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Country Report

Iran

Generated on November 13th 2017

Economist Intelligence Unit 20 Cabot Square London E14 4QW United Kingdom

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Symbols for tables "0 or 0.0" means nil or negligible;"n/a" means not available; "-" means not applicable Iran 1

Iran

Forecast Highlights

Outlook for 2017-21 3 Political stability 4 Election watch 4 International relations 5 Policy trends 5 Fiscal policy 6 Monetary policy 6 International assumptions 7 Economic growth 7 Inflation 8 Exchange rates 8 External sector 8 Forecast summary

Data and charts 9 Annual data and forecast 10 Quarterly data 11 Monthly data 12 Annual trends charts 13 Monthly trends charts 14 Comparative economic indicators

Summary 14 Basic data 16 Political structure

Recent analysis Politics 18 Forecast updates 24 Analysis Economy 32 Forecast updates 33 Analysis

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 2

Highlights Editor: Mohamed Abdelmeguid Forecast Closing Date: September 21, 2017 Outlook for 2017-21 Political stability under the reformist president, Hassan Rouhani, who secured a second presidential term in the May 2017 election, will be weakened by polarisation between his camp and his conservative opponents. Despite the US administration's hostility to the nuclear deal (and the intro duction of new US sanctions), we expect Iran to stay committed to its terms, in order to retain the economic gains of the agreement. We expect Iran's fiscal account to record modest (but widening) deficits in 2017 21 as a ramping­up of capital spending is only partly offset by rising oil revenue on the back of higher prices (compared with 2015 16) and output. Real GDP growth in Iran will slow compared with 2016 but will remain above that in the rest of the Middle East as (non-US) inward investment rises. We expect growth to average 5.5% a year in 2017/18-2021/22. The official rial rate will weaken markedly in 2018, in line with the government's (delayed) plan to merge it with the market rate. The pace of depreciation will then slow, with the rial averaging IR46,821:US$1 in 2021. We forecast that the current account will narrow but remain in surplus in 2017 21, buttressed by rising oil and non­oil exports, which will partly offset a growing import bill (on the back of pent-up demand and rising investment). Review Saudi Arabia is engaging in dialogue with key Iraqi politicians, such as Moqtada al Sadr. Despite Saudi efforts, Iranian economic, political and military ties with Iraq will remain strong. A quarterly report from the UN International Atomic Energy Agency has confirmed that Iran is adhering to the 2015 nuclear agreement. We do not foresee US pressure successfully derailing the nuclear deal between Iran and world powers. On August 25th Qatar's ambassador, Ali Hamad al Sulaiti, returned to Iran after a diplomatic absence that lasted a year and a half. The Qatar crisis has given Iran an opportunity to forge a new alliance with an Arab neighbour. Iran Khodro Diesel, the trucks division of Iran Khodro, has signed a major deal with Germany's Mercedes-Benz Daimler to import heavy duty vehicles. The auto sector will remain a major beneficiary of foreign investment inflows, helping to drive economic growth and jobs. Ali Kardor, the managing director of the National Iranian Oil Company, has announced that Iran intends to increase oil production to 4.5m barrels/day by 2023. Iran will comfortably surpass pre-sanctions crude production levels by the end of 2021.

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 3 Outlook for 2017-21 Political stability The Economist Intelligence Unit expects the president, Hassan Rouhani, to continue with gradual economic liberalisation and social reform in his second presidential term, which he secured in the election held on May 19th. Having gained partial sanctions relief for Iran in 2015, with the signing of the Joint Comprehensive Plan of Action (JCPOA) with world powers, Mr Rouhani has deepened his support base among younger and middle-income Iranians who want greater domestic freedom and economic integration with the outside world. The deal will undoubtedly be good for the economy in the long term, although its positive effects have yet to trickle down to young Iranians, who will continue to grapple with limited employment opportunities and stagnant real wages, at least in the early years of the forecast period. In addition, there is resistance among vested interests—especially religious foundations and the Islamic Revolutionary Guards Corps (IRGC)—to the current government's strategy of increasing competition and transparency as part of a plan to foster a more vibrant private sector. Nonetheless, Mr Rouhani will benefit from the fractious nature of the hardline conservative camp. Mr Rouhani's reformist drive and diplomatic outreach will be threatened both by resistance among hardliners in Iran and by the US presidency of Donald Trump, whose administration is adopting a far more confrontational approach towards Iran than that of his predecessor, Barack Obama. Although Mr Trump has renewed sanctions relief for Iran (within the framework of the JCPOA), he simultaneously signed major arms deals with Iran's main rivals in the region—chiefly Saudi Arabia. The Trump administration put forward fresh sanctions in July tied to Iran's missile programme and its role in regional conflicts, which often involves backing sectarian regimes and militias. This US stance will encourage Mr Rouhani's opponents in Iran, who fear that the JCPOA might lead to broader political change. However, such an uneasy balance will prove difficult to sustain. In particular, the heightening of confrontational rhetoric between Iran and the US following Mr Trump's inauguration will result in increased pressure from Iranian hardliners to withdraw from the JCPOA. Nonetheless, we expect the supreme leader, Ayatollah Ali Khamenei, to stick with the JCPOA, reflecting a desire not to jeopardise rising investment from abroad and a calculation that Iran has an opportunity to isolate the US from other world powers (which are likely to remain committed to the agreement). In any case, the hardliners will continue to interfere in daily decision­making, with— notably—the intrusions of the unelected Guardian Council (a vetting body dominated by hardliners) proving a continual source of irritation for the president and his pro-business cabinet. This situation will be exacerbated by the unpredictable interventions of the IRGC in the country's political and economic spheres, as well as the residual dominance of vested business interests. As a result, political and social reform will be stifled, and economic liberalisation will proceed inconsistently. Amid these political machinations, speculation about the position and future of Ayatollah Khamenei will increase, reflecting his age and the state of his health: the 77 year old underwent prostate cancer surgery in 2014. However, the identity of Ayatollah Khamenei's potential successor remains uncertain, with the orientation of the Assembly of Experts—which selects the supreme leader—also unclear; although reformists performed strongly in the February Assembly of Experts election, the body subsequently chose a hardliner, Ayatollah Ahmad Jannati (who is also head of the Guardian Council), as its chairman. However, at 90, Ayatollah Jannati is too old to be a realistic prospect for supreme leader, and so Ayatollah Khamenei's successor will almost certainly come from the next generation.

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 4 Election watch The next legislative election will take place in 2020, followed by a presidential poll in 2021. In both cases, the success of reformists will depend on the ability of Mr Rouhani to reduce unemployment and improve living standards for low- and middle-income Iranians in the coming years. In contrast, conservative hardliners are likely to campaign strongly on populist economic platforms to boost their chances of electoral success in the future. However, we expect the reformists' agenda of gradual reform to prevail over the populist appeal of their conservative opponents (as it did in the May 19th presidential election). The main rival to Mr Rouhani in the May election was Ebrahim Raeisi, a hardline conservative and chair of the foundation that manages the Imam Reza shrine in Mashhad. The elevation of Mr Raeisi to such a prominent public post is widely interpreted as evidence that he is being groomed to succeed Ayatollah Khamenei. Despite his defeat in the presidential election, Mr Raeisi (or another conservative hardliner) is likely to win the backing of important security and religious establishments in Iran for the unelected post of supreme leader.

International relations In the face of a more hostile US administration under Mr Trump, Iran's foreign policy priorities will remain focused on cementing the diplomatic gains it achieved after the lifting of nuclear-related sanctions. Indeed, a quarterly report from the UN International Atomic Energy Agency has confirmed that Iran is adhering to the 2015 nuclear agreement with world powers. The report highlights the difficulty the US administration faces in winning international support for a tougher approach to Iran. Mr Rouhani will be wary of adopting a dovish stance in the face of the more confrontational US administration, as well as strong pressure from hardliners within Iran. He will therefore occasionally adopt more hawkish positions—as seen in a series of tit-for-tat retaliatory measures against the US in recent months, in response to new sanctions imposed by that country. Seeking to counter increased US and Gulf Arab assistance to the anti-Assad rebels in Syria, Iran resumed crude oil supplies to the Assad regime in late May, and Iranian-backed militias continue to fight alongside Mr Assad's troops across Syria. Nonetheless, given opposition from the major powers in Europe and Asia, we do not believe that the US would be able to reimpose the international sanctions against Iran that were lifted following the JCPOA, and Mr Trump will be wary of entirely closing off commercial opportunities for US firms. (In December, for example, Boeing and Iran Air signed a US$16bn aircraft purchase deal.) As a result, we expect that Mr Rouhani's diplomatic approach and moderate image, combined with Iran's obvious economic appeal, will continue to attract major (albeit primarily non-US) international firms into the country. An alternative to abandoning the JCPOA in the future might be strengthening unilateral sanctions over Iran's missile programme or its support for what the Trump administration regards as terrorist groups. Iran's political ties with its regional peers will, if anything, be even more strained. Mutual distrust and differing positions on the wars in Yemen and Syria—and more recently a diplomatic dispute between Qatar and its Gulf neighbours—will keep Iranian ties with Saudi Arabia, in particular, frosty, and will ensure that both sides remain closely involved in both conflicts.

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 5 Policy trends With the economy struggling because of historically low oil prices, the government will seek to take advantage of the lifting of sanctions to attract inward investment, with a focus on the hydrocarbons sector (given its importance to the fiscal and external accounts) and infrastructure. However, such a push will also probably have to be accompanied by revisions to the 2002 Foreign Investment Promotion and Protection Act (including updates to the cumbersome approval process for investment applications). This overhaul of business regulation has made some progress in the oil sector, via the launch of a new and potentially more rewarding integrated petroleum contract. On July 3rd Iran signed a US$5bn agreement with a consortium led by a French energy major, Total, for phase 11 of the South Pars gasfield. Other sectors will benefit too from foreign investment; in late August Iran Khodro Diesel, the trucks division of Iran Khodro, signed a major deal with Germany's Mercedes-Benz Daimler to import heavy duty vehicles. Iran has the largest automotive industry in the Middle East, and it is the country's second- largest economic sector (after oil and gas), currently accounting for 10% of GDP and 4% of employment. However, accommodating the myriad business networks of a range of influential groups, notably the IRGC and the bonyads (politically powerful Islamic "charities" that run large business conglomerates), will prove difficult. The IRGC's business interests benefited from the absence of international rivals during the sanctions era, and they will seek to undermine the operations of foreign firms. With a raft of unilateral US sanctions also hindering global financial transactions with Iran, we believe that the goal of the sixth five­year plan (2016 21) to attract US$35bn a year of inward investment will prove overoptimistic.

Fiscal policy Macroeconomic stabilisation was the main economic theme of Mr Rouhani's first four years as president (2013-17). Now, faced with heightened expectations among the electorate, Mr Rouhani may need to prioritise economic growth over fiscal discipline, with the aim of creating employment opportunities for young Iranians. This is a central assumption in our fiscal forecast, which envisages larger fiscal deficits in the coming years on the back of greater government spending on capital projects. However, the shortfall will remain manageable, as indicated by government spending plans laid out in the budget for fiscal year 2017/18 (March 21st-March 20th), which envisage a real terms spending increase of less than 2%; the deficit should therefore remain relatively modest in 2017/18, at 2% of GDP. We expect the focus of spending cuts to shift steadily, but gradually, from current spending to capital expenditure (capital spending was almost two-thirds below budget in the first nine months of 2016/17), reflecting ambitious government pledges to overhaul Iran's decrepit infrastructure. With capital spending rising, oil prices recovering only modestly and crude export volume growth slowing, the deficit should widen slowly, averaging 2.6% of GDP a year in 2018/19 2021/22. In response, the government will seek to strengthen non­oil revenue, including by further increasing the sales tax rate, raising duty on cigarettes and other import tariffs on protected industries (including the automotive sector) and attempting the politically tricky task of imposing new taxes on the bonyads. We expect the government to continue to rely mostly on domestic banks to finance its fiscal deficits, although it will struggle to find domestic buyers for state bonds issued to finance major projects (reflecting tight liquidity in the banking sector). As a result, the government is (optimistically) aiming to raise US$30bn a year in foreign financing, probably mostly in the form of bilateral soft loans.

