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Iran’s cost-of-living squeeze belies push for economic self-reliance

Every day Mohammad Hosseini feels squeezed by Iran's soaring prices, his experience of hardship at odds with a rosy official target of 8 percent economic growth even with US sanctions still in place.

The retired teacher's plight is found across the Islamic Republic, where worsening economic misery is palpable after years of harsh US sanctions and Iranian mismanagement.

“Every day we are getting poorer. My salary is not even enough for paying bills and the rent every month,” said Hosseini, who has three children and five grandchildren.

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“After 30 years of teaching at school, now I have to drive a taxi at age 65 to finance my family,” he said. His monthly income is about $250.

The economy is the top challenge for Iran's ruling clerics, who fear a revival of protests that have erupted since 2017 by lower and middle-income communities angry at growing poverty.

And yet hardline President Ebrahim Raisi has vowed not to link the economy to nuclear negotiations with world powers, even though the talks could lift most US economic curbs through the revival of a 2015 pact limiting Tehran's atomic programme.

Instead, his government has promoted a “resistance economy” centred on self-sufficiency, trade ties with regional neighbours and improving economic interaction with China and Russia.

But many analysts believe Iran's only ticket out of economic decline is to end the US curbs, which have slashed vital oil exports and increasingly isolated it from global markets.

Iran has avoided total economic meltdown, thanks mainly to oil exports to China and higher crude prices. But oil exports are still well below their levels before the re-imposition of sanctions by former US President Donald Trump following his abandonment of the nuclear pact in 2018.

“While new agreements with Moscow and Beijing will generate headlines and strengthen Raisi’s hand at home, they will almost certainly be less than meets the eye,” wrote Henry Rome, an analyst at Eurasia Group.

“And they do not reflect a shift in the two countries’ willingness to defy US sanctions or overlook the Iranian nuclear program.”

China, Iran's biggest oil customer, is one of the few countries that continues to do business with Iran despite sanctions. But selling oil with a discount to China, analysts say, means revenues fall short of their full potential.

“A nightmare”

Prices for basic goods like bread, meat, dairy and rice have skyrocketed in the past months. Meat is too expensive for many, costing $40 a kilo. The official inflation rate stands over 40 percent. Some estimates put it over 50 percent.

The price of electricity, water and natural gas used for factories, cooking and heating homes have doubled.

A mother of three in Tabriz city, Mehrbanu, said she could only afford basic goods for her two children.

“My husband and I can hardly afford putting food on the table,” she said, adding that their total monthly income as house-cleaners was around $150. “How can we continue like this without having a permanent job? We have lost many of our clients because they are also cutting their expenses.”

Iran's economy contracted sharply after 2018 because of sanctions. It rebounded in 2020 and is on track for a second year of GDP growth at around 3 percent, according to the World Bank.

US oil and banking sanctions prompted Tehran in 2019 to gradually violate the deal's nuclear limits. Significant gaps remain in indirect talks since April aimed at reviving the pact.

“It is an ongoing nightmare … Every day the pressure grows. I had to close my tile factory in Yazd city. I could not import material, export tiles and the worst part was not being able to pay wages,” said businessman Hassan, 48, who plans to leave Iran with his family of four.

“The officials are in no rush to save the nuclear deal because they don't feel the economic pain like us.”

Iran's government has dismissed forecasts by its critics that its economic policy will worsen social misery.

But a former senior Iranian official, who asked not to be identified, said Iran's “revolutionary identity” could not be preserved by running the economy based on an ideology.

“With US sanctions in place, Iran's economic issues will further deteriorate,” he said. “That means more strikes and unrest.”

‘Poorer every day’

Drawn up on the assumption that sanctions would continue, Raisi's budget for the next fiscal year that starts in March aims for 8 percent economic growth. The government expects 9 percent higher revenues from oil exports and a 62 percent increase in tax revenues. Analysts are sceptical about such a projected revenue rise.

However, authorities' defiant rhetoric resonates with some Iranians loyal to the establishment.

“Becoming an independent country needs sacrifice …We have to give our president a chance to implement his plans,” said housewife Zahra Rezazadeh, 42, from Iran's Mashhad city.

State media regularly report layoffs and strikes by state employees over low salaries and by private sector workers unpaid for months. With sanctions curbing exports and making raw materials hard to source, hundreds of factories have shut.

Authorities say only 10 percent of Iran's workforce is unemployed. But many formal jobs pay a pittance, meaning the true figure of people without adequate work to live on is probably far higher.

A plunge in the rial – which halved in value since 2018 – has forced employers to cut payrolls. Playing down the impact of sanctions, Raisi has said his government had no concerns about the rial's value.

Raisi said in December his government had “successfully initiated policies to secure economic stability and the control of prices”.

A Tehran bookshop owner, Mohammad, 51, disagreed.

“Authorities only talk and make promises, but in reality we are getting poorer every day,” said Mohammad, a father of two.

Read more:

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Oman’s sovereign wealth fund may float IPO for water firm Majis Industrial Services

Oman’s sovereign wealth fund, the Oman Investment Authority (OIA), is considering a public share-sale for water company Majis Industrial Services, two sources close to the matter said.
The OIA has invited banks to pitch for roles in Majis’ initial public offering, said the sources, declining to be named as the matter is not public.

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The OIA and Majis did not respond to Reuters’ requests for comment.
The OIA, which holds $17 billion worth of assets according to the Sovereign Wealth Fund Institute, was created in 2020 when two of the sultante’s wealth funds –- State General Reserve Fund and the Oman Investment Fund –- were merged into one entity.
Oman aims to list 35 state-owned enterprises in the next five years and plans to take one or two oil companies public this year, the CEO of the Muscat Stock Exchange told CNBC Arabia in March.
Majis covers two industrial areas in Oman, the SOHAR Port and Freezone and Sohar Industrial Estate, delivering seawater, treatment, supply, and waste management to customers who require cooling water, potable water, and wastewater services.
The company also owns a significant minority stake in Dubai-based utilities firm Utico, which it acquired for $400 million in 2019.
Oman, which according to S&P gets 75 percent of fiscal receipts from hydrocarbon products, has introduced some reforms to diversify revenues, including introducing a 5 percent value-added tax last year.
The reforms and a shake-up of state entities are being driven by Sultan Haitham bin Tariq al-Said, who took the throne in early 2020 after the death of Sultan Qaboos, who ruled the small oil producer for nearly five decades.

Read more: Oman, Iran sign cooperation deals in oil, gas sectors

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Abu Dhabi’s Borouge petrochem firm secures anchor investors including India’s Adani

Abu Dhabi-headquartered petrochemicals firm Borouge said on Monday it secured seven cornerstone investors, including India’s wealthy Adani family for its $2 billion initial public offering (IPO).
The Abu Dhabi National Oil Company and Borealis’ joint venture set the offer price for its IPO at 2.45 dirhams ($0.67) a share, which implies an equity value of $20 billion, it said in a statement.

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Borouge said it secured a total commitment of about $570 million from Abu Dhabi state holding firm ADQ, the Abu Dhabi Pension Fund, the Emirates Investment Authority, India’s Adani family and entities controlled by International Holding Company, Multiply Group, and Alpha Dhabi.
Books for the initial public offering were covered in about an hour after opening, a bookrunner on the deal said. ADNOC declined to comment.
The company, whose products are used in items such as cars and food packaging, said last week that its offering will consist of approximately 3 billion existing shares, representing 10 percent of the company’s issued share capital.
Gulf oil producers are following in the footsteps of Abu Dhabi with plans to raise tens of billions of dollars through sales of stakes in energy assets, capitalizing on a rebound in crude prices to attract foreign investors.

Read more: ADNOC and Borealis to float 10 pct stake of joint venture polymer giant Borouge

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Biden says he’ll review Trump’s China tariffs, fueling yuan rally

China’s offshore yuan extended its advance after US President Joe Biden said he’ll discuss tariffs on Chinese imports with Treasury Secretary Janet Yellen upon return from his Asia trip.

The currency jumped as much as 0.7 percent to 6.6549 per dollar, the strongest level since May 5. It had risen 1.5 percent last week, the most since 2020, in response to easing lockdowns in Shanghai. Sentiment was also boosted by the reduction of a key interest rate for long-term loans on Friday by Chinese banks.

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“A reduction of US-China tariff is taken to be positive for US-China relations and that translates to yuan gains,” said Fiona Lim, a senior currency analyst at Malayan Banking Bhd. “However, we are wary that mentions of tariff reduction have surfaced time and again,” she said.

Biden has maintained most of the tariffs imposed by his predecessor, Donald Trump, including duties on more than $300 billion in Chinese imports.

But the president has come under pressure from some economists and lawmakers and the US Chamber of Commerce to reduce or eliminate the tariffs with inflation running at the hottest pace in four decades.

US economists say lifting the tariffs would help to ease inflation, but aides within the administration don’t to want to suspend tariffs and risk appearing soft on China ahead of the November midterms.

Other Asian currencies along with the Australian dollar received a boost from Biden’s comments. The Aussie rose as much as 1.2 percent to 0.7126 per greenback at 3:01 pm in Hong Kong.

Any easing of tensions between US and China can set a more benign environment for constructive Aussie-Sino relations as well, Maybank’s Lim added.

Read more: Biden says willing to use force to defend Taiwan

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