Extreme fluctuations return to Iran's Forex market

Extreme fluctuations return to Iran's Forex market

By Dalga Khatinoglu

Iran's national currency has lost about 9 percent of its value versus the US dollar during the last week. Today, each US dollar is sold at 35,200 rials in the Iran's open foreign currencies market, while the official USD rate offered by the Central Bank of Iran is about 26,846.

Iranian government calculates the state foreign trade based on official USD rate, including oil revenues, non-oil export and imports. However, most of private traders have no choice, but to purchase expensive US dollar from open markets.

During ex-President Mahmoud Ahmadinejad's second term, Iran's rial lost its value by about four times. Each USD was sold at 9,830 rials in 2009, but the figure reached 36, 000 in mid-2013, when Ahmadinejad was replaced by Hassan Rouhani.

During last 18 months of Rouhani's presidency, the USD price in Iran's open markets was almost stable around 31,000 to 32,000 rials, but during last week, the rial lost its value against dollar significantly.

What happened again in Iran's Forex market?

As the above chart indicates, Iran's rial has lost its value against the US dollar continuously over the last 35 years, but the most significant loss occurred during the past three years, when the U.S. and EU imposed tough sanctions on Iran to persuade it to curb sensitive nuclear activities. The deepest biting sanctions are those imposed on Iran's oil revenues and the Central Bank of Iran in mid-2012 that led to blocking about $100 billion of Iran's assets abroad, and Iran is still unable to transfer its current sold oil revenues from abroad directly into the country.

The plunge in the rial's value against USD during the last week occurred after the P5+1 (including the U.S., UK, France, Russia, China plus German) and Iran failed to reach a comprehensive nuclear deal on Nov.24.

These events were followed by OPEC members failing to decrease the cartel's oil output ceiling below 30 million barrels per day on Nov.27, a fact that lowered OPEC oil basket price to around $70 per barrel, $38 less than the price of mid-June.

Iran's yearly budget is set based on $100/barrel price, while it's projected that some 1.3 mbpd of crude oil would be exported during current fiscal year, (Iran's fiscal year will end on March 20, 2015), while according to a Reuters' report, published on Nov.29, Iran's oil export to the Asian markets during the first 10 months of 2014 were 1.1 million barrels per day. Iran also exports a little bit of oil to Turkey, but reportedly only about 0.1 mbpd.

Compounding the problem, Iran's government faces challenges in its ability to supply further USD to open markets to meet traders' needs.

The country increased imports by 24.75 percent during the first seven months of the current fiscal year (March 21 to Oct.21) to about $30.271 billion. Regarding the eased sanctions imposed on Iran based on interim nuclear accord between P5+1 and Tehran, Iranian traders are keen to continue purchasing and importing foreign commodities, but regarding the government's unwillingness to supply more USD to domestic markets during the last week, the demand for the USD has been raised.

Failing to reach a final nuclear deal and OPEC's decision to keep the ceiling level, also has its physical affect on Iran's foreign currencies market, by motivating citizens to convert their rial based assets to USD. During Ahmadinejad's second term presidency, Iranians reportedly changed about $20 billion of their assets and stored them at home.
For any questions or feedback, follow the author on Twitter: @dalgakhatinoglu

Dalga Khatinoglu is a specialist on Iran's energy sector and head of Trend Agency's Iran News Service

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