World News

Iranian rial plunges as coronavirus threatens export lifeline

DUBAI (Reuters) - Iran’s rial hit a one-year low against the dollar on Wednesday as a sharp rise in coronavirus cases forced the closure of most of its borders, threatening the non-oil exports that are its main economic lifeline.

FILE PHOTO: Iranian women wear protective masks to prevent contracting coronavirus, as they walk in the street in Tehran, Iran February 25, 2020. WANA (West Asia News Agency)/Nazanin Tabatabaee via REUTERS

The dollar was being offered at as much as 158,500 rials on Wednesday, well below its official rate of 42,000 rials and 10% lower than a week earlier, according to foreign exchange website, which tracks the free market.

Iran’s coronavirus death toll rose to 19, the highest outside China, pushing several countries to suspend flights and most of its neighbours to close their borders.

Mounting U.S. sanctions pressure has already shackled Iran’s oil industry and slashed its crude exports.

“The whole market is currently in shock,” said Pouya Zeinali, export director at Padideh Pistachio, an Iranian producer and exporter of pistachios. He said the borders had been shut for two or three days and the effect on exports would become clearer from next week.

The border closures and flight cancellations seem certain to deepen Iran’s economic isolation. It has relied on trade ties with its neighbours to partly offset the crippling impact of sanctions re-imposed by Washington in 2018 after it quit a nuclear deal that it and other big powers had agreed with Tehran in 2015.

“The economic risks are significant. Iran’s lifeline over the past year has been non-oil exports to neighbouring countries,” said Henry Rome, an analyst at Eurasia Group.

“If these temporary border closures extend indefinitely, Iran could face a serious economic crisis, at a time when the economy had actually started to turn around.”

The International Monetary Fund expects Iran’s growth to be flat this year after a 9.5% contraction last year in the wake of the U.S. sanctions, which curbed oil sales and pushed annual inflation to close to 40%.

A weaker currency may further lift inflation and hit domestic consumption, while lower exports may further increase unemployment, which some analysts expect will top 20% this year.

Despite a recession last year and expectations of stagnant growth in 2020, the Iranian stock market performed well last year, as profitability of some listed companies improved because they receive payments for exports in hard currency while they pay their employees in rials.

This may change, however, in the case of sustained cuts to exports and subsequent decreases to foreign currency inflows, which may also lead the government to cut back on spending – a move that analysts think could lead to further social unrest.

editing by John Stonestreet