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Iran’s economy set for post-nuclear deal boost

Monday, 25 Nov 2013 | 5:44 AM ET
Iran deal buys us time: Pro
Monday, 25 Nov 2013 | 7:03 AM ET
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Iran's economic troubles may have been what finally brought it back to talks which ended in a breakthrough nuclear deal with six other world powers on Sunday.

President Hassan Rouhani put the economy at the top of his priority list when he was elected this year, appointing a strong team of economic advisers. Rouhani welcomed the deal, brokered by foreign minister Mohammad Javad Zarif , which placed limits on his country's ability to enrich uranium. Rouhani claimed that it showed the sanctions regime led by the U.S. "had been broken" – although there had in fact been very little movement on the issue.

"Rouhani has very clearly prioritized dealing with the country's economic problems," Hassan Hakimian, director of the London Middle East Institute at the School of Oriental and African Studies and an Iranian émigré, told CNBC.

"These problems are partly due to mismanagement and partly to the sanctions. The administration is dealing with a legacy which is not very good."

(Read more: 'Rose-colored glasses' on Iran)

It may be difficult to measure a rebound when Iranian economic reporting is notoriously opaque. This is something Rouhani seems to be eager to tackle compared to his predecessor, Mahmoud Ahmadinejad. In September, Iran's central bank said that gross domestic product shrank by 5.4 percent in the year to March 20.

Inflation, which the central bank said is a whopping 44 percent, is a serious cause for concern.

The country is in its second year of recession, according to the International Monetary Fund. Imports fell by 20 percent and exports by 28 percent last year as sanctions bit into the economy. One estimate, from U.S. conservative thinktank Foundation for the Defense of Democracies and Roubini Global Economics, suggested that Iran could only afford three more months of the status quo, beginning from October.

Iranian President Hasan Rouhani.
Kaveh Kazemi | Getty Images
Iranian President Hasan Rouhani.

Germany, France, Italy and Sweden were particularly important trading partners for Iran before the most recent round of sanctions. The country exports car components and other industrial goods as well as its most famous commodity, oil.

(Read more: Has the 'Mideast premium' been removed from oil?)

While the sanctions against oil and industry hurt, the Iranian government is also directly affected by the difficulty accessing funds held by international banks. And there has been very little movement from the Western powers on these points.

Iran's currency, the rial, rose around 3 percent against the dollar after the deal was announced. An extended increase in its valuation could help hamper Iran's rampant inflation.

"This deal should be seen in the context of the push for re-establishing relationships between Iran and the Western partners," Mehrdad Emadi, senior economist at BetaMatrix, who is based in London but originally from Iran, told CNBC.

It will probably take 24-36 months for the effects to trickle down to ordinary Iranians, according to Emadi.

"While the agreement will likely provide some relief to the Iranian economy over the next six months, during which further negotiations are planned to take place, the large majority of sanctions, including those on crude oil exports, finance and banking remain in place," commodities research analysts at Goldman Sachs pointed out.

And tourism could even be the next growth industry for curious Westerners, if Iran seems like a less dangerous place, Hakimian said. Tehran tours may yet be Iran's economic saving grace.

- By CNBC's Catherine Boyle. Twitter: @cboylecnbc.