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 6 Monetary policy Reflecting a sharp slowdown in inflation in 2016, which pushed up real interest rates (known locally as "profit rates"), Bank Markazi (the central bank) has shifted towards a more expansionary monetary stance. In a bid to support the economic recovery, the authorities have cut bank reserve requirements from 13% to 10% and stepped up the pressure on banks to increase their lending to small and medium- sized enterprises. Nonetheless, with inflation set to rise again in 2017 (and US rates also on an upward trajectory from 2018), the scope for further near-term monetary relaxation is limited. Instead, the pick-up in economic growth in the final two years of the forecast period will afford the central bank an opportunity to lift the key policy rates again, to bring inflation under control.

International assumptions 2016 2017 2018 2019 2020 2021 Economic growth (%) US GDP 1.5 2.2 2.2 2.2 0.8 1.9 OECD GDP 1.7 2.2 2.0 1.9 1.3 1.9 World GDP 2.3 2.9 2.7 2.7 2.3 2.7 World trade 2.2 4.0 3.4 3.4 2.5 3.5 Inflation indicators (% unless otherwise indicated) US CPI 1.3 1.9 2.0 2.2 1.3 1.8 OECD CPI 1.0 2.0 1.8 1.9 1.7 1.8 Manufactures (measured in US$) -1.8 2.7 2.8 4.0 4.7 4.5 Oil (Brent; US$/b) 44.0 52.3 51.0 53.5 52.9 55.5 Non-oil commodities (measured in US$) -3.0 6.6 -0.2 1.2 -2.2 2.5 Financial variables US$ 3-month commercial paper rate (av; %) 0.5 1.2 2.0 2.3 1.6 1.2 Exchange rate IR:US$, official rate (av) 30,915 32,770 36,964 40,291 43,555 46,821 Exchange rate US$:€ (av) 1.11 1.13 1.17 1.16 1.20 1.20

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 7 Economic growth Iran's economic growth is set to surpass that of most of the Middle East region during the forecast period, lifted initially by further increases in oil exports and subsequently by an upturn in inward investment. Although the Trump presidency could theoretically jeopardise such investment, we expect Iran's continued adherence to the JCPOA to keep EU, Russian, Indian, Chinese and South Korean firms engaged. As a result, we maintain our forecast that economic growth will be higher in 2017-21 than it was during Mr Rouhani's first four years in office, driven by investments in infrastructure, which will provide a host of knock-on opportunities for the private sector. The impact of rising investment will be augmented by the continued expansion of the oil and gas sector, although the effect of this increase will be less dramatic than in 2016/17 (when we estimate that oil production rose by 25% following the lifting of sanctions). Investment in Iran's relatively underexploited natural gas reserves could also increase dramatically; output at the South Pars field is already set to rise sharply in 2017 following the inauguration of phases 17 21. Given these developments, we forecast that real GDP growth will ease from 13.4% in 2016/17 to an annual average of 5.5% in 2017/18-2021/22. There will be a slight and short-lived dip in the latter half of the forecast period (2019-20), in line with our expectations of a slowdown in the Chinese economy, a growing source of foreign direct investment inflows, in 2019, and a technical recession in the US in the following year. We expect the oil sector to contribute positively to real GDP growth over the forecast period. Although the pace of production growth is set to slow (compared with 2016), given the age of the country's major fields and our expectation that the OPEC cut agreement will remain in place throughout 2017, Iran's oil output, at a forecast 4.4m b/d in 2021/22, will still be at its highest level since the 1970s. Economic growth % 2016a 2017b 2018b 2019b 2020b 2021b GDP 13.4 5.5 5.7 5.1 5.5 5.9 Private consumption 3.8 4.9 6.1 5.8 6.3 6.4 Government consumption 3.7 4.0 5.2 5.0 5.4 5.8 Gross fixed investment -3.7 9.7 11.1 7.0 7.1 7.7 Exports of goods & services 41.3 9.5 6.2 5.6 6.0 6.6 Imports of goods & services 6.1 15.0 11.9 8.0 8.6 9.7 Domestic demand 8.0 5.1 6.3 5.2 5.7 6.2 Agriculture 4.2 2.0 1.7 1.5 1.2 1.3 Industry 24.7 7.1 5.6 4.3 4.4 5.0 Services 3.6 -1.0 6.5 6.3 7.2 7.4 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Inflation Having declined to single digits in 2016, because of easing trade bottlenecks and lower foodstuff costs, inflation has accelerated once more in 2017, and we expect it to average 12.7% for the whole year. The increase largely reflects, among other things, a rebound in food prices. Inflation will edge up further in 2018, to 13.5%, as a weakening of the official rate of the rial (on the back of the planned abolition of the current dual exchange-rate system) pushes up import costs. Subsequently, and notwithstanding a small dip in consumer price growth in 2019 and 2020 (reflecting renewed commodity price weakness), we expect inflation to average 11.3% in 2019 21, as the impact of a more stable exchange rate is offset by rising demand­pull inflation.

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 8 Exchange rates The market exchange rate of the Iranian rial plunged in late December 2016, to IR41,500:US$1 (from around IR36,500:US$1 in November), amid speculation surrounding new US sanctions and uncertainty relating to plans to end the rial's current dual exchange rate. Bank Markazi has since succeeded in stabilising the currency market (helped by partial sanctions relief), partly through an injection of additional liquidity but also through its decision to delay the unification of the official and market exchange rates (originally due to take place on March 20th) until February 2018. The postponement reflects the central bank's view that a strengthening in correspondent banking relations is first needed. The phasing out of the dual exchange rate in 2018 will result in a sharp slide in the rial that year, to an average of IR36,964:US$1. As inflation then stabilises and inward investment picks up, we expect the pace of depreciation to ease, with the rial reaching an average of IR46,821:US$1 in 2021.

External sector Despite persistently weak oil prices, we expect the merchandise trade balance to remain in surplus throughout the forecast period. But the surplus will narrow gradually as import spending rises rapidly (on the back of years of pent up demand, when sanctions led to the imposition of import controls), offsetting rising petrochemical and automotive exports. The non-merchandise deficit will continue to widen as rising imports push up services debits and the growing presence of foreign oil firms drives up income debits. Overall, we forecast that the current account will remain in surplus, but that the surplus will narrow as the forecast period progresses, averaging 1.8% of GDP a year in 2017 21.

Forecast summary Forecast summary (% unless otherwise indicated) 2016a 2017b 2018b 2019b 2020b 2021b Real GDP growth 13.4 5.5 5.7 5.1 5.5 5.9 Crude oil production ('000 b/d) 3,680 3,864 3,995 4,099 4,242 4,416 Oil exports (US$ m) 40,164 46,431 47,149 50,243 51,608 53,641 Consumer price inflation (av) 8.7c 12.7 13.5 11.5 11.1 11.3 Consumer price inflation (end-period) 8.9c 13.1 12.5 11.3 10.5 11.5 1-year deposit rate (end-period) 12.8 13.0 12.5 12.5 13.0 13.3 Official net budget balance (% of GDP) -2.2 -2.0 -2.0 -2.4 -2.9 -3.1 Exports of goods fob (US$ bn) 84.0 92.2 96.5 102.8 108.2 114.8 Imports of goods fob (US$ bn) 63.1 70.5 79.3 85.8 94.3 104.5 Current-account balance (US$ bn) 16.4 16.0 10.3 8.9 6.1 2.3 Current-account balance (% of GDP) 3.9 3.5 2.1 1.7 1.1 0.4 External debt (end-period; US$ bn) 8.2 10.7 12.3 13.6 15.5 17.8 Exchange rate IR:US$ (av) 30,915c 32,770 36,964 40,291 43,555 46,821 Exchange rate IR:US$ (end-period) 32,376c 34,031 39,247 42,051 45,315 48,581 Exchange rate IR:¥100 (av) 28,425c 29,497 33,994 37,752 41,879 46,810 Exchange rate IR:€ (end­period) 34,128c 40,327 45,723 49,200 54,151 59,269 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 9 Data and charts Annual data and forecast

2012a 2013a 2014a 2015a 2016b 2017c 2018c GDP Nominal GDP (US$ m) 603,007 539,466 443,976 393,436 425,403 462,613 482,368 Nominal GDP (IR trn) 7,342 9,934 11,517 11,414 13,151 15,160 17,830 Real GDP growth (%) -5.6 -1.9 4.3 -1.3 13.4 5.5 5.7 Expenditure on GDP (% real change) Private consumption -1.9 -1.0 3.1 -5.6 3.8 4.9 6.1 Government consumption -8.5 1.6 2.7 9.9 3.7 4.0 5.2 Gross fixed investment -21.9 -6.9 3.5 -5.9 -3.7 9.7 11.1 Exports of goods & services -20.5 0.0 12.0 -2.8 41.3 9.5 6.2 Imports of goods & services -23.1 -18.7 -5.7 -16.7 6.1 15.0 11.9 Origin of GDP (% real change) Agriculture 3.7 4.7 3.8 8.1 4.2 2.0 1.7 Industry -20.5 -5.1 4.9 2.6 24.7 7.1 5.6 Services 1.1 -1.5 2.4 0.8 3.6 -1.0 6.5 Population and income Population (m) 76.5 77.4 78.4 79.4b 80.3 81.2 82.0 GDP per head (US$ at PPP) 17,240 17,420 18,089 17,046b 19,353 20,559 21,985 Recorded unemployment (av; %) 12.2 10.4 10.3b 10.5b 10.7 10.0 9.7 Fiscal indicators (% of GDP) Public-sector revenue 13.6 13.4 14.0 15.7 16.7 16.7 16.5 Public-sector expenditure 14.2 14.3 15.1 17.5 18.9 18.6 18.5 Public-sector balance -0.6 -0.9 -1.1 -1.8 -2.2 -2.0 -2.0 Net public debt 10.7 9.7 9.9 12.3 13.4 14.3 14.7 Prices and financial indicators Exchange rate IR:US$ (av) 12,176 18,414 25,942 29,011 30,915a 32,770 36,964 Exchange rate IR:US$ (end-period) 12,260 24,774 27,138 30,130 32,376a 34,031 39,247 Consumer prices (av; %) 25.7 39.3 17.2 13.7 8.7a 12.7 13.5 Stock of money M1 (% change) 26.7 10.5 7.1 0.2 33.0a 14.0 13.0 Stock of money M2 (% change) 32.0 28.1 34.8 24.6 28.1a 25.3 18.3 Lending interest rate (av; %) 11.0 11.0 14.0 14.2 18.0 13.0 12.5 Current account (US$ m) Trade balance 28,562 29,326 18,061 12,178 20,843 21,627 17,257 Goods: exports fob 97,296 92,910 88,976 64,597 83,978 92,161 96,537 Goods: imports fob -68,734 -63,584 -70,915 -52,419 -63,135 -70,534 -79,280 Services balance -7,360 -6,820 -6,878 -4,472 -5,941 -7,575 -8,809 Income balance 1,649 2,034 1,845 764 1,779 1,537 1,469 Current transfers balance 509 565 543 547 492 448 399 Current-account balance 23,362 25,105 13,571 9,016 16,388 16,037 10,315 External debt (US$ m) Debt stock 7,406 7,006 5,441 6,321 8,196 10,707 12,289 Debt service paid 601 439 501 820 905 946 1,325 Principal repayments 446 396 463 742 802 821 1,175 Interest 155 43 38 79 103 124 150 International reserves (US$ m) Total international reserves 104,650b 107,950b 111,029b 115,994b 133,701 132,551 142,551 a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. Source: IMF, International Financial Statistics.

