Iran’s Punitive Transaction Costs
The Tehran stock exchange had its worst monthly showing and was flat for the year as a tougher round of international trade and financial sanctions took hold, slashing oil output to a 20-year low and resulting in a record fine in the US for dedicated emerging bank Standard Chartered for uncovered violations. As the vise went into effect in July monthly petroleum production fell to 3 million barrels as customers scrambled to find alternative supply from Saudi Arabia, Russia and Iraq. A small Chinese lender was caught in the net for doing business with the regime, as UAE institutions with longstanding cross-strait links such as Noor Islamic Bank began to pull back. Regulators in New York and Washington now can pull the licenses and ban correspondent dealings with any intermediary that maintains even indirect connection through the worldwide SWIFT messaging network under the latest legislative proposals. Stanchart had long been under investigation by state and federal agencies for so-called name stripping to mask client identity, and its exposure followed illicit flow disclosures at HSBC and ING on a lesser scale. In 2011 40 percent of crude went to European buyers that along with shippers and insurers are under prohibition, and India, Japan and Turkey have also cut imports. Higher global prices have not made up for the volume fall with revenue off 25 percent, aggravating the hard currency shortage under the multi-tier system which favors food and other essential items. The rial has dropped over 50 percent against the dollar and official inflation is above 25 percent. According to the central bank, system liquidity was up 6.5 percent in the first quarter of the Iranian calendar year and it will respond with large bond sterilization operations. On the equity market auto listings have been battered by a 35 percent sales slump, while the metals and mining sectors are also down despite p/e ratios around 5. Notwithstanding the sentiment, a $1.5 billion refinery privatization IPO went ahead in June, although other company blocks were rejected.
Israeli shares likewise fell on confrontation odds as the central bank head acknowledged crisis preparation in the event of military action against nuclear facilities. The centrist party Kadima quit the government in a dispute over religious student army service and the timeline for a strike may be influenced by calls for early elections. With GDP growth unlikely to reach the 3 percent forecast, the benchmark interest rate was reduced 25 basis points and the fiscal deficit target was raised. The shekel slid to 3.9 to the dollar on the shifts as foreign investors continue to shun local bonds after imposition of withholding tax. Family-owned conglomerates are experiencing their own debt woes as leverage and a popular divestiture push prompt restructurings in another adversarial arena.
