Petroleum Business Review

Abstract The exchange rate in Iran’s economy, is one of the most critical indicators influencing fiscal, trade, and monetary policymaking. Given that a substantial portion of the country’s foreign exchange earnings is dependent on crude oil exports, any fluctuations in oil revenues can directly or indirectly affect the exchange rate. This relationship becomes especially significant under circumstances such as international sanctions, global oil price volatility, and the structural dependency of the government budget on oil revenues. Consequently, a precise understanding of the mechanisms by which oil income influences the exchange rate is essential for designing sustainable currency policies and ensuring the country’s macroeconomic stability. The present study investigates the long-term relationship between oil revenues and the exchange rate in Iran during the years 2002 to 2024, utilizing the Fully Modified Ordinary Least Squares (FMOLS) econometric method. Through the analysis of quarterly time series data and unit root tests, the stationarity and then cointegration of the variables were examined. The test results indicate that the variables are integrated of order one, and a cointegration relationship exists among them, justifying the estimation of the model using FMOLS.The findings reveal that, according to the model estimates, oil revenues and non-oil exports exert a significant negative effect on the exchange rate. Specifically, a one-percent increase in oil revenues leads to a 0.41 percent decrease in the exchange rate (signifying an appreciation of the Rial), while an increase in non-oil exports results in a 0.72 percent decrease in the exchange rate.

Abstract This study was conducted to determine the effect of the asymmetric oil price shock, tax revenues, resource curse, stock market, and business cycles of Iran by using the structural vector auto regression model (SVAR) for the 1984-2018 period. According to results of the estimated SVAR model, an impulse imposed by the duration of sanctions on oil exports led to an 89% increase in production gap, and impulses caused by liquidity and stock price led to 86% and 53% rises in production gap, respectively. Variation in oil and foreign exchange earnings results in different and even conflicting changes in foreign and domestic sectors of the economy, which subsequently affect the economic performance positively or negatively. Regarding economic structure and principles, a constant increased exchange rate leads to economic growth while a cross-sectional increment in exchange rate does not lead to any economic prosperity. Increased exchange rate and decreased domestic money weakness will increase foreign debt, which in turn causes liquidity shortage. Overall, the liquidity shortage of economic firms has a negative impact on the return of stock and business cycles. Hence, policymakers must pay considerable attention to macroeconomic indicators.