The agreement Iran has reached on its nuclear program could bring about its eventual economic rebound, and help boost Islamic finance, according to a report published on Tuesday by Standard & Poor's Ratings Services titled 'Lifting sanctions augurs well for Iran's economy and the growth of Islamic Finance'.
"Iran agreed to the Joint Comprehensive Plan of Action with the P5+1 (China, France, Russia, the UK, and the US 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 percent of global Islamic banking assets," the report added.
Sanctions will 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 eight to 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 six percent annually in fiscals 2017 and 2018 according to market estimates, compared with less than one percent in 2015 (IMF data).
The report further said, "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.