February currency review

When Vladimir Putin decided to invade Ukraine a year ago and the West imposed sanctions, including curbs on Russia's energy exports, Iran had a golden opportunity to become a primary replacement supplier of oil and gas to the world. For that to have happened, however, the Iranian government needed to rekindle the nuclear deal it had struck with global powers when Barack Obama was US president but which had subsequently been dumped by Donald Trump. Only then could its own international sanctions, which barred its sales of energy abroad, be lifted.

While Tehran was negotiating to revitalise the deal, hopes were high that the dearth of export revenues, which had crippled the economy, might end, and the Iranian rial enjoyed a few months of rare stability. However, it soon became clear Iran's rulers would not agree to concessions demanded by Joe Biden and others, bringing a halt to talks, and the rial's fortunes turned sharply negative.

Since August 2022, when hopes for a new deal began to fade, the rial has lost more than half its value against the euro, falling 21% in February alone as the economic crisis in Iran intensified. Of particular concern now is turmoil in manufacturing industries, which have struggled under sanctions anyway and have been hit more recently by work stoppages during social unrest and soaring input costs due to globally high inflation. With domestic inflation also seriously elevated, and unemployment rising, Iranian citizens are suffering and protests go on. Further currency losses are likely, which will push inflation up even more.

For expatriate residents in Iran who receive pay in stronger foreign currencies, the weakness of the local currency means inflation is at least partly offset. Nevertheless, if you need more information on how best to deal with such volatile scenarios as Iran presents currently, when managing your international assignees, do please get in touch. 

* Open-market rate

** Sayrafa rate

The world's strongest currencies during February can be seen in the next table. The Mexican peso's gains are particularly noteworthy as they continue a long and consistent trend which has seen it gain 16% against the euro in the last 12 months. Despite a lot of questionable policy-making from President Andrés Manuel López Obrador, the peso has benefitted from the Mexican economy's strong correlation with that of the United States, which has enjoyed unexpectedly solid growth.

Finally, here is this month's selected currency movements table: