RatingsDirect: Report says Lifting Sanctions Will Boost Iran’s Economy And Fuel the Growth of Islamic Finance

The agreement Iran has reached: regarding its nuclear program could bring about its eventual economic rebound, and help boost Islamic finance. This is according to a report published today by Standard & Poor’s Ratings Services titled “Lifting Sanctions Augurs Well For Iran’s Economy And The Growth Of Islamic Finance.”…..

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Iran agreed the Joint Comprehensive Plan of Action with the P5+1 (China, France, Russia, the U.K., and the U.S. plus Germany) in July. We believe this bodes well for Iran’s economy, if and when sanctions are lifted, and could

boost Islamic finance. Iran is one of the largest players in the industry, contributing to around 40% of global Islamic banking assets. If the agreement is approved and Iran meets all deliverables, sanctions may start to lift in the first half of 2016. The World Bank estimates this would help Iran’s oil exports rebound to pre-2012 sanction levels within 8-12 months. Sanctions lifting could also restore Iran’s access to the global financial markets. Under this scenario, Iran’s GDP growth would hover around 6% annually in fiscals 2017 and 2018 according to market estimates, compared with less than 1% in 2015 (IMF data).

We expect that accessing the sukuk market might help Iran raise funding for its projects and be seen by global Islamic investors as a diversification opportunity. The Islamic financial market could also benefit from volume effects as post-sanction investment projects are reportedly high. This could support market growth in the medium term.

The flipside of sanction removals is the possible drop in oil prices. This could intensify pressure on some oil exporting countries that rely heavily on oil revenues, in turn curbing their spending and banking system growth.

Under Standard & Poor’s policies, only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook.


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