When Mohammad-Reza needed parts for his heater company in Iran last month, he carried a bagful of 500-euro notes on a plane to Dubai and paid his German supplier over coffee in a hotel lobby. Often, he says, he has to use even riskier channels.
Mohammad-Reza, who declined to give his surname for fear of reprisals, says he uses informal currency transfers called hawala to get around the sanctions that cut Iran off from the global banking system. "Everything's based on mutual trust," he said in an interview in his Tehran office, describing a widely used network of unofficial middle-men. "The currency shops in Tehran don't give you a receipt, and it's not clear when the supplier in Germany, the Czech Republic or South Korea will receive it. Sometimes money gets lost in transmission."
Like the Iranian economy, Mohammad-Reza's business has shrunk under the impact of the trade and currency curbs imposed by the U.S. and allies to restrain the Islamic republic's nuclear program. Iran's oil exports have plunged by more than half, slashing government revenue. President Hassan Rouhani described the recession as a national security issue during the campaign that culminated in his election in June.
While in the U.S., Rouhani had a historic telephone conversation with President Barack Obama, and told the Washington Post he's eager to resolve the nuclear dispute within six months.
That timescale may have been put forward with the risk of an economic crisis in mind, said Mark Dubowitz, president of the Foundation for Defense of Democracies, which advocates tougher sanctions on Iran. The U.S. House of Representatives voted in August for the restrictions to be tightened, though the measure hasn't gone into effect.
"Rouhani has limited time to deliver on his promise to stabilize the economy," said Dubowitz. "Iran is facing a serious foreign exchange crisis."
Dubowitz, together with Rachel Ziemba at New York-based research firm Roubini Global Economics, published a study of Iran's currency resources last week that found reserves will probably drop to about $70 billion by the end of this year. Iran's central bank said in July that it had reserves of more than $100 billion.
What's more, Iran probably only has immediate access to $20 billion, covering less than three months of imports, Dubowitz and Ziemba said. About $50 billion is tied up in countries that buy Iranian oil, such as China and Turkey, and can only be spent there under the sanctions regime.
'No Other Option'
Iran gets about $3.4 billion of oil revenue a month, and almost half of that is accumulating in escrow accounts in those countries, suggesting that Iran is struggling to find goods there that it wants to import, Dubowitz and Ziemba said.