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 10 Quarterly data 2015 2016 2017 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Central government finance (IR

bn)a Revenue 293,200452,600416,400 635,000 255,500 580,900 n/a n/a Expenditure 359,590478,600436,000 709,700 370,200 703,100 n/a n/a Balance -66,390 -26,000 -19,600 -74,700 -114,700 -122,200 n/a n/a Prices Consumer prices (2011=100) 89.6 90.7 92.4 94.2 96.3 99.0 100.6 104.0 Consumer prices (% change, year 16.3 12.9 10.0 8.9 7.5 9.2 8.9 10.5 on year) Financial indicators Exchange rate IR:US$ (av) 28,641 29,754 30,014 30,195 30,404 31,113 31,948 32,390 Exchange rate IR:US$ (end-period) 29,319 29,956 30,130 30,260 30,700 31,460 32,376 32,422 M1 (end-period; IR trn)b 1123.701180.201158.10 1367.00 1364.40 1480.30 1540.70 1630.30 M1 (% change, year on year) -2.0 -1.7 0.2 13.2 21.4 25.4 33.0 19.3 M2 (end-period; IR trn)b 8166.608727.509251.7010172.8010595.0011227.1011848.6012533.90 M2 (% change, year on year) 22.7 23.5 24.6 30.0 29.7 28.6 28.1 23.2 Sectoral trends Crude oil production (m barrels/day) 2.87 2.89 3.16 3.59 3.65 3.78 3.79 3.75 Crude oil prices (US$/barrel) OPEC basket 59.89 48.35 39.71 30.14 42.39 43.00 47.52 52.03 Balance of payments (US$ m)a Exports fob 17,680 15,936 16,768 14,213 18,905 19,239 n/a n/a Oil & gas 10,633 9,432 7,028 6,476 11,640 13,167 n/a n/a Imports fob 12,902 13,171 12,510 13,836 12,383 15,112 n/a n/a Trade balance 4,778 2,764 4,259 377 6,522 4,127 n/a n/a Current-account balance 3,947 2,189 3,817 -937 5,231 3,459 n/a n/a a Iranian fiscal year (March 21st-March 20th). b 20th of month. Sources: Bank Markazi, Economic Trends; International Energy Agency, Oil Market Report; IMF, International Financial Statistics; Platts.

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 11 Monthly data Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Exchange rate IR:US$ (av) 2015 27,372 27,600 27,939 28,256 28,562 29,106 29,509 29,798 29,956 29,954 29,974 30,113 2016 30,173 30,186 30,225 30,290 30,375 30,547 30,894 31,079 31,365 31,650 31,951 32,243 2017 32,367 32,385 32,417 32,426 32,445 32,469 32,638 n/a n/a n/a n/a n/a Exchange rate IR:US$ (end-period) 2015 27,530 27,708 28,085 28,241 28,829 29,319 29,600 29,958 29,956 29,960 30,086 30,130 2016 30,183 30,197 30,260 30,310 30,460 30,700 30,952 31,253 31,460 31,778 32,091 32,376 2017 32,366 32,403 32,422 32,293 32,450 32,489 32,735 n/a n/a n/a n/a n/a M1 (% change, year on year) 2015 3.3 1.7 1.8 -0.9 -0.7 -0.9 -4.1 -1.8 -1.7 -0.8 1.9 -0.4 2016 5.8 9.7 12.8 11.8 13.9 20.0 23.0 28.7 24.3 24.3 26.3 32.0 2017 26.9 22.6 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a M2 (% change, year on year) 2015 3.4 1.9 1.9 -0.8 -0.5 -0.8 -3.9 -1.6 -1.5 -0.6 2.0 -0.3 2016 5.9 9.8 12.9 11.9 14.0 20.0 23.0 28.7 24.4 24.3 26.4 32.0 2017 26.9 22.6 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Deposit rate (av; %) 2015 16.9 16.9 17.5 17.5 17.7 17.7 16.4 16.4 16.4 16.3 16.3 16.3 2016 16.1 16.4 14.8 14.8 14.8 14.9 14.9 14.9 12.9 12.9 12.8 12.8 2017 12.7 12.7 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Lending rate (end-period; %) 2015 14.2 14.2 14.2 14.2 14.2 14.2 14.2 14.2 14.2 14.2 14.2 14.2 2016 14.2 14.2 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 18.0 2017 18.0 18.0 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Consumer prices (av; % change, year on year) 2015 15.7 16.2 16.2 16.4 16.3 16.2 14.2 12.6 11.8 10.8 10.0 9.4 2016 9.6 8.9 8.4 7.3 7.7 7.5 8.5 9.6 9.5 9.3 8.7 8.9 2017 9.3 10.3 11.8 12.7 11.2 10.3 9.4 8.6 n/a n/a n/a n/a Sources: IMF, International Financial Statistics; Haver Analytics.

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 12 Annual trends charts

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 13 Monthly trends charts

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 14 Comparative economic indicators

Basic data Total area 163.6m ha Population 73.6m (2010, Statistical Centre of Iran) Towns with populations in excess of 500,000 Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 15

Population in '000 (2007, Statistical Centre of Iran) Tehran (capital): 7,705 Mashhad: 2,411 Isfahan: 1,583 Tabriz: 1,379 Shiraz: 1,205 Qom: 1,042 Ahvaz: 790 Bakhtaran (formerly Kermanshah): 643 Climate Continental, with extremes of temperature Weather in Tehran (altitude 1,220 metres) Hottest month, July, 22­37°C (average daily minimum and maximum); coldest month, January, minus 3 7°C; driest month, July, 3 mm average rainfall; wettest month, January, 46 mm average rainfall Official language Persian (Farsi) Measures Metric system. Some local measures are used, including: 1 jerib=0.108 ha; 1 artaba=0.66 hl; 1 rey=11.88 kg Calendar The Iranian year begins on March 21st, and contains 31 days in each of the first six months, 30 days in the next five months and 29 in the 12th month (30 in every fourth year). The system relates to the Prophet Mohammed's flight from Mecca in 622 AD, but, unlike the Islamic calendar, follows solar years. The Gregorian equivalent can be found by adding 621 years to the Iranian date. The Iranian year 1392 began on March 21st 2013 Currency Rial (IR); IR10 = 1 toman. (Although all government statistics are given in rials, in conversation Iranians refer to tomans.) The multiple exchange rate was replaced by a single floating rate at the start of fiscal year 2002/03; IR30,915:US$1 (2016 average) Time 3.5 hours ahead of GMT Public holidays Many holidays are religious and based on the Islamic year. Exceptions include New Year (Nowruz) celebrations (March 21st 24th)

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Political structure Official name Islamic Republic of Iran Legal system Based on the constitution of 1979, which was amended in 1989 Legislature 290-member Majlis-e-Shuray-e Islami (National Assembly). All candidates for the Majlis must be approved by the 12-member Guardian Council, six of whom are appointed by the supreme leader (rahbar) and six by the judiciary. Majlis legislation must also be approved by the Guardian Council. The Expediency Council mediates between the Majlis and the Guardian Council Electoral system Universal adult suffrage for elections to the Majlis, the Assembly of Experts (the body that chooses the rahbar) and the presidency National elections Next elections: 2020 (legislative); 2021 (presidential) The supreme leader (rahbar) Ayatollah Ali Khamenei Head of state

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 17 President, elected by universal suffrage for a four-year term for a maximum of two terms. Hassan Rouhani was elected as president in June 2013 and subsequently won a second four-year term in the May 2017 election Executive The post of prime minister was abolished in 1989. The current cabinet was approved by the Majlis in August 2013 Main political trends Parliamentary factions are loose. The new Majlis is dominated by the United Fundamentalist Front and the Stability of Islamic Revolution Front, both conservative groups close to the supreme leader Key ministers President: Hassan Rouhani Head of presidential office: Mohammed Nahavadian Commerce & industries & mines: Mohammed Reza Nematzadeh Culture (acting): Abbas Salehi Defence: Hossein Dehqan Economy & finance: Ali Tayebnia Education (acting): Mohammad Bathaei Energy: Hamid Chitchian Foreign affairs: Mohammed Javad Zarif Health: Hassan Qazizadeh Hashemi Intelligence: Mahmoud Alavi Interior: Abdolreza Rahmani Fazli Justice: Mostafa Pour-Mohammadi Petroleum: Bijan Namdar Zanganeh Speaker of the Majlis: Ali Larijani Head of the Supreme National Security Council: Ali Shamkhani Adviser for Supervision & Strategic Affairs: Mohammed Bagher Nobakht Head of the Iranian Atomic Energy Organisation: Ali Akbar Salehi Central bank governor Valiollah Seif

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 18 Recent analysis

Generated on November 13th 2017 The following articles were published on our website in the period between our previous forecast and this one, and serve here as a review of the developments that shaped our outlook. Politics Forecast updates August 8, 2017: International relations Trump seeks Oman’s help to counter Iran Event In mid-July the US president, Donald Trump, called Oman's sultan, Qaboos bin Said al Said, to discuss regional conflicts and emphasise the need to "counter Iran's destabilising activities". Analysis The phone call appears to mark a turning point in relations between the Trump administration and Oman. The sultanate has found itself marginalised and ignored since Mr Trump came to power in early 2017, having been an important regional mediator and trusted ally to the US under the Obama administration. The main reason was Oman's long-standing cordial relations with Iran that enabled the sultanate to host secret talks between the US and Iran, talks that eventually led to a nuclear deal and the lifting of sanctions in early 2016. Mr Trump has taken a much harder line on Iran and now appears intent on wrecking the deal, which he described as "the worst deal ever negotiated". Mr Trump spoke to the sultan five days after Oman's foreign minister, Yusuf bin Alawi bin Abdullah, met Iran's president, Hassan Rouhani, and announced that Oman intended to deepen its ties with Iran. Mr Trump appears to have tried to encourage the sultan to take a tougher stance on Iran. Oman is highly unlikely to abandon its long-standing neutrality, although the war in Yemen and the Qatar crisis are pushing its diplomatic skills to the limit. The Qatar crisis—the boycotting of Qatar by four Arab countries—is likely to have been the main reason for the phone call. Although it is possible that Mr Trump's anti Iran rhetoric to Arab leaders in late May encouraged the Qatar boycott, the US has since been urging the parties to resolve the dispute as it quickly became clear that the crisis could lead to the break up of the Gulf Co operation Council, greatly increasing instability in the region. Both Oman and Kuwait have remained neutral in the crisis, with Oman working behind the scenes. However, within days of Mr Trump's call Oman's role became more visible as Mr Abdullah met the US secretary of state, Rex Tillerson, in Washington at end July, along with the Kuwaiti emir, Sheikh Sabah al Ahmad al Jaber al Sabah, suggesting that the Trump administration is starting to appreciate Oman's unique diplomatic position in the region. Impact on the forecast Although we believe any tensions between Oman and the US will be short-lived, our forecast recognises the potential for future difficulties in relations between the two countries. Therefore, our international relations forecast for Oman remains unchanged.

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August 9, 2017: International relations Europe joins US protest at Iranian rocket launch Event Three European countries have issued a protest against recent rocket tests conducted by Iran. Analysis In a letter sent on August 2nd to the UN secretary­general, António Guterres, the UK, France and Germany voiced their concern over Iran's missile programme, which Iran insists does not contravene the 2015 nuclear agreement known as the Joint Comprehensive Plan of Action (JCPOA). The three European countries have continued to express support for the JCPOA and their belief that Iran has complied with its restrictions, despite opposition from the US president, Donald Trump. A new series of US sanctions in late July—justified as a response to Iran's missile programme and its support for regional allies judged as terrorist organisations by the US administration—have been denounced in Iran as a violation of the JCPOA, which pledged signatories not to impede the normalisation of Iran's international relations. Tensions between Iran and the US have increased in recent months, and Mr Trump is due to review progress of Iran's compliance with the JCPOA in October. This has strengthened critics of the JCPOA in Iran, who argue that the US is intent on regime change. Pragmatists such as the moderately reformist Iranian president, Hassan Rouhani, and his foreign minister, Mohammed Javad Zarif, would like to maintain the JCPOA and positive relations with other signatories (the three European states plus Russia and China) as a safeguard against future sanctions—should the US withdraw from the agreement. Meanwhile, hardline conservatives may now look to the missile programme as a way of signalling defiance to critics of Iran's defence programmes. The missile test, announced by Iran on July 27th, was of the Simorgh rocket, designed to carry a 250 kg satellite to 500 km. However, the relevant technology could be applicable to a long-range ballistic missile. It followed new sanctions introduced by the US in July on 18 Iranian individuals and groups, and was followed by further US sanctions introduced on July 28th targeting six Iran-based satellite companies. Russia has expressed support for Iran's view that the test did not contravene UN resolution 2231—which forbade testing of missiles designed to carry nuclear weapons. Impact on the forecast Our forecast entails occasional bilateral tension between Iran and Western governments and therefore remains unchanged. We expect current tensions with European governments to be short-lived and therefore maintain our view that Western countries are unlikely to abandon the JCPOA—thanks to assurances the agreement brings to the international community over Iran's nuclear ambitions.

