To Avoid a Currency Crunch, Iranian Automakers Are Trading Nuts for Bolts

In a typical year, 10 out of every 100 dollars that Iran spends on Chinese goods goes towards car parts. While the China-Iran trade relationship has languished under sanctions, China has remained a critical supplier for the Iranian automotive industry, which continues to produce over one million automobiles annually.

But over the last year, Iranian automakers have struggled to keep the parts flowing. Parts imports from China totalled $653 million in 2024, a precipitous 43 percent decline when compared to the previous year.

The fall in imports has led to a shortage of car parts in Iran, with consumers facing long wait times and soaring prices. The impact has been most acute for Iran’s private sector automakers, who mainly assemble cars using complete knock-down kits imported from China. Whilst Iran’s state-owned automakers are supported by a large ecosystem of domestic parts manufacturers, private-sector automakers remain heavily dependent on Chinese imports to keep their customers’ cars on the road.

The main cause for declining imports has been a lack of access to foreign currency, a consequence of US secondary sanctions restricting Iran’s banking relations with China. Even though Iranian oil exports to China have rebounded in recent years, they have not alleviated Iran’s foreign exchange crisis. Iranian companies seeking to import goods from China have struggled to receive timely allocations of renminbi through the Central Bank of Iran’s foreign exchange market.

As the currency bottleneck grew tighter over the course of 2024, imports continued to fall, and by the summer, the situation was being described as a “crisis.” In September, imports of car parts from China hit a nadir, with just $26 million worth of parts departing for Iran that month—a 65 percent year-on-year drop.

The outlook for the Iranian automotive industry looked dire until Iranian automakers stumbled upon an unexpected solution. In need of a new source of renminbi, many Iranian automotive firms turned to the pistachio business. Like oil, pistachios are a valuable commodity in which Iran is a world-leading producer. Unlike oil, pistachios are exempt from secondary sanctions.

Iranian automotive companies began purchasing pistachios from growers and leveraging their logistics networks to ship them to China. As a result, Iranian pistachio exports to China quickly surged to historic highs, enabling a modest recovery in car parts imports. In the last six months of 2024, Iran exported $195 million worth of in-shell pistachios to China—more than 2.5 times the volume achieved in the same period in 2023.

Pistachio growers and wholesalers, however, were not happy. Many Iranian pistachio wholesalers had given up on exports—leaving the Chinese market open to new entrants. The requirement to repatriate export earnings through the centralised foreign exchange market made margins unattractive for many agricultural firms. But for automotive companies, profit from pistachio sales was never the primary objective. Selling nuts provided a quick way for them to earn the foreign currency they needed to import car parts, which could then be resold in Iran at much higher margins. By October, industry leaders were complaining of “chaos in Iran's pistachio trade” as automakers turned into “inefficient competitors of Iran's real pistachio exporters.”

Pistachio exporters are reportedly seeking an understanding with the automakers who edged onto their turf. They plan to sell their foreign currency to automakers at a rate agreed with the supervision of the Central Bank of Iran, ensuring sufficient margins to incentivise them to prioritise exports once again.

Sanctions have not crushed the Iranian economy, but they have made pistachios more valuable than oil, forced importers to become exporters, and pushed automakers into competition with farmers. In adapting to sanctions pressure, the solution to one crisis can beget another, leaving a country trading nuts for bolts.

Photo: IRNA

Here's What Iran Wants From Sanctions Relief

Back in February, Iran’s Supreme Leader, Ali Khamenei, set out an early condition for new negotiations over the fate of the JCPOA. In a major speech outlining Iran’s “final” stance on U.S. reentry into the nuclear deal, Khamenei declared that sanctions relief must be implemented “in practice” and not just “on paper.” Iran would also “verify” that sanctions relief commitments had been met before fulfilling its own commitments under the restored agreement.

Khamenei’s demands were shaped by the bitter experience of the Trump administration’s withdrawal from the JCPOA and unilateral reimposition of sanctions. The issues surrounding sanctions relief and Khamenei’s demands hung over six rounds of negotiations in Vienna. They are again being cited as a possible reason for the Raisi administration’s slow return to the nuclear talks. But what exactly Iranian leaders envision for verifiable sanctions relief has been unclear.

