Full UK ties may boost trade
Middle East Economic Digest
May 28, 1999
Full diplomatic relations were restored with the UK on 18 May, completing
Tehran's rapprochement with the EU. The upgrading of ties could speed up
insurance cover by the UK's Export Credits Guarantee Department (ECGD)
for several big oil and gas projects. The two countries agreed to exchange
ambassadors a decade after downgrading relations over a death decree issued
by the late Imam Khomeini against the UK novelist Salman Rushdie. The ambassadors
will be the respective charge d'affaires, Nick Browne and Gholamreza Ansari.
"This step marks the end of years of dispute," UK Foreign
& Commonwealth Office Minister Robin Cook said in a statement. "It
opens the way for us to rebuild a healthy and mutually beneficial friendship
and to work with Iran in its path of reform and renewed openness to the
The exchange of ambassadors was agreed in 1998, when the two sides announced
a compromise settlement over the Rushdie row. ECGD has since offered to
provide cover for at least two big oil and gas projects being negotiated
by UK firms. Department officials will not specify the projects or the
amounts involved, but say there will have to be guarantees through offshore
accounts. Among UK companies bidding for energy projects are the Royal
Dutch/Shell Group, Enterprise Oil, LASMO, Premier Oil and BG. Shell and
Enterprise are bidding for the offshore Soroush and Nowruz oil fields.
Seyyed Mehdi Hossaini, deputy oil minister in charge of international
affairs, and deputy oil minister Ali Hashemi were in London in mid-May
to discuss energy projects with UK Energy Minister John Battle and oil
companies. The two men were to go on to Italy and Spain for talks with
Edison Gas, ENI and Repsol. Rial falls after halt to TSE exchange role
The government halted the role of the Tehran Stock Exchange (TSE) in
foreign exchange transactions in mid-May, effectively raising the cost
of hard currency for importers. The move has resulted in the rial's black
market rate falling by about IR 200 to IR 8,400 to the dollar.
Exporters required to repatriate their hard currency earnings have for
two years been allowed certificates which they could exchange through the
stock exchange at a floating rate - thus raising their total rial earnings
for each dollar closer to the black market rate.
Initially, each dollar certificate was worth about IR 1,500, which came
on top of the official rate of IR 3,000 offered by the banking system.
In 1999, the value of the certificate rose to about IR 4,000, allowing
exporters to convert their dollars at a rate of about IR 7,000 to the dollar
- compared with the black market rate of about IR 8,000.
Exporters who have been using official channels to convert their hard
currency earnings into rials now deal privately with importers. This has
resulted in an initial increase in the value of the certificate to about
IR 4,500, causing a corresponding fall in the value of the local currency.
The measure will boost non-oil exports. But it will increase the cost of
imports and fuel inflation, business people say. There has been no official
comment by Bank Markazi (central bank).