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August 15, 2017: Election watch Ayatollah Khamenei appoints new Expediency Council chairman Event Iran's supreme leader, Ayatollah Ali Khamenei, has appointed Ayatollah Mahmoud Hashemi Shahroudi, a 68-year-old cleric and former national prosecutor, as chair of the Expediency Council—which resolves disputes between parliament and the Guardian Council (a constitutional watchdog) and advises the supreme leader. Analysis This is likely to be viewed in Iran as a strengthening of Ayatollah Shahroudi's position in the long-standing race to succeed Ayatollah Khamenei, who is 78 and in 2014 underwent prostate surgery, as supreme leader. Ayatollah Shahroudi was widely seen as the front-runner until 2015, when revelations that he was under judicial investigation over financial irregularities led to his sudden withdrawal from the election of a new chairman of the Assembly of Experts, the body of 88 clerics that chooses the leader. He had been acting chairman of the Assembly for nine months and had earlier been personally assigned tasks by Ayatollah Khamenei that were the supreme leader's responsibility. However, the judicial investigation has so far amounted to nothing. The appointment as chairman of the Expediency Council lasts for five years, although the previous incumbent, Akbar Hashemi Rafsanjani, held the post for 27 years until his death in January, highlighting the potential for Ayatollah Shahroudi to embark on a prolonged stint in the influential position. The Council's leading figures are also given a prominence through which they can carve out a political role, offering Ayatollah Shahroudi the capacity to enhance his chances of becoming supreme leader. In addition, a key contender for the position of next supreme leader, Ebrahim Raeisi, has been weakened by his convincing defeat to Hassan Rouhani in May's presidential election—a position that Ayatollah Khamenei himself won before becoming supreme leader. So, although Mr Raeisi has also been appointed as a new member of the Expediency Council, Ayatollah Shahroudi's elevated position now looks to have made him the favourite to succeed Ayatollah Khamenei. Impact on the forecast Ayatollah Shahroudi's promotion, combined with Mr Raeisi's election failure, probably now puts him as the front­runner in the race to be the next supreme leader— we will incorporate this into our next election forecast.

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August 22, 2017: International relations Rouhani threatens to quit nuclear deal Event The president, Hassan Rouhani, has announced in a speech to parliament that Iran could quit the 2015 nuclear deal if the US imposes new sanctions on the Islamic Republic. Analysis Mr Rouhani's rhetoric should be seen as both a method of courting domestic opinion and an appeal to Europe, Russia and China to understand the threat posed to the nuclear deal by the US president, Donald Trump. Mr Rouhani stressed that the US was not a reliable negotiator given its behaviour not just over the nuclear deal, known as the Joint Comprehensive Plan of Action, but also other international agreements including the 2015 Paris global warming accord. Mr Rouhani's unusually strong language—speaking of Iran's ability "in an hour and a day" to expand its nuclear programme beyond levels before the 2015 agreement—may well add force, however, to those in the US arguing for a tougher approach. The US ambassador to the UN, Nikki Haley, immediately accused Iran of using the nuclear agreement to hold the world hostage. Meanwhile, for those in the Trump administration intent on ending the current arrangement, the prospect of goading Iran into breaking its part of the deal by extending unilateral sanctions will be tempting. Mr Trump has also accused Iran of violating the "spirit" of the accord, owing to Iran's ballistic missile programme. Nevertheless, Mr Rouhani also made clear in his speech, as he has done repeatedly, that Iran's preference is to maintain the agreement with its other signatories—Russia, China, the UK, France and Germany—even if the US abandons it. We continue to expect the economic benefits accrued to Iran, by the lifting of sanctions linked with the deal, to dissuade it from ramping up its nuclear programme. Indeed, following the US$5bn deal signed by a French energy major, Total, in particular, inward investment into Iran is likely to pick up momentum gradually, given its attractively large and diverse economy, regionally speaking. Still, ongoing US sanctions—which will probably be extended given the tough rhetoric emanating from Washington—will continue to hinder Iran's economic expansion and ensure that bilateral relations worsen in the medium term. Impact on the forecast Despite Mr Rouhani's rhetoric, we maintain our view that the economic benefits of the nuclear deal for Iran, and the reluctance of the non-US signatories to renegotiate it, will ensure that it does not collapse.

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September 4, 2017: International relations Qatari ambassador returns to Iran Event On August 25th Qatar's ambassador, Ali Hamad al Sulaiti, returned to Iran after a diplomatic absence that lasted a year and a half. Analysis Back in January 2016 Qatar mirrored Saudi Arabia and some other Gulf states by withdrawing its ambassador from Iran in response to attacks on the Saudi embassy in Tehran. Those attacks had been motivated by Saudi Arabia's execution of Nimr al Nimr, a Shia cleric from its restive Eastern Province. The withdrawal was significant because Qatar had more cordial relations with Iran than had most of the other Gulf states and it therefore seemed to be one of a number of signals that Qatar was working to appease its Gulf neighbours. However, the rapprochement fell apart dramatically in June when three of the Gulf states launched a wide-ranging boycott of Qatar. In this new political context, Qatar has looked increasingly to Iran for support. Iran's president, Hassan Rouhani, has spoken out strongly against the boycott. Iran has granted access to its airspace (at a cost) to Qatar Airways flights, which had been barred from flying over the boycotting countries and other airspace under their administration. It also flew and shipped in food and other goods to quickly replace those blocked by the trade boycott, boosting Iranian exports to Qatar by 60%. The two countries have also been working, even before the boycott, to find a way to co- operate, if not collaborate, on the development of the North Field (known in Iran as South Pars), the world's largest gasfield, which spans across their maritime borders. However, the restored relations with Iran complicate the prospects for an end to the boycott. This is because the 13 demands issued by the boycotters—Saudi Arabia, the UAE, Bahrain and Egypt—in June were for Qatar to scale back diplomatic and defence ties with Iran (although they also stated that Qatar was free to pursue normal commerce with Iran so long as it does not violate the international sanctions imposed on the latter). Warmer relations with Iran may also complicate Qatar's relations with the stridently anti-Iran administration in the US. Members of the boycotting quartet immediately criticised the return of the Qatari ambassador. Impact on the forecast The closer relations with Iran re-enforce our forecast that the boycott will persist for a prolonged time through the outlook period. This also heightens the risk of further sanctions by the quartet on Qatar, which is already factored in to our forecast.

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September 12, 2017: International relations UN agency says Iran is upholding nuclear agreement Event A quarterly report from the UN International Atomic Energy Agency (IAEA) has confirmed that Iran is adhering to the 2015 nuclear agreement with world powers Analysis The report highlights the difficulty the US administration faces in winning international support for a tougher approach to Iran. In July the US president, Donald Trump, formally accepted that Iran had upheld the agreement, but The Economist Intelligence Unit has remained sceptical about whether he will not challenge the agreement during his term in office. The US ambassador to the UN, Nikki Haley, was sent to meet IAEA chiefs in Vienna where she raised issues of both physical access to Iran's military sites and the country's ballistic missile programme. However, IAEA chiefs have rebutted US criticisms of the operation of the deal, which includes mechanisms for physical inspection of military sites and which covers missiles only insofar as they are designed to carry a nuclear weapon. Inspectors use a variety of methods to ensure that Iran remains within limits set by the agreement, known as the Joint Comprehensive Plan of Action (JCPOA). The latest report says that Iran has a stockpile of 3.7% low enriched uranium of 88.4 kg, below a 300 kg limit, and operates fewer than the limit of 5,060 centrifuges, the devices used for enrichment. Despite support from Germany, France and the UK for a US letter in early August sent to UN secretary­general, António Guterres, protesting over an Iranian rocket launch, Europe is maintaining support for the JCPOA, with the EU's foreign policy chief, Federica Mogherini, emphasising its multilateral nature. After heavily criticising the JCPOA on the campaign trail, Mr Trump has struggled for an Iran policy since becoming president in January. An alternative to abandoning the JCPOA in the future might be strengthening unilateral sanctions over Iran's missile programme or its support for what the Trump administration regards as terrorist groups. This would put pressure on an Iranian decision to continue upholding the agreement with other signatories. However, instead of resuming its programme to the disquiet of other world powers, Iran might argue that Mr Trump had de facto abrogated the deal, and that it needed further assistance from Russia, China and Europe to reap the economic benefits it had expected from the JCPOA. Impact on the forecast The UN's latest report lends further support to our forecast that, despite US pressure, Iran and European governments will remain committed to the nuclear deal. Our forecast remains unchanged.

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September 14, 2017: International relations Iran signs agreement to boost Syrian power sector capacity Event The Iranian government and Iran's leading power sector contractor, MAPNA, have agreed to carry out a number of major projects to boost Syria's electricity-generating system. Analysis According to a Memorandum of Understanding (MoU) signed on September 12th during a visit to Iran by the Syrian electricity minister, Zuhair Kharboutli, Iran will build a new, 540 MW power station in Latakia and install ten sets of 25 MW gas turbines, five in Banias and five in Aleppo. The agreement also provides for Iranian engineers to conduct damage assessments at the main Aleppo power plant and the Jandar station (outside Homs), and to repair a SCADA network monitoring facility in Damascus. Mr Kharboutli said before the visit that the 125 MW of gas turbine capacity to be installed in Aleppo would be a firm contract, worth €130m (US$156m), suggesting that this scheme will take priority—although a schedule has yet to be set out. Given the prevalence of its military figures on the ground in Syria and the financial ties between the two countries, owing to the large and favourable credit lines Iran has offered the Syrian government, Iran is probably the country best placed to take advantage of any business opportunities as the war begins to ease in intensity—in the mainly government-controlled west of the country at least. Moreover, with Iran having spent so much on propping up the regime of the Syrian president, Bashar al Assad, aiding in reconstruction efforts is in the strategic interests of the Islamic Republic. It is therefore likely that this power deal will precede a number of further infrastructure deals in the coming years. Syria currently has about 5,000 MW of installed capacity that is in working order, but owing to fuel constraints effective capacity is only around 2,100 MW. However, regime forces have recently recaptured a number of natural gas fields and processing plants from Islamic State in the east of the country. This should allow for more power capacity to be brought on stream, thereby boosting prospects for a minor economic recovery in areas under regime control. Impact on the forecast The MoU supports our existing international relations and external sector forecasts that Iran will gradually ramp up its investments in Syria, both as a reward for its loyalty to the Syrian regime and as a result of a lowering in the intensity of the fighting in government-held areas in the west of the country.

Analysis August 4, 2017 Iran strongly opposed to Kurdish independence Iran has declared its opposition to the independence referendum to be held on September 25th in Iraqi Kurdistan. With an 8m strong Kurdish population of its own, Iran will be concerned over the possible crossborder spread of separatist sentiment. Given the fractious nature of Iraqi Kurdish politics and significant international opposition to independence, a full split from Iraq still looks unlikely. However, with a yes vote probable in the referendum, Iraqi Kurdish tensions will rise with both the Iraqi government and Iranian-backed Shia militias in Iraq.

