In the run-up to the nuclear deal between Iran and the six world powers, there was talk of more than $100 billion of Iranian assets being unfrozen as a result of the Joint Comprehensive Plan of Action (JCPOA). Nonetheless, on July 15, Valiollah Seif, the governor of the Central Bank of Iran (CBI), announced that the total amount of “usable funds” that will be released will be “$23 billion belonging to the CBI and about $6 to $7 billion belonging to the government.” Two days later, Gholamreza Mesbahi Moghaddam, a leading member of the Majles Plan and Budget Commission, put the total figure at $130 billion. It is evident that such divergences will cause confusion. The discrepancy created such controversy that Seif wrote a public letter to President Hassan Rouhani to explain the details, underlining that “though the total amount of foreign reserves is $107 billion, only $26 billion will be usable.”
The fact is that both these figures could theoretically be correct. Indeed, the nuance in Seif’s letter is the term “usable.” In the words of Finance and Economy Minister Alireza Teyebnia, “It is a question of how one defines Iran’s external assets.” He states that Iran’s hard currency reserves abroad amount to $100 billion, but what can be used is the figure that the CBI governor has outlined.
To shed light on the difference, some key figures need to be dissected. Before discussing the various positions, it is important to note that Iran has returned about $25 billion of its external reserves since the implementation of the interim Joint Plan of Action in January 2014.
- CBI funds frozen in international bank accounts following US sanctions on financial dealings with the bank total $23 billion. These are holdings that the CBI has not been able to access since 2012.
- Funds belonging to the Iranian government parked in Indian bank accounts amount to about $7 billion. This is the balance of crude oil exports to India since 2012. In return for crude exports, Tehran received some commodities (especially rice), some funds (via third countries), and also retained a balance in US dollars, which can be used once the sanctions are lifted.
- Government funds blocked in Chinese bank accounts total $22 billion. This money cannot be accessed immediately post-sanctions as it has been used as collateral for Chinese financing of Iranian projects over the past five years. It will stay in Chinese savings accounts until the loan and financing facilities are repaid by the Iranian or Chinese project owners.
- CBI funds that have been allocated to petroleum sector projects amount to $25 to $35 billion. Historically, segments of CBI’s international reserves would be invested in hard currency in petroleum sector projects. Such investment schemes would be operated through Naftiran Intertrade Company (NICO), which is the National Iranian Oil Company’s (NIOC) international trading arm. In other words, NICO would borrow hard currency from CBI instead of borrowing money from international banks. These funds would be used for the purchase of equipment or for investments in the petroleum sector. Only CBI and NICO can produce an accurate figure for these funds as it is a fluid position, but Seif has put it at $25 billion, while others have mentioned figures of up to $35 billion. Whatever the reality, none of those funds can be used by the CBI at the current juncture. NICO and NIOC could start using the freed-up sums for their ongoing projects, and considering the low oil price, it is evident that these funds would flow into current or future projects. Also, in the past few years, NIOC has financed a number of projects through allocating future crude oil production to investors or financiers. Depending on the nature of those financing contracts, NIOC may be obliged to repay the financiers through unfrozen cash and release its own future production for exports.
- The deposits of Iranian banks in international accounts amount to $15 billion. Before the harshest wave of banking sanctions hit in 2012, Iranian banks had considerable holdings with international banks, partly as a guarantee for their domestic hard currency savings and partly as collateral for their dealings with their respective corresponding banks (especially for letters of credit). Evidently, these holdings were also frozen, and they will be unfrozen in the course of the JCPOA’s implementation. However, these funds are at the disposal of the individual banks and not at the government or the CBI.
- The holdings of Iranian companies and citizens in international banks currently amount to up to $10 billion. This figure is the biggest question mark as there is a lot of ambiguity. Many Iranian companies and individuals had foreign holdings when banking sanctions kicked in. Though some of the Western banks issued warnings to their Iranian clients before freezing their accounts, many companies tried to continue their business through international banks. Some companies, such as NIOC subsidiary National Iranian Tanker Company, used to have billions of dollars in international accounts. As far as individual citizens are concerned, as argued in a 2013 article for Al-Monitor, the push for closures of foreign accounts led to an unprecedented injection of capital into the housing sector in 2008/2009. Nonetheless, large sums remain stranded in international accounts, and these should also be released in the course of the JCPOA’s implementation.
Combined, the figures above total more than $100 billion in external reserves, which will have a new status once sanctions are lifted. Furthermore, the CBI’s foreign gold reserves as well as Iran’s frozen assets in the United States could also be added to the list. In this case, one could actually approach the $130 billion barrier, though the final figure will depend on the evaluation of Iranian funds and properties that are frozen in the United States.
While it is clear that unfreezing the blocked funds in the United States would require a longer legal process, it is valid to argue that the Iranian economy would be in a much better financial position once the JCPOA is implemented — probably in the first half of 2016.
Though the CBI governor argues that only about $30 billion will be usable, these funds would have a lot more potential through creative expert solutions. For example, the $22 billion in Chinese bank accounts do not have to remain frozen in one-to-one financing agreements. In fact, the CBI could repay the Chinese financiers, free up that capital, and enter into more attractive deals with international financial institutions. This is not possible under the existing sanctions regime, but it should be very feasible once the current limitations have been lifted.
Furthermore, once Iranian banks and companies can freely access their international holdings, they should be able to generate value for the Iranian economy, either through import or export financing and other international cooperation.
Finally, whatever the total funds at the government’s disposal may be, President Rouhani has instructed officials to use them for infrastructure projects and to promote domestic industries. This decree reflects two key issues: Rouhani remaining focused on job creation as both infrastructure and domestic industry have strong employment effects, as well as the government’s desire to empower Iranian industry as it feels vulnerable to a potential opening of the domestic market.