Iranian election gives rise to rial

A vendor awaits customers at the spice souk in Deira, Dubai. The election of a new reform-minded president in Iran should boost trade with the UAE. Jumana El Heloueh / Reuters

A 15 per cent rally in Iran's currency since Hassan Rowhani's victory in the presidential election has bolstered anticipation of a thawing in commercial relations, including with the UAE.

Dubai exporters, in particular, hope the currency's rise can be sustained to boost their chances of being repaid debts owed to them by Iranian buyers.

"Psychologically, the election has created a more optimistic environment and has had an impact on the currency as a result," said Hossein Haghighi, a consultant in Dubai and a spokesman for the Iran Business Council in Dubai. "Greater stability in the currency gives people confidence about their future plans and it may help ease the suffering for traders in Dubai."

The rial's unofficial exchange rate against the US dollar has reached 31,500, from 36,250 a week ago. The rally follows an almost halving in the value of the rial since the start of last year when the United States and European Union began sanctioning Iran's oil exports and its access to the global banking system.

Much of the turnaround has been credited to the election of the reform-minded Mr Rowhani. Appearing more moderate than his predecessor, Mahmoud Ahmadinejad, Mr Rowhani has spoken of his desire to be more transparent over its disputed nuclear programme.

"Tension has been taken out of the market," said an Iranian trade insurer in Dubai who asked to remain anonymous. "The election result has broken the negative bubble in the currency market."

The currency's fall and tightening sanctions have been blamed for the decline in Iran's trade with the UAE, once a major commerce partner for the Islamic republic. Trade between the two countries sank by nearly a third last year to Dh25 billion, down from Dh36bn the year before, according to data from Dubai Customs.

Fuelling the rial's appreciation has been a surge in Iranians introducing dollars stashed at home to the market because of fears a rebalance in the Iranian currency may undermine their value. Many had turned to dollars as inflation of more than 30 per cent eroded the value of their savings in rials.

A sustained upturn in the currency's fortunes could help to ease the substantial debt owed to traders in Dubai. The depreciation made it difficult for buyers in Iran to pay for goods they ordered, sometimes up to six months before, on credit.

Any easing of sanctions would also help to unblock restrictions on the flow of goods between the outside world and Iran. For decades, the UAE acted as a conduit for the onward passage of a variety of goods to and from its neighbour.

The EU foreign policy chief Catherine Ashton said yesterday that she hoped Iran's new government would work with world powers to ease concerns about its nuclear programme.

"I really hope that we might see some progress," Ms Ashton, who represents United Nations Security Council powers and Germany in nuclear talks with Tehran, was quoted as saying by Bloomberg. "We've put some good confidence-building measures on the table."