A new report, published by the Office of the Deputy for Economic Research of the Majlis Research Center, the influential research body of the Iranian parliament, offers the first detailed assessment of what verified sanctions relief might look like. The report, entitled “Verifying Sanctions Relief,” does not represent the official position of the Raisi administration, but given the timing of its publication and the affiliation with parliament, it likely represents an emerging consensus about how best to meet Khamenei’s demands while also assuaging the concerns of Iranian parliamentarians who feel the JCPOA is inherently unfair. Many of the details in this new report are drawn from an April 2021 report published by the same research centre that also looked at issues around the verification of sanctions relief. But the new report is more detailed in its diagnosis of the problem sanctions verification seeks to address and the mechanisms that should be used.

In particular, the report aims to address the perceived imbalance between paragraphs 26 and 36 of the JCPOA. Iran interprets paragraph 26 to allow it to lessen its commitments under the deal if sanctions relief is not fully implemented—an interpretation that is disputed by the P5+1. Paragraph 36, meanwhile, allows any party to trigger the dispute resolution mechanism and begin the process of “snapback” of sanctions—a provision that Iran considers a tool for the West to renege on the deal. Additionally, the report outlines an asymmetry in the ways in which Iran’s nuclear commitments under the JCPOA and the sanctions commitments of the P5+1 are overseen and implemented. Unlike nuclear commitments, sanctions relief commitments lack a verification and monitoring mechanism, can be obstructed, are slow to implemented, and can be undone unilaterally through snapback. The report summarises this asymmetry in the following table (translated here):

To address this asymmetry, the report calls for measures to be taken in three broad areas. What is striking about these measures is their practicality. The report basically calls for a more institutional and technical approach to sanctions relief in which a checklist provides Iranian policymakers an ability to assess the implementation of sanctions relief on an ongoing basis. As part of this approach, the report also sets out targets for oil exports and bilateral trade with Europe.

New Verification Body

The report calls for the designation of an Iranian body or institution to oversee verification of sanctions relief. This could be the Supreme National Security Council or it could be a new body established with its own staff and active secretariat. The body would have three tasks:

1. Observe and assess the actual impact of sanctions removal.

2. Establish a mechanism so that any Iranian person or entity can submit a complaint about issues related to sanctions relief.

3. Prepare an action plan for decreasing nuclear commitments in the event that other parties to the JCPOA renege on their commitments. Actions might include ceasing the voluntary application of the Additional Protocol, producing uranium metal, increasing enrichment above 20 percent, or expanding the number of operational IR6 centrifuges.

Verification Checklist

The new verification body would perform its mission in accordance with a defined “checklist.” The checklist would have two sections. The first section relates to specific actions and targets related to American and European sanctions relief commitments. The stipulations include:

1. Iran should be able to export oil and gas condensate according to its rightful market share of 2.5 million barrels per day (bdp) with an initial target of 2 million bdp.

   This target is feasible—during the sanctions relief afforded Iran under the JCPOA in 2016-2018, Iran exports hovered between 2 and 2.5 million bpd.

2. Iran should be able to increase bilateral trade with key European partners and conduct normal banking transactions to facilitate that trade. The report stipulates an initial monthly target of $3 billion in transactions with EIH Bank in Germany, rising to $4.2 billion. Monthly transactions with the French branch of Tejarat Bank are targeted at $1 billion, rising to $1.5 billion.

   Here, the report has highlighted Iranian-controlled financial institutions in Europe as the key conduits, perhaps reflecting how in recent years Europe-Iran trade has been increasingly run through smaller European banks without Iranian ownership or management. While the report stipulates “transactions,” the targets here are high when likely trade totals are considered. Even if we interpret that key Germany and France-based banks may process most EU-Iran trade, the total initial transaction volume envisioned of $48 billion is significantly higher than the total value of EU-Iran trade in 2016 following the lifting of sanctions. That year, bilateral trade reached just over EUR 20 billion. While the transaction targets could include foreign investment in Iran, it is unlikely that either EIH or Tejarat Bank can scale-up to handle the envisioned volumes.

