An old Iranian proverb that has been borrowed from the poet Sheikh Bahai reads, “A good year can be recognized through its spring time.” Well, emotionally, the Iranian New Year started with a major boost, when it was announced April 2 that Iran and six world powers had identified solutions that could provide the basis for a comprehensive nuclear agreement. Street celebrations and a hero’s welcome extended to the nuclear negotiating team were all expressions of the positive psychological impact of the announcement. Furthermore, the Iranian rial strengthened in trading on April 4 (the first full working day after the New Year holidays), indicating a more optimistic outlook for the country’s business community.

Of course, the comprehensive deal is not final yet and both sides have agreed to negotiate the details of a final deal in the next few months with the hopes that a comprehensive agreement can be achieved by June 30. Below I will examine the outlook for some of the economic indicators based on the assumption that the two sides will manage to agree on a comprehensive deal that will lead to the lifting of the key economic and financial sanctions by the end of 2015. I believe that the bottleneck of sequencing of steps and the pace of sanctions relief can be resolved through commitments from both sides within a UN Security Council resolution. Evidently, one can also think of more pessimistic outcomes, but the regional situation is too fluid to contemplate all possible scenarios. Focusing on one will allow us to understand the economic dynamics of a potential comprehensive agreement.

Foreign exchange rate

The first reaction to the declaration of Lausanne was a strengthening of the rial. Nonetheless, the rate bounced back to its previous level of 33,000 rials to the dollar. In parallel, the official forex chamber rate has consolidated around 28,000 rials to the dollar. Some experts are proposing that the Central Bank should use the potentially freed up hard currency to fortify the rial. However, the strengthening of the rial will present a challenge to Iranian exporters, who would have to absorb the 15% annual inflation and an appreciation of the local currency. Therefore, one can expect a push from the growing export community in Iran to develop a policy that would not undermine the export potential. It is therefore plausible that after the finalization of a comprehensive deal, both these rates would gravitate toward 32,000 rials, paving the way for a single exchange rate by the end of 2015.