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 25 Iran has extended its influence across Iraq since the 2003 US-led invasion toppled the regime of Saddam Hussein and brought a Shia-dominated government to power in Baghdad, and civil war and the consequent military and financial support offered by Iran to the Syrian president, Bashar al Assad, has also boosted the Islamic Republic's reach in Syria. However, in both countries, conflict has offered the opportunity for Kurdish populations to increase their autonomy, their international recognition (owing to strong military performance against Islamic State—IS) and their territory. As such, separatist sentiment among Iran's own 8m strong Kurdish population has grown. Referendum likely to yield yes vote Kurdish intellectuals and political leaders have dreamed of independence since days after the first world war, when an independent Kurdistan was not included by the Great Powers in a post-Ottoman Middle East, and there is no reason to doubt that the Iraqi Kurdish independence referendum will yield an overwhelming yes vote. Older Kurds remember the oppression of the Saddam regime in Iraq, including the 1988 90 "Anfal" campaign and the use of chemical weapons, and younger Kurds (half of Iraqi Kurdistan's 5.2m people are under 20) have grown up in the chaos of post-2003 Iraq and see Baghdad as a distant, dangerous place. The rise of IS around 2015 reinforced notions of Arab hostility, and autonomous Iraqi Kurdistan has largely turned away from the use of Arabic and writes Kurdish in Latin rather than Arabic letters, emphasising ethnic differences. There have been signs that the referendum is essentially a pragmatic move, designed to distract attention from everyday problems and improve the Kurds negotiating position with the federal Iraqi government over the allocation of resources, especially oil revenue. Endemic squabbling between the two main parties, the Kurdistan Democratic Party (KDP) and Patriotic Union of Kurdistan (PUK), means that hopes for a unified Kurdish Regional Government (KRG) and army have floundered, and the Kurdish parliament in Irbil has not met for two years. There have, however, been significant recent moves by the KRG president, Masoud Barzani, to gain some unity ahead of the referendum, including announcing parliamentary and presidential elections (in which he has said he will not run). However, in the long term, divisions are likely to prevent the united vision needed to push for a full split. As a result, although the referendum itself is likely to take place this year, we do not expect the probable yes vote to lead to independence in 2017 21. International opposition to independence Iran has generally enjoyed reasonably good relations with the KDP and, especially, the PUK, which controls the area bordering Iran. But the relationship also has the potential for disruption, partly because of the autonomous example given to Iran's own Kurds by Iraq's KRG, as well as Kurdish television, radio and social media based in Iraq. Iran therefore backs the legal argument of the Shia-led government in Baghdad that Iraq's 2005 constitution is based on Iraq's territorial integrity with a Kurdish federal entity. In even more certain terms than Iran, Turkey will oppose independence, given the history of conflict it has had with its own Kurdish community. Moreover, it has recently conducted air strikes in Iraqi Kurdistan against what it claimed were fighters from the Kurdistan Workers' Party (PKK), a group that the Turkish government has been in conflict with for many years, and which it designates as a terrorist group. It will remain fearful of PKK fighters using an independent Kurdistan in Iraq as a springboard for attacks within Turkey. Under such international opposition, and with the US—a key backer of the Kurds in the war against IS—also hesitant over the instability that new borders may bring, it seems even more unlikely that full independence will be possible in the forecast period. Instead, providing the vote goes ahead and results in a yes, tensions between the KRG and the Iraqi government will increase. Moreover, with Iran supporting a number of key Shia militias in Iraq, the risk of military confrontations against Kurds will rise, with the route to independence

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 26 blocked off. The security corridor Iran's policies in Iraq are set not just by the government but by the security services, especially the Islamic Revolutionary Guards Corps (IRGC), whose role has widened in the war against IS. Iran's military set-up, and the IRGC in particular, have a key regional strategic aim of creating a secure corridor of land from Iran, through northern Iraq, Syria, and on to Lebanon, in order to freely supply its proxies, particular Hizbullah in Lebanon. Although Iran's links to Syria do not necessarily depend on access to Kurdish-held Iraq, the presence of an independent Kurdistan, in which Iran has no influence, would put this plan at risk. Furthermore, the support of the US for Kurds at present is likely to provoke fears within the Iranian authorities that they could have a US proxy state on their borders.

August 15, 2017 Hassan Rouhani's second term begins The second and final term of the president, Hassan Rouhani, which he secured in the election on May 19th, starts with a mandate to continue with gradual economic liberalisation and social reform. Having gained partial sanctions relief for Iran in 2015, with the signing of the Joint Comprehensive Plan of Action (JCPOA) with world powers, Mr Rouhani has deepened his support base among younger and middle-income Iranians aspiring for greater domestic freedom and economic integration with the outside world. Nominations for his 18member cabinet are expected to pass parliament as he pursues an agenda of maintaining the terms of the nuclear deal and cautious economic reforms. However, ongoing factionalism between "principlists" (conservative hardliners) and reformists (who make up most of Mr Rouhani's support base) will continue to weigh on the government's efficiency. Mr Rouhani told parliament that Iran would "not start violating the JCPOA", suggesting that the Islamic Republic will seek to uphold the deal alongside other signatories—Russia, China, France, Germany and the UK—even if the US walks away when it next reviews it, in October. This was also clear in Mr Rouhani drawing a contrast between the US president, Donald Trump, as a "novice" and the worldly experience of others. Mr Rouhani is committed to improving Iran's international standing and achieving diplomatic solutions wherever possible (his speech to parliament portrayed the JCPOA as a model), because he rightly believes that it will help Iran to attract the foreign investment and advanced technology essential to better exploit the world's largest combined hydrocarbons reserves, improve economic growth and achieve cautious domestic reform, including the encouragement of a vibrant private sector in an economy currently dominated by state and quasi-state sectors. However, the president's critics—especially those close to the Islamic Revolutionary Guards Corps (IRGC)—remain in no mood for the compromises required for diplomatic progress in Syria, for example, where Iran is one of the key military backers of the regime of the president, Bashar al Assad, and further pressure from the US will probably strengthen a siege mentality among Iran's hardliners. Mr Rouhani thus faces a tricky balance of keeping Iran "strong" while also trying to calm relations with both the US and an increasingly assertive Saudi Arabia. Good relations with Ayatollah Khamenei vital for Rouhani's prospects Mr Rouhani's relationship with the supreme leader, Ayatollah Ali Khamenei, has been central to his success as president, and the relationship between the two remains good. However, both his predecessors, reformist Mohammad Khatami and principlist Mahmoud Ahmadinejad, clashed with Ayatollah Khamenei in their second terms, as they pushed harder to implement their ideas. This is an experience Mr Rouhani will

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 27 endeavour not to repeat. Yet, with the economic benefits of the nuclear deal— Mr Rouhani's signature achievement—yet to fulfill expectations and yet to be spread across the population, the president will have to press ahead with reforms that will undermine the hardliners and their security establishment allies, by liberalising the economy and lowering corruption. Mr Rouhani is therefore increasingly likely to clash with, and receive criticism from, his opponents, which risks damaging his relationship with the supreme leader. Moreover, strengthened economic or military pressure from Mr Trump will probably strengthen the case of principlists and security commanders for a more robust response, and a shadowy struggle for the succession to Ayatollah Khamenei, who turned 78 in July and underwent prostate surgery in 2014, is probably also at work, adding further elements of political instability. Rouhani's new cabinet aims at balance, disappointing reformists Central to Mr Rouhani's prospects are his choices of oil minister and foreign minister, respectively Bijan Namdar Zanganeh and Mohammed Javad Zarif. Their experience is important for Mr Rouhani's efforts to create more stable international relations and attract foreign investment, particularly in energy, via which the president aims to increase employment opportunities and ease fiscal pressures. Both nominations are likely to pass parliament, which must endorse all nominations. Meanwhile, the Ministry of Science, Research and Technology, for which Mr Rouhani has still to nominate, proved contentious in his first term (several nominees were rejected by parliament and one minister was impeached). The replacement as defence minister of Major-General Hossein Dehghan with his deputy, General Amir Hatami, a member of the regular military rather than the IRGC, introduces the first defence minister not from the IRGC for over 20 years. Elsewhere, the reformists have expressed disappointment at the lack of women and Sunni Muslims among Mr Rouhani's nominees. In response, the vice-president, Eshaq Jahangiri, has promised to appoint women and Sunnis as deputy ministers, senior managers, governors and ambassadors, and Mr Rouhani has also appointed two female vice­presidents—Masoumeh Ebtekar (previously vice­president with responsibility for the environment and head of the Environmental Protection Agency) and Harvard-educated Laaya Joneidi as vice-president with responsibility for legal affairs. The reformists have also criticised the renomination as interior minister of Abdolreza Rahmani Fazli, a conservative close to the parliamentary speaker, Ali Larijani, a key Rouhani ally. The reformists believe that Mr Fazli has been slow to replace Mr Ahmadinejad's supporters in the provinces, and are also unhappy with the renomination of Ali Rabiei as labour and social welfare minister owing to his failure to facilitate the reopening of the Association of Iranian Journalists, closed during the 2009 unrest. But the reformists lack sufficient seats in parliament to block the appointments and will probably instead concentrate energy on Tehran city council, where they won a majority in May's local elections. Indeed, keeping Mr Fazli may reflect Mr Rouhani's need for conservative support, given that his key appointments of Mr Zarif and Mr Zanganeh are unpopular with principlists owing to their respective roles in the 2015 nuclear agreement and the July agreement with a French energy firm, Total, over the South Pars gasfield. The difficulty in satisfying the long-standing demands and aims of both the principlist and reformist factions emphasises the challenge that Mr Rouhani will have in pushing through his reform agenda, and will continue to weigh on government efficiency throughout the forecast period.

August 17, 2017 Tajikistan accuses Iran of meddling in civil war of 1992-97 Tensions between Tajikistan and Iran have escalated following Tajikistan's

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 28 accusation that Iran was involved in Tajikistan's civil war of 199297. Relations between the two countries have soured markedly over the past few years after Iran welcomed the exiled leader of the Islamic Renaissance Party of Tajikistan (IRPT) to the country in 2015. In the face of Tajikistan's pursuit of closer relations with Saudi Arabia and Saudi Arabia's efforts to reduce Iran's regional influence, this low-level conflict could have the possibility of further isolating Iran. On August 9th Tajik state television aired a documentary accusing Iran of financing and orchestrating political assassinations in Tajikistan during the country's civil war between the Tajik government and the United Tajik Opposition (UTO). The Iranian government has denied the allegations and reiterated its role as a neutral party during the civil war; it held three high-level peace talks and refused to officially support any particular side. There is no doubt that relations between Tajikistan and Iran have cooled in recent years. Before 2014 Iran and Tajikistan enjoyed close diplomatic relations, and Iran was one of the first countries to recognise Tajikistan's independence from the Soviet Union and to set up an embassy in Dushanbe, Tajikistan's capital, in January 1992. The two countries also have in common cultural and linguistic ties through their shared Persian heritage. After Russia, Iran has been one of the most important international partners for providing foreign investment to Tajikistan in the country's efforts to develop its infrastructure. However, following Hassan Rouhani's election as president of Iran in 2014, ties between the two countries have soured. In December 2015 Iran welcomed the Tajik opposition leader and chairman of the IRPT, Muhiddin Kabiri. The IRPT was banned in Tajikistan in September 2015, and has been declared to be a terrorist organisation by Tajikistan and the Shanghai Co-operation Organisation (SCO). Mr Rouhani's predecessor, Mahmoud Ahmadinejad, paid annual visits to Tajikistan during his tenure in 2005 13. In contrast, Mr Rouhani has only visited the country once since his election, and that was for the SCO summit. Closer co-operation between Tajikistan and Saudi Arabia In January 2016 the Tajik president, Imomali Rahmon, paid an official visit to Riyadh, the Saudi capital, and signed five agreements of co-operation on science and technology, education, air communication and combating crime. In May 2017 Mr Rahmon attended the Arab-Islamic-American Summit in Riyadh along with the US president, Donald Trump, and 55 other heads of state of Arab and Muslim countries, notably excluding Iran. In the same month, Saudi Arabia provided US$35m in aid to build schools and US$200m to build new government buildings in Tajikistan. Saudi Arabia has expressed interest in further investment opportunities in Tajikistan, such as in transportation, tourism and energy. During a visit to Saudi Arabia in January the chairman of Tajikistan's Council of Representatives (the lower house of parliament), Shukurjon Zuhurov, met with the Saudi assistant minister of finance, Mohammed Al-Mazyad, and invited Saudi Arabia to invest in the construction of the Rogun hydropower project, a 3,600 MW dam set to be the tallest in the world, at 335 metres. Questions and contradictions remain Despite this apparent shift in relations, Tajikistan's government has not been consistent. On August 12th, three days after the controversial documentary aired, Mr Rahmon endorsed an agreement with Iran to expand co-operation of the two countries' customs service. It is also important to note that international sanctions against Iran had previously hindered the development of robust economic ties between the two countries. Having gained partial sanctions relief in 2015, with the signing of the Joint Comprehensive Plan of Action (JCPOA) with world powers, the potential for increasing bilateral trade between the two countries is cautiously promising.

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The Iranian government had previously expressed interest in the Rogun Dam project and, unlike Saudi Arabia, Iran has a proven track record of funding other hydropower projects in Tajikistan, having invested US$180m in the Sangtuda 2 hydropower plant in the Khatlon province in the west of the country. Although future diplomatic low-level tensions are likely to continue as Tajikistan pursues closer relations with Saudi Arabia, it is unlikely that Iran and Tajikistan will cut diplomatic ties. Both countries will continue with their efforts to strengthen trade and investment partnerships.