3. Iran will also seek to verify a range of sanctions lifting measures taken by the Biden administration. This includes the removal of executive orders issued by “two American presidents,” a likely reference to Trump and Biden that suggests a desire for non-nuclear sanctions designations, such as the Foreign Terrorist Organization designation of the Islamic Revolutionary Guard Corps, to be lifted. In addition, the report calls for the update of the website of the Office of Foreign Assets Control (OFAC), the sanctions enforcement body of the U.S. Department of Treasury. OFAC is to cease publishing notices, advisories, and fact sheets that dissuade trade with Iran and should increase the issuance of licenses and exemptions to ease trade

   This stipulation that means the report authors understand U.S. primary sanctions will continue to pose a challenge for Iran’s engagement with the global economy.

The second section of the checklist focuses on ongoing efforts to decrease the risks of doing business with Iran once sanctions have been lifted. These stipulations reflect the perception in Iran that following the lifting of sanctions “on paper” in January 2016, the Obama administration took a lackadaisical approach to supporting the normalisation of global trade and investment in Iran. The continued characterisation of Iran as a high-risk jurisdiction is seen to have hampered economic engagement. Therefore, the checklist would require:

1. The removal of all measures that have presented Iran as a jurisdiction with high risk of money laundering and adoption of measures to normalise economic relations with Iran.

2. Changing the basis of guidance to banks issued by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) from risk-based to rule-based.

3. Maximal removal of sanctioned individuals and entities from the SDN list and a substantive review of SDN and non-SDN sanctions lists.

4. Removal of statements by OFAC and other institutions that dissuade humanitarian trade and maritime trade with Iran. In addition, there should be new licenses issued to all banks that hold Iranian oil revenues in order to ensure the timely release of frozen assets.

5. A written commitment from neighbouring countries not to take action against foreign entities willing to engage Iran economically.

6. Official statements proclaiming that medium and long-term economic engagement with Iran is permissible and refraining from any action that would damage engagement with Iran.

Notably, the report does not indicate that Iran would make progress on key measures such as implementation of the Financial Action Task Force (FATF) action plan that would substantially change the perceived risk associated with engaging with the Iranian financial system. While the demand that FinCEN changes its guidance from risk-based to rule-based is unrealistic, it does point to a desire for a more prescriptive approach from the U.S. government that may create a basis for reciprocal regulatory reforms in Iran. Here, the report is pointing to the issue of over-compliance by international banks, which deem the risks and costs of transacting with Iran, even in support of clearly permissible trade, to be too high. FinCEN’s risk-based guidance essentially places the burden on financial institutions to determine the appropriate level of due diligence, putting bank managers in an uncomfortable position where minimising risk means maximising administrative burdens. A more prescriptive approach, like the rule-based approaches taken by some European regulators, may reduce the incidence of over-compliance by eliminating the uncertainty around just how much due diligence is required to mitigate anti-money laundering or counter-terrorist financing risks.

Ongoing Monitoring

Finally, the report envisions that the verification of JCPOA-related sanctions relief will be take place on an ongoing basis. The verification body would produce a quarterly report that would certify that Iran is benefiting from sanctions relief in accordance with the checklist. This monitoring function would track developments in five key sectors: baking and finance, transportation and logistics, oil, gas, and petrochemicals, aviation, and industry and mining. The body would also consult across government and with the private sector. As part of its report, the body would offer its recommendation as to whether Iran should remain in the JCPOA, decrease its commitments, or cease participation. The quarterly reports would be used by Iran to inform its engagement with the JCPOA Joint Commission. Interestingly, the report envisions an Iranian body tasked with verification and does not outline the creation of an international third-party body that would be the true analogue for the IAEA. This may reflect a lack of trust that the third-party body would be impartial.

