Although Iranian president Mahmoud Ahmadinejad continues to downplay the impact of UN imposed economic sanctions, the economy of the Islamic Republic has been badly affected by this international isolation.
On Thursday the director of the French oil company Total said that the firm had decided to give up on investments in Iran.
“The existing tensions are preventing every investment and cooperation with Iran,” said a manager of the oil company in an interview with the French newspaper Liberation. He said that they are instead in the middle of “talks to operate in the south of Iraq.”
The former Iranian nuclear negotiator, Ali Larijani, has said that he finds “shocking” the statements by government representatives who continue to minimise the effects of the UN economic sanctions.
Larijani was one of the big winners in last month’s parliamentary elections, presenting an alternative list to that of Ahmadinejad’s supporters.
“These sanctions are a burden on the economy,” said Larijani.
“Rising inflation, an unemployment rate that is not fallingl and the high cost of living are all direct consequences of the sanctions.,” he said.
“The sanctions have had a lesser effect than that hoped for by those who wanted to impose them on our country, howeover,” he said.
It’s not just the West either, but even a close ally of the Iranian government, China, that has begun to apply the UN resolutions.
A Chinese company which won a contract for the construction of a highway in Iran, has just decided to pull out of the deal without giving any explanation.
In past weeks, representatives of the Iranian government, denounced the end of a contact between some important Chinese banks and Iranian industries and financial institutions.
Since the beginning of the year, the four main banks in China – a country that is heavily reliant on Iranian oil – have decided to freeze their ties withIranian companies, causing agreements worth hundreds of millions of dollars, to go up in smoke.
The automobile sector was the first one to feel the impact of this measure.
“The boycott by the Chinese banks has in fact sunk an agreement that we have reached with the Chinese automobile industry,” said Manouchehr Manteqi, the managing director of Iran Khodro, the main automobile industry in Iran, in February.
The agreement that Manteqi mentioned would have brought about 300 million euros worth of Chinese capital into Iran. However in the end, China turned its back on the deal.
On 27 February, another agreement between Tehran and Beijing to exploit the Iranian gas fields in the Persian Gulf was also cancelled.
That deal, worth 16 billion dollars, would have been signed by the Iranian Pars Oil and Gas company and its Chinese counterpart, Chinapec, but the Chinese delegation was not present at the appointment to ink the deal.
Even banks in Malaysia and Singapore have decided not to endorse any commercial operations with Iran.
In Europe, among the first credit institutes to boycott the Islamic Republic, were the Union of Swiss Banks (UBS) and Credit Suisse, as well as the German banks Deutsche Bank and Dresdner Bank.
In Italy, the Bank of Italy has assumed control of the Rome branch of Iran’s state-owned Bank Sepah.
Following these measures, in 2007, exports from Italy and Germany, Iran’s two main economic partners in the European Union, fell by more than 16 percent.
Italy’s export credit agency Sace, which insures the activities of Italian enterprises in foreign markets, has stopped issuing policies to companies seeking to operate in Iran.
Sace which has a scale of one to seven to measure risk, has placed Iran in the sixth position.
In France, BNP Paribas and l’Union de Credit Agricole, have also begun the close their doors to clients who want to invest in Iran.
Besides banks, important oil companies such as Royal Dutch Shell and Total have decided to abandon Iran and turn down lucrative contracts to exploit the well-known South Pars gas fields.
Banks in the Persian Gulf have also taken the opportunity to cutdown their commercial ties with Iran.
The National Bank of Fujairah, with its headquarters in Dubai, said a few weeks ago that because of the uncertain situation and the possibility of sanctions, it will no long endorse any commercial operations with Iran.
In Bahrain, the Ahli United Bank has suspended any link with Iran following pressure from the government, which yielded to pressure from the White House.
The United States has played a decisive role in “convincing” economic entitites and banking institutions to boycott a market as important as the one in Iran.
Washington began first with national sanctions, the restrictions imposed by the three resolutions of the UN Security Council.
In October 2007, Washington included the names of four Iranian banks (Melli, Mellat, Saderat and Sepah) in the list of financial institutions with which it is prohibited to do business.
The decision by the World Bank to suspend a 5.4 million dollars fund to Tehran has also had a devastating effect on the economy of the country, where inflation and employment are continuing to rise.
The concern expressed by Larijani has also been confirmed in an analysis provided by the economist Mohammadgholi Yousefi.
In an interview with the Tehran-based Iskanews agency, Yousefi said that the economic situation in the country was “extremely critical” in that “the sanctions have stopped foreign investments and have forced local capital to flow out of the country.”
Yousefi’s concern is also shared by Tahmaseb Mazaheri, the governor of the Bank Markazi, Iran’s central bank.
“The sharp increase in money that’s in circulation has surpassed safe levels and has unleashed inflation,” he warned.
According to the Bank Markazi’s estimates, the money in circulation has risen 48.8 percent the past year, pushing inflation to 18.4 percent. Unofficial sources claim the true figure is more than 26 percent.
The unemployement rate has also increased in Iran over the past two years.
The Markazi Bank said that that there is an unemployment rate of 10.8 percent. The Iranian parliament (Majlis)’s research centre puts the jobless rate at more than 15 percent.
Independent sources have put the employment rate as high as over 20 percent.