Iran is a mysterious country to many.
It is sort of disconnected from the world.
And the reason for that is sanctions.
The US, UK, and the UN had put these sanctions in place.
Why?
Iran’s nuclear program. They feared Iran was trying to develop nuclear weapons.
Iran insisted that it was not doing so; and that their nuclear program was for peaceful purposes like power plants.
But there was some evidence to suggest that Iran was indeed working on weapons.
Hence, the sanctions.
These sanctions practically crippled Iran.
Iran — an oil-producing Middle-eastern country — was unable to sell oil to most buyers.
In this globalized and connected world, many advanced products are traded across borders.
Iran has difficulty trading those products.
Many Iranian companies are banned from doing business with other countries.
Most well-known Western companies do not operate in Iran or in a very limited manner.
Iranians feel the difficulties of living in a heavily sanctioned country every day.
The Western world and Iran had extremely strained ties.
But somewhere it seems like both sides wanted a solution.
In the early 2010s, things finally started to look up for Iran — after decades of difficulties.
Obama
US President Barack Obama started an effort to solve the US-Iran situation.
Talks initially started behind closed doors. Not many knew about it.
Obama’s side started negotiating on crucial terms.
Their concern was nuclear weapons.
After heavy negotiations, the two sides presented their discussion to the world.
Uranium needs to be enriched for nuclear use. This is done using centrifuges.
The short version is that 20% enriched Uranium is enough for power generation. 90% and above is used for weapons.
Obama’s officials had negotiated for many advanced centrifuges to be shut down.
Essentially, Iran agreed to use centrifuges that were only necessary for 20% enriched Uranium, but not a higher level.
They also agreed to reduce their stock of enriched Uranium by 98%. So at any time, they would have far less enriched Uranium at their disposal.
All research and development was also to happen in a few chosen locations.
They even agreed to shut down some of their programs and change the design of some of their facilities so as not to allow the making of nuclear bombs.
And lastly — this is quite unbelieve — Iran agreed to let international inspectors into Iran.
These inspectors would inspect nuclear facilities and make sure no nuclear weapons were being developed.
There was one last catch.
Most of these restrictions would be valid for 15 years (till 2031).
Signatures took place in 2015.
The US lifted many sanctions in 2016.
The immediate effect was that Iran could freely sell oil in the global markets.
Financial institutions were allowed to transact. Other financial services like insurance were allowed.
Restrictions in the automobile sector were lifted. Shipbuilding-related sanctions were removed.
Immediately, Iran's economy started showing good signs.
Money started to flow in. Economic activity picked up.
They recorded a growth of 12.5% in 2016 itself.
Trump
While Obama was getting this deal done, his opposition party in the US voiced their opinion against the deal.
They said the deal was not strong enough to prevent Iran from making nuclear weapons in the future. The 15-year limit of many restrictions was mentioned often.
“The Iran Deal was one of the worst and most one-sided transactions the United States has ever entered into” — Donald Trump’s words.
Trump also added the deal did not put any restrictions on Iran’s missile development.
He further argued that the deal did not contain restrictions on Iran’s military activities in the Middle East.
On 8th May 2018, he announced the US was withdrawing from the Iran Deal.
He also announced he was re-introducing sanctions.
Barely a few months after signing the deal, Iran was back to where it was — with lots of sanctions and restrictions.
Iran’s oil production fell by 80%.
Iran’s banks and financial system were disconnected from the Western system again.
The economic activity started moving down again.
Inflation shot up to 30%.
It was economic devastation all over again for Iran.
And the trigger?
A US president change.
Change of Guard
Was Obama right? Or was Trump right?
That is a discussion for another day. Both sides present many arguments and to some extent, both seem right.
Some might even argue for or against Iran.
The reality is that matters related to the US and Iran are multi-layered.
We will not get into that in this write-up.
The fact to note is this: the US is an economic powerhouse with immense impact.
And within the US, there are differing opinions.
When someone like Obama was in power, the deal with Iran was signed.
When the US elections installed a new president, he brought with him different ideas. He acted accordingly.
And that pushed Iran back to what it was trying to escape.
We see this all the time in different forms.
Not just with the US-Iran situation, but with many other countries.
The US-China relationship has its ups and downs based on who the president is.
Mexico and the US have their own dynamic too.
Major countries have this kind of power. A change of guard in such countries brings with it changes in opinion.
And those changes almost always have big economic after-effects.
It’s just something to keep in mind.
The images above were generated using AI tools.
Quick Takes
+India's gems and jewellery exports rose by 9.18% to Rs 25,194 crore in October: Gem and Jewellery Export Promotion Council.
+Audio products company Boat has reportedly finalised bankers for its IPO next year.
+MTNL recorded a consolidated net loss of Rs 890 crore in the July-September quarter.
+New business premium of life insurance companies stood at Rs 30,347 crore in October, a 13.16% year-on-year increase. LIC's new business premiums stood at Rs 17,131 crore, a 9% year-on-year increase.
+India’s wholesale inflation rose to 2.36% in Oct (vs 1.84% in Sept). Food prices rose 11.59%; manufacturing prices rose 1.50%; fuel prices fell 5.79%.
+India’s trade deficit (imports - exports) fell 13.97% year-on-year to $27.1 billion in Oct (vs $20.8 billion in Sept). Imports rose 3.9% to an all-time high of $66.3 billion in Oct. Exports rose 17.3% to $39.2 billion.
+Niva Bupa IPO got listed at a 5.59% gain over its issue price.
+Reliance has formed a Rs 70,352 crore joint venture by merging Viacom18’s businesses (media and JioCinema) with Disney Star. Viacom18: 46.82% of the JV, Disney: 36.84%, Reliance: 16.34%.
+Monthly passenger vehicle sales rose 0.9% year-on-year to an all-time high of 3.93 lakh units in Oct. 2-wheeler sales rose 14.2% to an all-time high of 21.64 lakh units. However, 3-wheeler sales fell 0.7% to 77 thousand units: SIAM.
+NTPC Green Energy has fixed a price band of Rs 102-108 per share for its Rs 10,000 crore IPO.
+Swiggy IPO got listed at a 7.69% gain over its issue price. It closed up by around 17%.
+India’s industrial production rose 3.1% year-on-year in Sept (vs a contraction of 0.1% in Aug). Manufacturing rose 3.9%, electricity sector rose 0.5%, and mining rose 0.1%.
+Air India and Vistara have completed their merger under the ‘Air India’ brand. The merged entity now has a combined fleet of 208 planes.
+Sagility India IPO got listed at a 3.53% gain over its issue price.
6-Day-Course
Theme of the week: why companies do IPO
We’ve reached the end of this week’s course that started on Monday. Here’s a test you should take. Get pen and paper!
Question 1:
Shares issued during an IPO for raising new funds are called ____________ .
-Bonus shares
-Fresh issue shares
-Extra shares
Question 2:
Companies use IPO funds only for expanding their business and not for repaying loans.
-True
-False
Question 3:
What is one reason a company might do an IPO even without strong profits?
-To issue bonus shares
-To repay all taxes
-To provide liquidity to early investors
Question 4:
Founders selling small portions of their shares during an IPO is a common practice and not necessarily a bad sign.
-True
-False
Question 5:
What is a common benefit of an IPO for companies?
-Gaining credibility
-Reducing market share
-Avoiding loans
Answers:
Q1: Fresh issue shares
Q2: False
Q3: To provide liquidity to early investors
Q4: True
Q5: Gaining credibility
The information contained in this Groww Digest is purely for knowledge. This Groww Digest does not contain any recommendations or advice.
Team Groww Digest