Iran Democracy Monitor: No. 122

DEEPENING ECONOMIC MALAISE AT HOME...
According to the latest statistics released by Iran's Central Bank, the average annual cost of running an Iranian household in an urban community has doubled since 2006. This increase is the result of hikes in the price of housing, energy and utilities, largely due to domestic mismanagement. But international politics also plays plays a role; the price of staples like fruit and poultry, for example, has risen by more than 100 percent in recent months as a result of deepening multilateral sanctions on the Islamic Republic. The Iranian government, however, has refused to accept responsibility for this decline, charging that "domestic and foreign conspiracies" are to blame for Iran's worsening economic conditions.

Meanwhile, a battle is brewing in Iranian political circles over the true state of the country's economic affairs. According to Oalam Reza Khatab, a spokesman for the Planning and Budget Committee of the Majles, the official inflation rate of 22.5 percent recently published by the office of President Mahmoud Ahmadinejad is grossly inaccurate. The true rate of inflation in Iran is significantly higher, and now tops 33.5 percent, says Khatab.

Iranian officials, however, are putting on a brave face regarding the country's fiscal state. Deputy Minister of the Economy and Finance Behrouz Alishiri, for example, recently provided a rosy economic forecast of 8 percent growth for 2012. Alishiri's prognosis, however, is built on a flimsy economic premise - that, in addition to the required government and private sector funding, foreign direct investment into Iran this year will top $400 billion. To that end, the government has been making an effort to increase foreign investment in the country in recent weeks - although results have been slow in coming. (Tehran FARS, July 11, 2012; Tehran ISNA, July 12, 2012; Tehran Donya-e Eqtesad, July 31, 2012)

...AND AN ENERGY LIFELINE IN ASIA
Buffeted as they are by Western sanctions, Iran's fiscal fortunes have gotten a shot in the arm of late from an unexpected corner: oil consumers in Asia. After a temporary dip in oil imports earlier this year (largely the result of a pricing dispute between Tehran and Beijing), China reportedly has resumed its role as a key consumer of Iranian energy. For July, the PRC's oil imports of Iranian oil were estimated at 587,000 bpd - representing 54 percent of Iran's total exports. In actual terms, China is now importing more than 100,000 bpd more from Iran than it did in 2011, according to statistics compiled by the Geneva-based energy consulting group Petrogistics.

And China is not the only one have reverted to business as usual with Tehran. South Korea has also signaled that it will soon resume purchases of Iranian crude. South Korean refiners and Iran's National Iranian Tanker Company are said to be close to a deal that would allow Seoul to resume oil purchases from the Islamic Republic beginning in late September or early October. The expected agreement would reinstate South Korea as a major Iranian oil consumer following a temporary stoppage of shipments in response to the European Union's July 1st oil ban. (Reuters, July 17, 2012; Reuters, August 8, 2012)