Tehran has struggled to attract financing for major projects as its perceived political risk has grown. Plans by several local companies to issue corporate bonds this year have been put on hold.

‘The downgrade reflects the escalating confrontation between Iran and the international community over Iran’s nuclear programme,’ said Richard Fox, head of Middle East and Africa sovereign ratings at Fitch.’Material sanctions are still some way off, but the risk is increasing and events are becoming increasingly unpredictable.’

Fitch said high oil prices meant Iran’s external financial position remained strong and budget and current account surpluses would likely be recorded despite increased spending. But it said foreign and local companies’ investment plans already reflected the higher risk of sanctions and said Iran was more vulnerable to energy market fluctuation than many other major producers because of ad hoc financing from oil revenues. It criticised the freezing of certain prices and reduction of interest rates in light of rising inflation.

Export Development Bank, Bank of Industry & Mines and National Iranian Oil Company have all seen their ratings fall to B+ too. The banks’ support ratings have also been reduced to 4 from 3 but the outlook on both remains stable.