August 24, 2017 Rising tensions between Kuwait and Iran The Kuwaiti government, on July 20th, expelled 15 Iranian diplomats and ordered a complete shutdown of an Iranian cultural mission in the country. Given the impartial stand maintained by Kuwait in the region, this sudden move was surprising. The diplomatic row between Iran and Kuwait clearly marks a turnaround from the outreach by the Kuwaiti emir, Sheikh Sabah al­Ahmad al­Jaber alSabah, to the Iranian president, Hassan Rouhani, in early 2017, which had aimed at initiating talks between countries in the region to reduce regional tensions. We expect the recent development to ease, rather than spiral into a long-running diplomatic dispute. Nonetheless, the expulsions could further complicate Kuwait's efforts to resolve the Gulf Co-operation Council (GCC)-Qatar crisis and avoid entanglement in increasingly bitter sectarian politics and regional rivalries. The expulsion of Iranian diplomats was carried out after 14 out of the fugitives involved in the "Abdali affair" disappeared in mid July. Kuwait has maintained its role as a mediator in regional conflicts like the GCC—Qatar crisis, which avoids direct military involvement in any regional conflict. The country's leader, Sheikh Sabah, is highly experienced in dealing with both global and regional affairs having served for 40 years as Kuwait's foreign minister from 1963 until 2003. Since he became emir in 2006, Sheikh Sabah has been working tirelessly to balance the domestic and regional pressures that could otherwise destabilise Kuwait. However, the country has a sizeable Shia community that constitutes about 35% of the national population of 4.05m (in 2016) and sectarian tensions have been relatively high since the discovery of the Abdali cell in 2015. Islamic State (IS) claimed responsibility for a mosque attack in June 2015—which suggested that, through a deliberate policy of targeting the Shia population, the extreme jihadi group is hoping to stir up sectarian strife within the country. The recent development, then, could raise sectarian tensions further. The Abdali affair In August 2015 a bulk of ammunition, explosives, weapons and grenades were found in a farm near the village of Al Abdali in Kuwait, close to the Iraq border. This led to the uncovering of a Shia cell comprising 26 individuals (25 Kuwaitis—all Shia—and one Iranian) who had links with Iran's Islamic Revolutionary Guards Corps and Lebanon's Hizbullah. Court cases against the accused were started in September 2015. In January 2016 23 of the 26 individuals involved were convicted by lower courts, but an appeals court acquitted 15 of them in July that year. In June 2017 the Supreme Court of Kuwait overturned the death sentence of one convict and reduced it to life in prison and cancelled the acquittals of the 15 convicts. Following this decision by the Supreme Court, 14 of the accused fled (presumably to Iran). The increasing tensions between Kuwait and Iran prompted Kuwait to expel the Iranian diplomats. Iran has denied any involvement and has called this move by Kuwait "reprehensible". Since Kuwait has maintained an unbiased position in the region, The Economist Intelligence Unit expected it to take a more conciliatory stand regarding the issue. Kuwait's interior ministry officials put out posters of 16 wanted convicts (the 15 previously acquitted and one whose death sentence was commuted to life in prison) after the Supreme Court's judgement and urged citizens to provide

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 30 any information available so that they could be captured. Following the expulsions, Kuwaiti security forces have arrested 14 of the fugitives. Kuwait—Iran relations Iran's intervention in regional politics through its military and political links with Hizbullah and, to a lesser extent, the Houthi movement in Yemen is perceived by the GCC countries as a major threat to regional security. Kuwait, however, has maintained a good bilateral relationship with Iran compared with the other GCC countries, owing to its pragmatic foreign relations policy under Sheikh Sabah and increased integration of the country's Shia community in its economic and political structures. Kuwait has also tried to defuse regional tensions by facilitating talks with the Iranian president, Hassan Rouhani, earlier this year. Although the initial responses to the Kuwaiti initiative were positive in tone, there was little substantive follow-up in the five months between February and the downgrading of diplomatic ties in July. Two reasons were a lack of support from Saudi leaders and the harder-line approach of the new US government towards Iran's role in the Middle East. The fallout of the Abdali affair, then, could simply suggest that Kuwait has lost patience and cannot tolerate Iran's support for proxies like Hizbullah any further. However, the diplomatic row comes at a time when Kuwait is in the middle of mediating one of the worst diplomatic crises the Gulf has seen in many years, in which Sunni-ruled Saudi Arabia and its allies have cut ties with Qatar. In early June the UAE, Saudi Arabia, Bahrain and Egypt severed diplomatic ties with Qatar and closed most transport links to and from the country. The co-ordinated embargo was prompted by long­standing frustrations about Qatar's regional policies—particularly its openness to the Muslim Brotherhood, jihadi groups and Iran. The boycotters have issued a list of demands, ranging from the closure of the al Jazeera television network to cutting defence ties with Iran and Turkey. Qatar is unlikely to reform its regional policies radically, and tensions are therefore set to increase, as the level of mutual distrust between the country and its Arab neighbours is deep. Thus Kuwait now needs to work towards building a strong balance between dealing with regional foreign policy challenges and Shia-Sunni relations within the country. We do not expect the diplomatic row between Iran and Kuwait to last very long and over the course of the forecast period Kuwait will largely take a more conciliatory tone to Iran than most of the GCC, in order to avoid provoking domestic sectarianism.

September 4, 2017 Saudi Arabia attempts to woo Iraq away from Iran Saudi Arabia is leading a charm offensive to build bridges with Iraq and counterbalance Iraq's close ties with Iran. As well as building up bilateral relations at a government level, Saudi Arabia and its allies are engaging in dialogue with key Iraqi politicians, such as Moqtada alSadr. However, links with Iran are deeply embedded within Iraq's political, military and trade systems, and Saudi Arabia's diplomatic efforts are therefore very unlikely to lead to it replacing the Islamic Republic as the leading international influence within Iraq. The Gulf's Sunni monarchies have had an uneasy relationship with Iraq in recent years because of both its invasion of neighbouring Kuwait in 1990 and the emergence of a government led by the country's Shia majority, following the US invasion in 2003. Instead ties have tightened with Shia Iran, which has supported Shia-led governments since 2003 and provided military backing in the war against Islamic State (IS). Saudi bilateral ties Since 2003, bilateral relations between Iraq and Saudi Arabia have been strained, with Saudi Arabia periodically criticising the Iraqi government's treatment of its Sunni minority. Meanwhile, the Iraqi authorities have been opposed to Saudi Arabia's

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 31 actions against various Shia groupings in the region, such as sending troops into Bahrain in 2011 to crush mainly Shia protesters and executing Nimr al Nimr, a Saudi Shia cleric, in 2016. Saudi Arabia has, however, found common cause with Iraq in the war against IS, and has better relations with the current prime minister, Haider al Abadi, than his predecessor, Nouri al Maliki, who once went as far as accusing Saudi Arabia of backing Iraqi insurgents. This slight warming of relations has led to a series of positive diplomatic developments. In January 2016 the Saudi embassy in Baghdad reopened after a quarter of a century of closure, although the ambassador, Thamer al Sabhan, was removed in August 2016 after making controversial comments. In February 2017 Adel al Jubeir became the first Saudi foreign minister to visit Iraq since 1990 and on June 19th Mr Abadi visited Saudi Arabia for the first time. In addition, in late July the Iraqi cabinet formed a committee, headed by the interior minister, Qasim al Araji, to discuss expanding economic relations with Saudi Arabia, and on August 14th the Saudi cabinet similarly announced its own side of the bilateral co-ordination committee, headed by its trade and investment minister, Majed bin Abdullah al Saud. It is likely that, following this, there will be a revival in bilateral trade flows, with the reopening of the border crossing between the two countries. The crossing, close to the Saudi town of Arar, is on a desert highway that runs to Karbala and on to Baghdad. Since 1990, the crossing has only been open sporadically for Iraqi pilgrims visiting Mecca and Medina. The new plan, announced on August 15th— when Iraqi, Saudi and US officials toured the border—is to open it on a permanent basis for trade as well as transit. Wooing Sadr On July 30th Moqtada al Sadr, the firebrand Shia cleric and political leader, made a surprise visit to Saudi Arabia, meeting Mohammed bin Salman al Saud, the influential crown prince. Then, on August 13th, Mr Sadr visited Abu Dhabi, meeting its crown prince (and the effective ruler of the UAE), Mohammed bin Zayed al Nahyan. Little details emerged of what was discussed, but both meetings were portrayed in warm terms. Despite his background as a Shia militia leader who has studied theology in Iran, Mr Sadr is not such a surprising interlocutor for the Gulf states. He has long portrayed himself as an Iraqi nationalist, finding common ground with Sunnis in resisting the US occupation and more recently insisting that Shia militias should be under state control and integrated into the formal security forces. In June he formed an alliance with the nationalist Wataniya party, headed by Iyad Allawi, a secular Shia supported by many Sunnis, who has long been friendly with Saudi Arabia. Mr Sadr wants to maintain cordial relations with Iran, but prevent it from impinging on Iraqi sovereignty, particularly through influence over the militias, an area in which he has common ground with Saudi Arabia (and indeed with Mr Abadi). In one sense, he is a natural ally of the Sunni Gulf states, and we expect relations to continue to warm between the two in the medium term as they attempt to combat heightened Iranian influence in Iraq. Iran to remain primary player in Iraq The effectiveness of Saudi outreach to Iraq will depend in part on the result of the 2018 general election. If a government emerges led by figures like Mr Abadi and Mr Sadr (which we expect), who are keen to limit Iranian influence, then Iraq is likely to continue its expansion of ties with Saudi Arabia. If Mr Maliki or his ilk return to power, relations could well get frostier again. However, even with Mr Abadi remaining in power and Mr Sadr gaining seats, the Iraqi government will be unlikely to shift decisively away from its tight relations with Iran towards Saudi Arabia. The personal relationships and trade ties with Iran are so much greater than with the Gulf that such a shift remains inconceivable. Moreover, many of the Shia Popular Mobilisation militias have direct links with Iran, meaning that the Islamic Republic retains a military influence in Iraq that Saudi Arabia cannot compete with at present. Iran will therefore

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 32 remain the dominant external player in Iraq for the time being.

Economy Forecast updates August 24, 2017: Policy trends Majlis approves new cabinet Event The Iranian parliament has approved all but one of the 17 ministerial nominations put forward by the re-elected president, Hassan Rouhani. Analysis The approval of most of Mr Rouhani's nominations suggests that there will be a positive relationship between the legislature and executive during the president's second, four year term. The nomination of Habibolah Bitaraf as energy minister (a post he held under reformist president Mohammad Khatami in 1997 2005) failed by one vote after criticism that he lacked plans for dealing with water shortages in the country. Bijan Namdar Zanganeh, who continues as oil minister, said that his priorities would be to raise international investment and acquire more advanced technology in order to both boost gas exports and improve recovery from oilfields. Perhaps not surprisingly, Mohammed Javad Zarif, who continues as foreign minister, has said that Iran would work to maintain the 2015 nuclear agreement even if the US abandoned it. Reflecting the central thrust of the president's strategy of improving international relations as a means to boost trade, Mr Zarif also committed himself to establishing an economics department within the Ministry of Foreign Affairs. Meanwhile, Abbas Akhoundi, the transport minister, stressed the need to improve and expand rail transport, and Masoud Karbasian, who becomes economy minister after being deputy to Ali Tayebnia, would focus on job creation—although we expect progress in this area to be slow owing to the deep structural deficiencies in the economy. Brigadier-General Amir Hatami, the first defence minister for 20 years with no background in the Revolutionary Guards, received the strongest parliamentary backing of any nominee: he immediately pledged to continue Iran's missile defence programme in the face of US opposition. The parliamentary votes of approval reflect Mr Rouhani's success in building unity within the political class. The one post where he has still to nominate—the Ministry of Science, Research and Technology—covers higher education, long a battleground between hardline conservatives and reformists. However, Mr Rouhani seems set to avoid the difficult relationships with both parliament and the supreme leader, Ayatollah Ali Khamenei, that stymied the second presidential terms of both predecessors, Mahmoud Ahmadinejad and Mr Khatami. This strengthens his prospects in meeting international challenges and countering domestic opposition. Impact on the forecast The cabinet's composition suggests that there will be policy continuity under Mr Rouhani's second presidential term and, as a result, our policy trends forecast of gradual openness towards foreign participation in the economy and slow domestic social reforms remains unchanged.

