for a while, the country's exports will still be hampered.

"The prices for imports in Iran will increase," Hermidas-Bavand told Trend on Wednesday.

"As the imposed sanctions keep affecting the market, Iran's own currency's value will drop down".

Iran's Central Bank is having hard times, with U.S. president Barack Obama expanding the sanctions against the Iranian government and country's Central Bank as well. In a recently signed executive order, Obama froze all the assets and property in the United States of the Iranian government, financial institutions and the Central Bank of Iran.

He pointed to "the deceptive practices of the Central Bank of Iran and other Iranian banks" as warranting additional sanctions.

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