Iran’s economy on the verge of collapse as it fails to see the hidden agenda of the China deal. Its economy deteriorates further owing to COVID-19, sanctions, and China deal.
US Sanctions on Iran
Majid Khorshidi, governor of Bushehr province, claims that US sanctions have broken the back of Iran’s economy. Further, he noted that the continuance of the sanctions together with the COVID impact could shatter the economy of the country. Also, he mentioned the deteriorating financial condition of the common people. He noted that the country would face severe difficulties due to the harsh sanctions. However, President Hassan Rouhani has dismissed the impact of sanctions, affirming to overcome the challenges by domestic efforts.
The sanctions imposed by the US have damaged the country’s revenues from oil exports.
Falling Iran Rial Value
The national currency has plunged to all-time lows against the dollar. The reluctance by the Iranian government to adopt a single currency exchange market does not only makes rial lose its value but also provides opportunities for corruption. The administration has been following this fractured system of the multilayered exchange market for the past 40 years.
That said, there are different currency exchange rate markets in Iran where rials’ exchange value varies. An Iranian exporter sells the hard currency to NIMA (unified currency exchange system) at 20% less than the open market rate. Then there is SANA and Central Bank of Iran, selling hard currency to those who are importing necessities. Even after the final delivery of the merchandise, the exporter is unable to transfer money back home legally. Subsequently, he is forced to deposit it with NMA, which wipes of 20 to 25% of rials to be paid. Overall, the Iranian authorities need to ease pressure on exporters to calm the exchange market.
IMF has predicted a 6% shrink in Iran’s economy due to COVID. Also, domestic sources revealed that 6.43 million could lose their jobs due to coronavirus. The skyrocketing prices and free fall of the rial has decreased the purchasing power and savings of millions. Around 50 economists wrote a letter to the President saying the current year of Iranian calendar would be of unrest and that the next year will be of crisis backed by inflation, unemployment, and poverty. The situation has caused protests across various regions of the country, demanding relief from the economic pressure.
Iran is desperate to sign a $400 billion economic and security deal with China. The agreement is in the final stages and includes infrastructure investment, discounted Iranian oil, and cooperation on defence and intelligence. China has increased its investments significantly in middle eastern countries, including Iran, Iraq, and Saudi Arabia during the past decade. Besides, Chinese firms are actively working on the Israeli port of Haifa.
Seeking the current distress of the country as an opportunity to expand its influence, China has designed the deal to get most of the energy resources of Iran. That said, Iran is welcoming China’s market for oil, gas, and hydrocarbons. Besides, it has appreciated the government’s move to invest in the Iranian banking system, telecommunications, and transportation sectors. The deal will allow China to influence in Iranian industry, be it energy, ports, or railways. It will dictate the terms of the agreement due to its better economic position. It will gain access to Iran’s oil at a highly discounted rate.
In all, Because Iran is in survival mode and is in desperate need of cash, China will strengthen its foothold in Iran through the deal spread over 25 years.