Iran touts economic breakthrough after regional success

Fresh off the back of quickfire diplomatic successes with some of its Mideast Gulf neighbors, Iran's leadership insists a resulting "financial breakthrough" is not far off.

But with US economic sanctions on Tehran still very much in place, the veracity of those claims should be taken with a grain of salt.

Speaking on the eve of the Iranian new year, or Nowruz, on 20 March, Ali Shamkhani, the head of Iran's Supreme National Security Council (SNSC), said his recent visits to China and the UAE had achieved "considerable results."

Shamkhani was Iran's representative to the talks in Beijing earlier this month that culminated in the signing of the 10 March agreement between Tehran and Riyadh to resume bilateral relations after a seven-year hiatus.

This was followed up days later with a one-day visit by Shamkhani to Abu Dhabi, where he held talks with his Emirati counterpart, Sheikh Tahnoon bin Zayed, and the UAE President Sheikh Mohamed bin Zayed. He made a second visit immediately after to Baghdad, where he and his Iraqi counterpart signed a border security agreement, among other deals.

The UAE readout from the meetings in Abu Dhabi highlighted only broad discussions about how the two countries could enhance co-operation. But Shamkhani said the talks had resulted in an agreement to facilitate trade between them, and potentially with other Mideast Gulf countries, using the Emirati dirham.

"Establishing new mechanisms to use Iran's financial resources [that are] still trapped in countries like Iraq to buy basic goods and thereby remove some of Iran's financial problems is another step which, along with the agreements made with the UAE, should improve the condition of the country's foreign exchange market," he said.

Shamkhani was effectively echoing a statement issued by Iran's central bank on 19 March that the administration's efforts to "set up financial channels, create credit lines and attract investment by the Arab neighbors" had already "improved the foreign exchange situation."

Obstacles persist

Shamkhani said his meetings in Baghdad also included one with officials from Iraq's central bank, which was aimed at finding ways to draw down Iraq's ballooning debts to Iran. As of February, Iran had upwards of $7bn in revenues from the export of its natural gas and electricity to Iraq that remains frozen in Iraqi banks as a result of the sanctions, according to Iranian officials.

But, despite Shamkhani's bold words, history suggests that expectations on this front should be managed, particularly given that discussions around such a framework have been ongoing for a matter of years.

As far back as February 2019, Tehran and Baghdad said they were working to establish a mechanism to facilitate payments between the two sides despite the then recently re-imposed sanctions. But several years on, the situation has only gotten worse. And with the sanctions still in place, opportunities for a real improvement in Iran's trade with its neighbors still looks a distant prospect.

Iranian officials' focus on improving the country's economic situation comes as the US sanctions have continued to squeeze Iran's economy, contributing to rising unemployment and inflation, as well as a precipitous loss in the value of its currency, the rial, which hit an all-time low last month.

By Nader Itayim and Bachar Halabi