There were some positive signals emerging from the new rounds of negotiations separately between the US and Iran and the European Union and Iran.
Iran and the US had their first one-to-one meeting in almost three decades on 28 May which was held in Baghdad and covered issues of mutual interest concerning Iraq. Although the talks were limited to each country’s role in Iraq, the fact that the two rivals chose dialogue rather than confrontation and the fact that the meeting took place on a one-to-one and equal basis and without preconditions sent a positive signal and raised hopes of an eventual rapprochement between the two nations. Both Iranian and US officials showed a willingness to continue on the negotiation path and both emphasized a mutual interest in seeing a stable and secure Iraq.
In another development, Iran’s top nuclear negotiator Ali Larijani met with the EU foreign policy chief, Javier Solana to discuss Iran’s nuclear program. Both gentlemen stressed that the meeting was positive and constructive and emphasized the need for further dialogue to resolve the impasse created over the nuclear issue. The results of these discussions were observed in the following weeks when the representatives of the International Atomic Energy Agency (IAEA) travelled to Iran and met with Iranian officials to draft modalities for resolving the outstanding issues, and also when rumours of a “time-out” of additional UN sanctions began to circulate in the Western diplomatic circles.
Another important development in the month of June was the introduction of gasoline rationing in Iran. Due to low prices, the consumption of gasoline recently surpassed production by 75%, forcing the government to import $5 billion worth of gasoline per annum. Low gasoline prices not only encouraged high domestic consumption but also led to alarming gasoline smuggling figures (around 10 million litres a day). Additionally, high domestic consumption was causing serious side-effects such as heavy traffic in large cities, and serious air pollution in metropolitan areas.
Over the years there have been many discussions on ways to curb gasoline consumption levels and to lower subsidies without causing a sudden rise in gasoline prices thus creating further inflation. The solution proposed by both the parliament and the government was the introduction of a monthly consumption cap which is enforced through the mandatory use of smart-cards tracking the consumption level of each vehicle. The gasoline smart-cards were distributed amongst Iran’s 7 million vehicle owners in the past few months and the rationing officially began on 29 June. Early results from the first few days illustrate a 30% drop in daily gasoline consumption, 20% decrease in Tehran traffic, 30% improvement in air quality in Tehran and an 8% rise in the number of public transportation passengers. More analysis on the positive and negative impacts of this plan will be provided in future editions of this newsletter.
Prepared by Turquoise: Turquoise is a boutique investment bank based in Iran with offices in Tehran and London. Turquoise publishes Iran Investment Monthly with the aim of keeping its recipients updated on the latest macroeconomic developments in Iran, providing an in-depth analysis of the Tehran Stock Exchange as well as introducing new financial products and private equity opportunities to potential investors. For more information please visit: www.turquoisepartners.com/iraninvestment
