This month a new parliament conveyed after elections were held in February and April. The outcome of the elections ended the conservative majority and resulted in a huge gain for moderates and reformists. However, neither the moderates nor the conservatives now have a majority in parliament and the balance of power is determined by independents. Moreover, hardline clerics still have veto powers over the assembly’s decisions. Furthermore, hardliners picked Ayatollah Ahmad Jannati this month, one of the regime’s most conservative figures, to head the Assembly of Experts which chooses the next supreme leader when the incumbent leaves. Beside this two-year mandate, the 90-year-old theocrat chairs the unelected Council of Guardians. This body vets all potential candidates for public office and disqualified many moderate and reformist candidates from running in parliamentary elections.

Impact on country risk

The more balanced parliament will give Rouhani more freedom to pursue economic reform and improve foreign relations. However, conservatives remain a powerful force, as illustrated by the appointment of Jannati in a move to counter the gains by reformists and moderates in the recent elections. As a consequence, fundamental changes are unlikely. The power struggle between hardliners and reformists has become more vicious since centrist President Rouhani struck a nuclear agreement last year. This trend is likely to intensify ahead of presidential elections in June 2017 where Rouhani is likely to stand for re-election. Improvement of the economy will be crucial for Rouhani and his moderate and reformist allies, as this was an election promise in 2013. Remaining sanctions, an opaque business environment, low oil prices and political uncertainty on the stance of the next president of the United States are hindering economic progress. Nevertheless, the IMF predicts a 4% growth in 2016. Also the forecasted current account deficit (-0.8% of GDP) and fiscal deficit (-1.9% of GDP) in 2016 are small compared to other oil-exporting peers in the region. Both deficits are expected to quickly fade in the medium term while growth is estimated to remain robust at around 4%. Analyst: Jolyn Debuysscher, j.debuysscher@credendogroup.com