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September 20, 2017: Policy trends Iran confirms oil production target of 4.5m barrels/day Event Ali Kardor, the managing director of the National Iranian Oil Company (NIOC) has announced that Iran intends to increase oil production to 4.5m barrels/day (b/d) by 2023. Analysis Mr Kardor's announcement confirms the country's intention to go beyond the levels before stringent US and EU sanctions were introduced in 2012. Mr Kardor also said that oil exports would reach 2.5m b/d by 2023. This would mark a marginal increase from the 2.3m b/d exported by Iran in July, according to the latest export data from the International Energy Agency (IEA). Meanwhile, OPEC cites a figure for Iranian production of 3.824m b/d in July, slightly up from the previous month. The July production level of 3.81m b/d, as provided by the IEA in its latest monthly report, is roughly the same as the pre­sanctions level—in a demonstration of the swift turnaround of Iran's oil fortunes since the partial lifting of sanctions in January 2016. The bulk of condensate production and exports comes from the South Pars gasfield, and officials have put exports between March and August at 90m barrels, which would indicate a daily average of around 600,000 b/d. This represents an increase on a figure of 550,000 b/d given by Mr Kardor in January. The current OPEC agreement (which aims to curb output and lift global crude prices), originally covering the first half of 2017 but recently extended to March 2018, envisages an overall reduction in production of 1.2m b/d. However, it allows Iran to return to pre-sanctions levels of around 3.8m b/d. In order to increase production, Iran is prioritising the improvement of recovery rates in oilfields in west Karun, Khuzestan province—including Yadavaran, Azadegan and Yaran—that are estimated to hold reserves of 67bn barrels. It plans to engage international operators on the new Iran Petroleum Contract, which is replacing the "buyback" contracts that gave foreign companies no incentive to maximise production. A decision over Azadegan, the biggest field, within eight months—with those submitting proposals including Italy's Eni, China's CNPC, Royal Dutch Shell (Netherlands-UK), France's Total, Japan's Inpex and Malaysia's Petronas. Impact on the forecast The oil production target of 4.5m barrels/day by 2023 is beyond our forecast horizon. Nonetheless, the recent production figures support our view of gradually rising Iranian crude output from slightly above 3.8m b/d in 2017 to 4.4m b/d by 2021. Our forecast remains unchanged.

Analysis August 16, 2017 EIU global forecast - The global economy is in a sweet spot As 2017 has progressed it has become clear that the global economy is strengthening. Three interest-rate rises in the past eight months by the Federal Reserve (Fed, the US central bank), faster inflation in major economies, higher manufacturing purchasing managers' indices and falling unemployment rates in the developed world are all indicators of a likely acceleration in economic growth in 2017. The big concerns about the global economy in recent years—falling commodity prices, deflation, negative government bond yields and overly restrictive

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 34 fiscal policies—have all become less apparent. Consequently, The Economist Intelligence Unit expects the world economy to expand by 2.8% in 2017, compared with a lacklustre 2.3% in 2016. There are, nevertheless, caveats to this positive story. The world's leading economies are at very different points of their business cycles, meaning that the current pace of growth is unlikely to last for long. We consider China to be the furthest through its expansion phase: there is evidence of capacity constraints in some sectors, and the government is tightening monetary policy through a gradual curbing of credit growth. In the US, the Fed is accelerating the pace of its interest-rate increases to combat an expectation of faster inflation and wage growth. The expansion in Europe is less well advanced. Although we have again revised our 2017 GDP growth forecast for the euro zone this month, to 2% from 1.9%, the regional economy is still in recovery mode. Unemployment in the euro zone is at its lowest since early 2009 but remains high compared with the rest of the developed world (and compared with levels before the global financial crisis), and there is little pressure on wages. Deflation is still a cause for concern in Japan, and, among emerging markets, Brazil and Russia are are only just emerging from recession. This lack of synchronicity in the global economy will prevent a surge in growth or major upward pressure on commodity prices. However, because the pace of growth is gradual, the global economy is able to expand without stoking inflation and thus drawing a major policy response from central banks. A decade on from the financial crisis, the global economy is finally in a sweet spot, albeit one that will prove short-lived. Among the consequences of the strengthening economic outlook are rising bond yields. Bond yields in the US and other developed markets bottomed out in mid 2016 and were given a shot in the arm by the election of Donald Trump at the end of the year. As businesses lost confidence in Mr Trump's ability to pass pro-growth policies, yields slipped in the first half of 2017. A speech in June by Mario Draghi, the president of the European Central Bank (ECB), in which he suggested that "deflationary forces" had been replaced by reflationary ones, jolted financial markets and pushed up bond yields by as much as 25 basis points in some euro zone economies. Alongside this, the Bank of Canada raised its policy interest rate for the first time since 2010 in June, and the Bank of England (BoE, the central bank) has struck a more hawkish tone. However, we do not believe that a concerted move towards higher interest rates among developed economies is imminent. The BoE is unlikely to raise rates until 2021. The ECB may wait even longer, after beginning to taper its quantitative easing programme in 2018. Monetary tightening in Canada will be gradual. The Fed is proceeding gradually in comparison with previous cycles. All of these economies still have slack in their labour markets and are experiencing either slowing consumer price inflation or high levels of imported inflation due to currency weakness. These forecasts suggest a manageable debt burden for those in OECD markets and a benign environment for emerging-market borrowers with hard-currency debts to refinance. Against the backdrop of a steadying global economy lies the highest level of political risk in years. At the centre of this is Mr Trump's administration in the US. Mr Trump is an unpredictable, thin-skinned and impulsive leader. This makes him a difficult ally for both Republicans at home and the country's allies abroad. It is also leading to a chaotic foreign policy, which, given the US's international reach, has consequences all round the globe. The US is seeking to abdicate its leadership of global geopolitics, as demonstrated by its withdrawal from the Paris climate agreement, its departure from the Trans-Pacific Partnership free-trade deal and Mr Trump's refusal to guarantee US support for NATO's Article 5. This is causing allies such as Germany and Canada to strengthen alliances elsewhere and offering the US's rivals, including Russia and China, the chance to broaden their influence. US consent is also likely to have enabled the Saudi-led boycott of Qatar that began in June. We believe that the shift in US foreign policy poses enormous downside risk to political stability and growth in the global economy. Were the US to withdraw from the North American Free-Trade Agreement (NAFTA), trade tensions with China to escalate into boycotts and

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 35 embargoes or worse, or the US and North Korea to stumble into conflict under the impression that military action from the other was inevitable, the consequences for the global economy would be broad and severe. Developed world The US economy is in relatively good shape, buoyed by rapid employment growth and rising house prices. However, wage growth has failed to take off despite the unemployment rate falling to its lowest level since 2001. We attribute this to a lower natural rate of unemployment, which means we have pushed back the date when we expect a business-cycle downturn by a year, to early 2020. In the period until then, GDP will grow by 2.2% a year, which represents the post-crisis new normal for the US. Europe's ongoing recovery phase will be consolidated over the forecast period, although political risk will remain high. For Japan we forecast growth averaging just 1% a year in 2017 21. The economy will be constricted by a shrinking workforce, a rising old-age dependency ratio and tight immigration controls. Inflation will remain well short of the Bank of Japan's target of 2%. Emerging markets The outlook for emerging markets in 2017 18 is reasonable, with growth quickening to 4.2% from an estimated 3.8% in 2016. Brazil and Russia, the third- and fourth-largest emerging economies, will both emerge from lengthy recessions, and many will benefit from a double-digit rise in industrial commodity prices. Furthermore, we expect financing conditions to remain relatively benign, albeit subject to occasional episodes of volatility. In 2017 China is on track to grow by 6.8%, which would be the first acceleration in growth since 2010. However, this growth is continuing to be generated partly through an increase in indebtedness, accompanied by rapidly rising property prices in some cities. We believe that this accumulation of debt, particularly in the corporate sector, is unsustainable, and we think that once the president, Xi Jinping, has consolidated his power at a party conference late in the year, he will sanction policies to rein in credit. Firms in the construction and real-estate sectors will be hardest hit. As a result, we forecast that growth will slow significantly in 2018, to 4.8%, from 6.8% in 2017. With China losing momentum, India will be Asia's fastest-growing large economy in 2017 21, expanding at an average annual rate of 7.6%. However, the economy is also going through a painful period. A lending spree earlier this decade has saddled state- owned banks with bad loans. Combined with excess capacity in the steel industry, this will depress corporate lending and investment for some time yet. We expect GDP growth in fiscal years 2016/17-2017/18 (April-March) to average 7.4%, before growth accelerates as the major reform programme led by the pro-business prime minister, Narendra Modi, generates greater benefits, especially in infrastructure and policymaking. Brazil's emergence from a two-year recession will help to lift aggregate growth in Latin America back into positive territory in 2017. But Brazilian growth will be meagre on a year-on-year basis as the country's damaging and protracted corruption scandal dampens confidence. We have revised up Mexican growth again, to 2.3%; the economy has been resilient in the face of deep uncertainty surrounding US-Mexican relations under the Trump presidency. The risk of weakening relations between the US and the wider region is high. The tenor of US trade and migration policies will be crucial. Our forecasts assume that Mr Trump's actions will largely fail to match his startling rhetoric. Prospects for rapid economic growth in the Middle East and North Africa (MENA) remain stifled by social unrest, war and terrorism. We expect the Saudi-led boycott of Qatar to last for years, as neither side will be willing to back down. As the situation evolves, the conflict will enter a new phase of tighter economic sanctions on the tiny Gulf state, which will undermine the position of the Qatari emir, Sheikh Tamim bin Hamad al-Thani, and see the economy slide into recession. Elsewhere, we expect a

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 36 general improvement in the region's economic outlook in 2018 21. Iran will drive this, owing to growth of over 5% a year. Coupled with the positive impact of a broad commitment to improving business environments, this will enable faster growth. However, our assumption is that oil prices will not be sufficient to enable exporters to restore the expansionary fiscal policies that were in place in 2011 14. Following a dismal performance by Sub-Saharan Africa in 2016, when growth was the slowest in 25 years, economies will perform better in 2017 18. Prices for exported commodities will rise, and the weather is likely to be more clement. Exchange rates After several years of historic highs, the US dollar has steadily lost value during 2017. We expect this trend to be partially unwound over 2018 19. Financial markets are overly sceptical about prospects for further Fed tightening. We now expect another 200 basis points of rate increases by early 2020. As financial markets reappraise the interest-rate outlook, the US dollar will once again begin to look more attractive. Nonetheless, we do not expect the dollar to recover to levels seen in late 2016. From 2020 the dollar is likely to resume a weakening trend as the business cycle turns and the Fed begins to cut interest rates. Commodities The OPEC production cut agreement has failed to deliver the desired rise in oil prices. We expect the cartel to be forced to extend the deal until the second half of 2018 and to unwind it only gradually, to avoid a disruptive market crash. We expect the price of dated Brent Blend, the international benchmark, to rise to an average of US$52/barrel in 2017 as the market registers a small deficit, before inching back down to US$50.8/b in 2018 as the OPEC deal slowly unwinds and as demand growth slows in the second half of the year, particularly from China.

