Iran’s economic boom exposes the weakness of sanctions

Teheran stock exchange hits a record 16,000 point high.

stocks 311 (photo credit: AP)
stocks 311
(photo credit: AP)
International sanctions notwithstanding, the Teheran Stock Exchange has reached its highest record, crossing the 16,000 point mark, according to Iranian media reports.
The Stock Exchange Index gained 188 points in early Monday trading, manifesting a steady growth over the past two years, reported Press TV, an Iranian news channel. The market has jumped 28 percent since March 20, the report said.
The Iranian report attributed the rise to a government decision to sell off 18% of its equity in two automobile companies – Iran Khodro and Saipa Automotive Manufacturing – as well as by low bank interest rates and declining investment in the housing sector.
The report came as somewhat of a surprise following UN Security Council sanctions imposed on Iran on June 9 and subsequent EU and US sanctions.
European sanctions prohibit the sale of equipment, technology and services to Iran’s energy sector.
“The success of the stock exchange is not taking place despite the sanctions but partly because of them,” David Butter, regional director of Middle East and North Africa in the Economist Intelligence Unit, told The Media Line.
Iran had a market largely driven by local investors who are transferring their funds, formerly invested abroad, back to Iran, he said.
These funds were mainly being brought from the United Arab Emirates and Dubai, which has made it difficult for Iranians to continue to invest there.
Butter cited the crash in the Dubai real-estate market as another reason for heightened investor tension.
“Iranians feel their money is safer back home,” Butter said.
Seyed Muhammad Marandi, an associate professor at the University of Teheran, said the flourishing of the Teheran Stock Exchange was a sign “sanctions have not had the effect Western countries had wished for.”
“Many in Iran believe the country should have decreased trade with Europe earlier, because the future is in Asia,” he told The Media Line.
The sanctions had also diverted Iranian businesses to new markets in Latin America, Africa and the Far East, which maintain better relations with Teheran, Marandi said. Sanctions also had instigated Iranian self-reliance and boosted Iranian research in fields of nanotechnologies, satellite technology, stem cells and military industries, he said.
“Without the sanctions, Iran would probably never have developed a hi-tech market,” he said.
Vanessa Rossi, an expert in International Economics in Chatham House, attributed the success of the Iranian stock exchange to high oil prices and a sense of a diminished chance of a military strike on Iran’s nuclear apparatus.

A ban on purchasing Iranian exports would likely be an ineffective sanction, as was the case in similar attempts in the past, she said.
“It is hard to enforce sanctions on countries like Iran that import a homogeneous, easyto- sell product like oil,” Rossi told The Media Line.
The strength of the Iranian economy was influenced more by local government’s management of the economy than by external factors, she said, adding: “The recent criticism of Iran’s internal economic policy hasn’t seemed to affect the economy’s performance.”