Iran's currency jumped more than 3 percent against the US dollar on Sunday as news of a breakthrough deal to curb Tehran's nuclear programme raised hopes that the economy would start recovering from international sanctions. The deal provides for Iran to receive temporary, conditional access to several billion dollars of blocked funds over the next six months as diplomats try to negotiate a final agreement.
By itself, this will not come close to offsetting the tens of billions of dollars which Iran has lost over the past two years as the sanctions have slashed its oil sales and largely frozen it out of the global banking system.
But by reducing the chance of military action against Iran and raising the prospect of more sanctions relief in future, the Geneva pact may stem capital flight from the country and encourage a partial revival of domestic investment. This could be enough to pull the economy out of the recession which has gripped it for most of the past two years, while encouraging Iranian and foreign businessmen to begin rebuilding trade ties.
"We are feeling the positive sentiment in Iran," Nariman Aflani, a foreign exchange trader at AFI Group, an Iranian civil engineering firm in Tehran, said by telephone.
Prices of construction materials such as ceramics and cement in Iran are already coming down because people hope a gradual loosening of sanctions will make it easier for the country to obtain supplies from abroad, he said.
Under Sunday's deal in Geneva, Iran will receive potential access to $1.5 billion in revenue from trade in gold and precious metals, and permission to transfer $4.2 billion of revenue from its oil sales across borders.
In total, the concessions are worth about $7 billion - a small sum compared to the continued cost of the sanctions, which will deprive Iran of about $30 billion of oil revenues over the next six months, the US government said.
But this comparison underestimates the importance of the Geneva deal to the economy of 75 million people, as the Iranian rial's jump against the dollar on Sunday underlined.
The rial traded at around 29,000 against the dollar in Tehran's free market, up from about 30,000 before the nuclear deal was announced, Iranian traders said. Heavy supplies of dollars appeared as speculators anticipated capital flight from Iran would slow with the easing of diplomatic tensions.
At some times on Sunday, nobody in the market was willing to buy dollars, traders said - a dramatic contrast from last year, when the rial lost about a third of its value in a few months.
A firmer outlook for Iran's currency could help to revive its foreign trade in a range of agricultural and consumer goods other than oil, by reducing the foreign exchange risks which have deterred many traders over the past two years. Also, foreign and Iranian businessmen may become more willing to do deals - even under the existing sanctions framework - if they feel that political trends have shifted in their favour, and that they will not face even harsher sanctions or enforcement from Western governments in the future.
"Up to now, the trend has been towards more restrictions on trade," said Hossein Asrar Haghighi, a founder of the Iranian Business Council in Dubai, which is a major conduit for Iran's trade with the rest of the world.
Dubai's non-oil trade with Iran has shrunk by over a third in the past 18 months, totalling $2.9 billion in the first half of 2013, according to Dubai customs data.
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