World economy: Forecast summary 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Real GDP growth

(%) World (PPP* 3.4 3.4 3.6 3.4 3.2 3.6 3.3 3.5 3.2 3.7 exchange rates) World (market 2.3 2.4 2.7 2.7 2.3 2.8 2.6 2.6 2.2 2.7 exchange rates) US 2.2 1.7 2.6 2.9 1.5 2.1 2.1 2.2 0.8 1.9 Euro area -0.8 -0.2 1.3 2.0 1.8 2.0 1.8 1.7 1.5 1.6 Europe 0.2 0.8 1.8 1.9 1.8 2.1 1.9 1.8 1.7 1.9 China 7.9 7.8 7.3 6.9 6.7 6.8 4.8 4.9 5.4 5.1 Asia and 4.4 4.6 4.1 4.2 4.1 4.4 3.6 3.7 3.6 4.1 Australasia Latin America 3.0 2.8 1.3 0.2 -0.8 1.3 2.2 2.4 2.2 2.9 Middle East & 3.9 2.2 2.6 2.4 4.0 2.3 3.3 3.5 3.3 3.9 Africa Sub-Saharan 4.2 4.7 4.5 3.0 1.1 2.2 3.0 3.2 2.7 3.6 Africa World inflation (%; 4.0 3.8 3.6 3.2 3.8 4.3 3.9 3.6 3.0 3.0 av) World trade 3.5 4.0 4.5 3.1 2.5 4.0 3.2 3.1 2.4 3.7 growth (%) Commodities Oil (US$/barrel; 112.0 108.9 98.9 52.4 44.0 52.1 50.8 53.1 52.9 55.5 Brent) Industrial raw materials (US$; % -19.4 -6.8 -5.1 -15.2 -2.2 16.5 -0.8 -0.3 -3.8 2.7 change)

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 37 Food, feedstuffs & beverages (US$; % -3.5 -7.4 -5.2 -18.7 -3.5 -0.5 1.2 4.0 -1.6 2.4 change) Exchange rates

(av) ¥:US$ 79.81 97.56 105.86 121.02 108.76 111.14 109.22 110.10 103.48 100.00 US$:€ 1.29 1.33 1.33 1.11 1.11 1.13 1.16 1.15 1.20 1.20 *PPP=purchasing power parity Source: The Economist Intelligence Unit.

September 20, 2017 EIU global forecast - 2017 set for fastest growth since 2010 As 2017 has progressed it has become clear that the global economy is strengthening. Three interest-rate rises in the past nine months by the Federal Reserve (Fed, the US central bank), faster inflation in major economies, higher manufacturing purchasing managers' indices and falling unemployment rates in the developed world are all indicators of a likely acceleration in economic growth in 2017. The big concerns about the global economy in recent years—falling commodity prices, deflation, negative government bond yields and overly restrictive fiscal policies—have all become less apparent. Consequently, The Economist Intelligence Unit expects the world economy to expand by 2.9% in 2017, compared with a lacklustre 2.3% in 2016. There are, nevertheless, caveats to this positive story. The world's leading economies are at very different points of their business cycles, meaning that the current pace of growth is unlikely to last for long. We consider China to be the furthest through its expansion phase: there is evidence of capacity constraints in some sectors, and the government is tightening monetary policy through a gradual curbing of credit growth. In the US, the Fed is accelerating the pace of its interest-rate increases in expectation of faster inflation and wage growth. The expansion in Europe is less well advanced, but is gaining momentum as the recovery that has been building since 2013 broadens and becomes more entrenched. We expect euro zone growth to accelerate this year to 2.2%, up from 1.8% last year. Unemployment in the euro zone is at its lowest since early 2009 but remains high compared with the rest of the developed world (and compared with levels before the global financial crisis), and there is little pressure on wages. Deflation is still a cause for concern in Japan, and, among emerging markets, Brazil and Russia are only just emerging from recession. This lack of synchronicity in the global economy will prevent a surge in growth or major upward pressure on commodity prices. However, because the pace of growth is gradual, the global economy is able to expand without stoking inflation and thus drawing a major policy response from central banks. A decade on from the financial crisis, the global economy is finally in a sweet spot, albeit one that will prove short-lived. Among the consequences of the strengthening economic outlook are rising bond yields. In June Mario Draghi, the president of the European Central Bank (ECB), suggested that "deflationary forces" had been replaced by reflationary ones. The comment jolted financial markets and pushed up bond yields by as much as 25 basis points in some euro zone economies. Alongside this, the Bank of Canada has raised its policy interest rate twice in 2017, and the Bank of England (BoE, the central bank) has struck a more hawkish tone. However, we do not believe that a concerted move towards higher interest rates among developed economies is imminent. The BoE is unlikely to raise rates until 2021. The ECB may wait even longer, after beginning to taper its quantitative easing programme in 2018. Monetary tightening in Canada will be gradual. The Fed is proceeding slowly in comparison with previous cycles. All of these economies still have slack in their labour markets and are experiencing either slowing consumer price inflation or high levels of imported inflation due to currency weakness. These

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 38 forecasts suggest a manageable debt burden for those in OECD markets and a benign environment for emerging-market borrowers with hard-currency debts to refinance. Against the backdrop of a steadying global economy lies the highest level of political risk in years. At the centre of this is Donald Trump's administration in the US. Mr Trump is an unpredictable, thin-skinned and impulsive leader. This makes him a difficult ally for both Republicans at home and the country's allies abroad. It is also leading to a chaotic foreign policy, which, given the US's international reach, has consequences all round the globe. The precise definition of "America First" is hard to parse. The US has sought to reduce its international commitments through its withdrawal from the Paris climate agreement, its departure from the Trans-Pacific Partnership free-trade deal and its ambivalence towards NATO. This is causing allies such as Germany and Canada to strengthen alliances elsewhere and offering the US's rivals, including Russia and China, the chance to broaden their influence. But Mr Trump has also committed more US troops to Afghanistan and co ordinated the West's response to North Korea, while the protectionist promises on international trade have yet to materialise. On the whole, the US's shift to become an unpredictable international actor poses enormous downside risk to political stability and growth in the global economy. Were the US to withdraw from the North American Free-Trade Agreement (NAFTA), trade tensions with China to escalate into boycotts and embargoes or worse, or the US and North Korea to stumble into conflict, the consequences for the global economy would be broad and severe. Developed world The US economy is in relatively good shape, buoyed by rapid employment growth and rising house prices. However, wage growth has failed to take off despite the unemployment rate falling to its lowest level since 2001. We attribute this to a lower natural rate of unemployment. This means that the current business cycle is likely to run for several more years, until early 2020. In the period until then, GDP will grow by an average of 2.2% a year, which represents the post-crisis new normal for the US. Europe's ongoing recovery phase will be consolidated over the forecast period, although political risk will remain high. For Japan, we forecast growth averaging just 1% a year in 2018 22. The economy will be constricted by a shrinking workforce, a rising old-age dependency ratio and tight immigration controls. Inflation will remain well short of the Bank of Japan's target of 2%. Emerging markets The outlook for emerging markets in 2017 18 is reasonable, with growth quickening to 4.4% from an estimated 3.8% in 2016. Brazil and Russia, the third- and fourth-largest emerging economies, will both emerge from lengthy recessions, and many economies will benefit from a double-digit rise in industrial commodity prices. Furthermore, we expect financing conditions to remain relatively benign, albeit subject to occasional episodes of volatility. In 2017 China is on track to grow by 6.8%, which would be the first acceleration in growth since 2010. However, this growth is continuing to be generated partly through an increase in indebtedness, accompanied by rapidly rising property prices in some cities. We believe that this accumulation of debt, particularly in the corporate sector, is unsustainable, and we think that once the president, Xi Jinping, has consolidated his power at a party conference in October, he will sanction policies to rein in credit. Firms in the construction and real-estate sectors will be hit hardest. As a result, we forecast that growth will slow significantly in 2018, to 5.8%. By 2022 economic growth will have slowed to 5%. With China losing momentum, India will be Asia's fastest-growing large economy in 2018 22, expanding at an average annual rate of 8%. However, the economy is also going through a painful period. A lending spree earlier this decade has saddled state- owned banks with bad loans. Combined with excess capacity in the steel industry, this will depress corporate lending and investment for some time yet. We expect GDP this will depress corporate lending and investment for some time yet. We expect GDP

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 39 growth in fiscal years 2016/17-2017/18 (April-March) to average 7.2%, before growth accelerates as the major reform programme led by the pro-business prime minister, Narendra Modi, generates greater benefits, especially in infrastructure and policymaking. Brazil's emergence from a two-year recession will help to lift aggregate growth in Latin America back into positive territory in 2017. But Brazilian growth will be meagre on a year-on-year basis as the country's damaging and protracted corruption scandal dampens confidence. We have revised up Mexican growth again, to 2.4%; the economy has been resilient in the face of uncertainty surrounding US-Mexican relations under the Trump presidency. In Venezuela, severe economic stress is likely to bring about the downfall of the government led by the president, Nicolás Maduro, perhaps as soon as late 2018. Hurricane Irma, which devastated several Caribbean islands in early September, has not altered our economic growth forecast for the wider region. Prospects for rapid economic growth in the Middle East and North Africa (MENA) remain stifled by social unrest, war and terrorism. We expect the Saudi-led boycott of Qatar to last for years, as neither side will be willing to back down. As the situation evolves, the conflict will enter a new phase of tighter economic sanctions on the tiny Gulf state, which will undermine the position of the Qatari emir, Sheikh Tamim bin Hamad al Thani, and see the economy slide into recession. Elsewhere, we expect a general improvement in the region's economic outlook in 2018 22. Iran will drive this, owing to growth of over 5% a year. Coupled with the positive impact of a broad commitment to improving business environments, this will enable faster growth. However, our assumption is that oil prices will not be sufficient to enable exporters to restore the expansionary fiscal policies that were in place in 2011 14. Following a dismal performance by Sub-Saharan Africa in 2016, when growth was the slowest in 25 years, economies will perform better in 2017 18. Prices for exported commodities will rise, and the weather is likely to be more clement. Exchange rates The US dollar continued to weaken in September as Hurricanes Harvey and Irma created uncertainty about US growth prospects. The greenback is now at levels not seen since mid 2015 on a trade­weighted basis. However, we expect a more aggressive Fed than financial markets, which means that once these reappraise the outlook for monetary policy, the US dollar will once again begin to look more attractive. Nonetheless, we do not expect the dollar to recover to levels seen in late 2016. From 2020 the dollar is likely to resume a weakening trend as the business cycle turns and the Fed begins to cut interest rates. Commodities The OPEC production cut agreement has failed to deliver the desired rise in oil prices. We expect the cartel to be forced to extend the deal until the second half of 2018 and to unwind it only gradually, to avoid a disruptive market crash. We expect the price of dated Brent Blend, the international benchmark, to rise to an average of US$52.3/barrel in 2017 as the market registers a small deficit, before inching back down to US$51/b in 2018 as the OPEC deal slowly unwinds and as demand growth slows in the second half of the year, particularly from China.

World economy: Forecast summary 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Real GDP growth

(%) World (PPP* 3.4 3.6 3.4 3.2 3.6 3.6 3.7 3.4 3.7 3.5 exchange rates) World (market 2.4 2.7 2.7 2.3 2.9 2.7 2.7 2.3 2.7 2.6 exchange rates) US 1.7 2.6 2.9 1.5 2.2 2.2 2.2 0.8 1.9 2.0

Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 40 Euro area -0.2 1.4 2.0 1.8 2.2 1.9 1.7 1.5 1.6 1.5 Europe 0.8 1.9 2.0 1.8 2.3 2.0 1.8 1.8 1.9 1.7 China 7.8 7.3 6.9 6.7 6.8 5.8 6.1 5.6 5.2 5.0 Asia and 4.6 4.1 4.2 4.1 4.4 4.0 4.2 3.9 4.1 3.8 Australasia Latin America 2.8 1.3 0.2 -0.8 1.4 2.0 2.3 2.4 2.9 2.6 Middle East & 2.2 2.7 2.4 4.1 2.2 3.3 3.1 3.6 3.7 3.0 Africa Sub-Saharan 4.7 4.5 3.0 1.0 2.1 3.0 3.0 2.8 3.6 3.5 Africa World inflation 3.8 3.6 3.2 3.8 4.3 4.6 4.0 2.9 2.9 2.9 (%; av) World trade 3.4 3.1 2.2 2.2 4.0 3.4 3.4 2.5 3.5 3.4 growth (%) Commodities Oil (US$/barrel; 108.9 98.9 52.4 44.0 52.3 51.0 53.5 52.9 55.5 58.5 Brent) Industrial raw materials (US$; % -6.8 -5.1 -15.2 -2.2 18.3 -0.2 -0.9 -5.7 2.8 0.5 change) Food, feedstuffs & beverages (US$; -7.4 -5.2 -18.7 -3.5 -1.3 -0.3 2.9 0.5 2.3 2.4 % change) Exchange rates

(av) ¥:US$ 97.56 105.86 121.02 108.76 111.09 108.74 106.73 104.00 100.03 100.20 US$:€ 1.33 1.33 1.11 1.11 1.13 1.17 1.16 1.20 1.20 1.24 *PPP=purchasing power parity Source: The Economist Intelligence Unit.

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