Outlook for Negotiations

As the Raisi administration has delayed its return to the Vienna negotiations, fears have grown that Iran will not continue the talks where they left off in the sixth round, instead returning to the table with new and unreasonable demands. But there is little to indicate that Khamenei’s “final” stance on the talks have changed since February, meaning that the key unknown is how reasonable Iranian negotiators will be in seeking to secure his core demand for verified sanctions relief. To this end, the new report from the Majlis Research Center should be reassuring. While some of the demands are unreasonable, for example the high targets for Europe-Iran trade and the insistence on changes to how FinCEN provides guidance, they are undeniably technical. Should this report reflect an emerging consensus about how to “improve” the JCPOA not by changing its terms, but by improving its implementation, then the outlook for negotiations may be less dire that many predict. A focus on technical shortcomings rather than political or strategic flaws indicates that Iran sees the value of a restored JCPOA but wishes the benefits to be assured and durable. Should the Biden administration be prepared to acknowledge the shortcomings in the sanctions relief provided to Iran between 2016-2018, there are ways in which verification can be addressed within the context of the deal.

Photo: IRNA

Iran Declares Gasoline Self-Sufficiency but Challenges Still Remain

During a grandiose opening ceremony attended by President Hassan Rouhani and Oil Minister Bijan Zanganeh, Iran inaugurated the third phase of its Persian Gulf Star Refinery in the energy-rich south February 18, declaring "self-sufficiency" in fulfilling national gasoline demand.

Located 25 kilometers west of the port city of Bandar Abbas, the refinery will enable Iran's average daily gasoline production to reach 105 million liters, according to official figures.

The facility, fed by condensate from the South Pars Gas Field in the Persian Gulf, converts light crude into gasoline and other byproducts. The launch of the third phase has been described as a gigantic step in a country whose economy is slowing the face of sanctions reimposed following President Donald Trump's withdrawal from the Joint Comprehensive Plan of Action (JCPOA).

Despite sitting on the world's fourth-largest proved crude oil reserves, Iran has been historically reliant on imports to meet domestic gasoline demand due to insufficient refining capacity.

The latest phase of the Persian Gulf Star Refinery has cost the country USD 4 billion, financed entirely by domestic investment, with no foreign loans secured for the project. While producing 45 million liters of gasoline and 15 million liters of gasoil per day, the refinery also delivers 3 million liters of aviation fuel, as well as 130 tons of sulfur. Iran's oil ministry expects to save USD 15 million per day as imports volumes are expected to fall. The savings are especially important for a government already struggling to supply foreign currency markets amid increasing international banking restrictions.

"Iran's gasoline production has made history with its giant leaps in the past five years," declared Zanganeh during the inauguration ceremony, adding that increased gasoline production would help Iran "to counter unilateral US sanctions".  

With the new refinery added to Iran's gasoline production cycle, Iran could feasibly export surplus production.  Yet uncertainty related to US sanctions as well as skyrocketing consumption at home in recent years seem to have made the government think twice about export plans. "We have intentionally decided not to export our [surplus] gasoline, because we are planning to maintain good storage,” Zanganeh added without elaborating further.

With Iran's budget largely dependent upon its oil income, experts have for long sounded the alarm on the long-term consequences of the country's single-commodity economy. Consecutive administrations have, therefore, pursued policies to make the economy less reliant on the sale of crude oil. While the goal is yet far from being met, the Rouhani government has focused on diversifying energy exports to include other, higher-value petrol products such as gasoline and gasoil.

"Self-sufficiency in gasoline and gasoil production and moving toward exports were targets set and pursued by the government of Hope and Prudence," reported Arman, a reformist newspaper. In a February 19 editorial, the paper noted that in the face of disruptions caused by the US pullout from the JCPOA, Iran's oil ministry had redoubled efforts toward the self-sufficiency in gasoline production and that more countries besides Iraq and Afghanistan are expected to join the list of Iran's gasoline customers.

