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The governor of Iran’s central bank has warned that countries imposing unilateral sanctions against Iran could inflict long-term damage on trade. Mahmoud Bahmani told Emerging Markets in an interview in Washington that “this is the best time for Iran to discover who are true friends”. Tehran “would reconsider its ties with those countries that, under pressure, caved in”, he added. Bahmani said Iran was “powerful” as a major oil exporter and holder of the world’s second largest gas reserves. “So how can Iran be isolated, while the first negative effect would be for those countries involved?”
A new round of UN sanctions in June focused, at Russian and Chinese insistence, on Iran’s nuclear and missile programmes. But the US has pressurized countries to stop banks issuing letters of credit essential for trade – a dilemma for leading Asian economies, such as India and South Korea, which respectively import from Iran 14% and 10% of their crude oil.
Bahmani said South Korea would “suffer” if it extended measures that have included restrictions on the Seoul operation of Iran’s Bank Mellat, its only east Asian branch.
Despite strong US pressure, the Korean government has been wary of jeopardizing annual trade of $10 billion with Iran by appointing two state banks to finance trade.
In a message that may resonate around the developing world, Bahmani argued that “political and economic issues should not be mixed.”
“Countries imposing sanctions claim to favour the rights of nations,” he said. “All countries like to engage in trade. Sometimes they have to cave in under certain political conditions, but when it comes to their hearts, they do not believe in reducing trade.”
Bahmani denied claims by some analysts that a sudden 20% fall in the Iranian rial against the dollar in informal trading in Tehran at the end of September represented fundamentals.
“We should look at the exchange rate over the course of a year, not a few days,” he said. “Of course when people start talking about sanctions, there might be some economic tensions that result in an increase for a foreign currency.”
Bahmani added that Iran had sufficient reserves – in both foreign currency and gold – to cover demand. Tehran is believed to hold high foreign reserves of $60-80 billion.
The governor pointed out that with inflation down to 8.8%, from 25.4% a year ago, pressure for devaluation had lessened.
The Central Bank supervises exchange under a “managed float”. The rial rebounded by Thursday this week, the pre-weekend close, to below 10,800 against the dollar after dropping to a 12,500 on Wednesday as banks restricted the sale of foreign currencies. It is now nearly at the level of mid-September.
But the governor apparently allied himself with those in Iran, like former president Akbar Hashemi Rafsanjani, who, unlike president Mahmoud Ahmadinejad, have portrayed the new sanctions as a threat.
“Let me emphasize here that we do not welcome sanctions, but we do our best to adapt when times are tough,” Bahmani said, citing the reduction in gasoline consumption through rationing. President Ahmadinejad famously called the sanctions “a used hankie that should be put in the dustbin”.
- Additional reporting by Gareth Smyth