The inauguration of the new refinery phase took place just one week after nationwide ceremonies to mark the fortieth anniversary of Iran's Islamic Revolution. State media outlets hailed "gasoline self-sufficiency" as an “achievement and blessing" bestowed by the Islamic Revolution upon the nation. "It came at a time of economic war being waged on our country, with the enemies going the extra mile to inject disappointment in [the minds of] young Iranians," declared a report from the Islamic Republic News Agency (IRNA).

The governor-general of Hormozgan province had earlier described the new refinery as a successful example of Iran’s push to establish a "resistance economy", a term coined by Iran's Supreme Leader Ayatollah Ali Khamenei. The concept has now evolved into a directive to all government institutions, a strategy to neutralize Western measures and a roadmap toward economic independence during sanctions times.

The leading contractor involved in the project was Khatam al-Anbia Construction Headquarters, known by the acronym GHORB. The company is an engineering, procurement, and construction firm with a near monopoly over Iran's mega projects. GHORB is affiliated with Iran's powerful Islamic Revolutionary Guard Corps (IRGC).

Saeed Mohammad, the company’s managing director, told Iran's state TV that the country's share in the enormous South Pars Field now exceeds that of neighboring Qatar. Mohammad also noted that the project was executed by an exclusively Iranian team with an average age of around 30 years old.

But even with the new refining capacity, worries persist that Iran's new gasoline self-sufficiency may be short-lived as domestic consumption continues to rise. The country’s average daily consumption last summer stood at 97 million liters, according to a report by the financial newspaper Donya-e-Eqtesad. Notwithstanding the total capacity of 105 million liters achieved after the inauguration of the third phase, the 9% annual consumption growth rate "will use up the stored gasoline,” the newspaper reports.

Consumption continues to rise because gasoline in Iran remains cheap. Despite rising inflation, Iran's government has in recent years maintained a cap on the price of gasoline. Experts lament the fact that with considerable subsidies allocated to gasoline, the government has not only failed to curb the consumption, but has in fact stoked it. President Rouhani's budget plan for the upcoming Iranian year offers no provision to reduce subsidies in order to reduce consumption.

The future of genuine gasoline self-sufficiency in Iran might be less bright than the development of the Persian Gulf Star Refinery suggests.

Photo Credit: IRNA

Iran’s Oil Exports Rise Month-to-Month Ahead of Sanctions Deadline

A new report from TankerTrackers.com indicates that Iran exported an average of 2.2 million bpd of crude oil in the first two weeks of October, a 10 percent rise from the September average.

October’s higher export volumes may reflect long-standing customers buying more oil ahead of planned reductions in November, when sanctions are expected to prevent many refiners from taking Iranian crude.

But the exports are nonetheless significantly higher than what many market analysts had projected and so far constitute just a 10 percent reduction average export volumes prior to President Trump’s withdrawal from the nuclear deal in May. Reports had suggested exports would fall to just over 1 million bpd in October.

Add to this the news that refiners like Turkey’s Turpas and India’s MRPL may receive sanctions waivers that will allow them to sustain purchases of Iranian crude and it looks increasingly possible that Iran will be able to sustain export volumes well-above 1 million barrels per day following the reimposition of sanctions on November 5.

When broad sanctions were last introduced on Iran’s oil sector in 2012, exports fell from 2.6 million bpd to just 1.4 million bpd in 2014 as countries tapered their imports of Iranian crude.

Should Iran manage to sustain export volumes around 2014 levels, it would be a significant achievement both because of the Trump administration’s effort to drive Iran’s exports to “zero” and also because of the important factor of oil prices. Back in 2014, oil prices fell 40 percent between June and December, settling to below USD 40 per barrel in 2015.

With today’s oil price double that figure, Iran is approaching November with a more bullish outlook than many had predicted. Iranian oil minister Bijan Zanganeh recently stated that the United States “has done most of the things it could do, and there is not much left to do against Iran,” with the aim of restricting exports.

On the other hand, as David Sheppard of the Financial Times writes, “While there may be more crude than first anticipated in the market for now, should the US ultimately succeed in hammering Iran’s exports lower the market could be in for a sharp shock after November 4.”

It looks like we are heading for a photo finish.

Photo Credit: IRNA