While the current financial storm is expected to tip much of the world into recession, Iran’s relative lack of exposure to global financial markets means the economy has hardly been affected by the turmoil of the past few weeks.

As the world grapples with the economic crisis, life continues much as before in Tehran.

Never one to miss a propaganda oppor-tunity, President Mahmoud Ahmadinejad has unhelpfully linked the crisis in financial markets with the West’s lack of faith.

Yet the reality for Iran is that while its sanctions-hit economy has been largely insulated from the effects of the credit crunch, in the long term, it needs to adopt some of the West’s financial practices to stay on a level footing.

Plans for a new international financial centre in central Tehran - an effort to emulate the success of the Dubai International Financial Centre - are one way to prod the slow-moving, state-dominated banking sector into action.

Currently, sponsors requiring a large investment either need the backing of the government or must look abroad.

So inviting more international finance firms into the country is a sensible strategy, which has already paid dividends for other Gulf states.

Similarly, Iran recognises how useful the support of its cash-rich neighbours can be.

The latest evidence is the suggestion that Gulf investors may be willing to inject $20bn to rescue two of the country’s troubled liquefied natural gas projects.

But such moves highlight the way Iran is becoming ever more closely integrated into the international financial system, despite the
US-led sanctions.

This holds open the worrying prospect of how Tehran would be affected by any foreign investment drying up from Asia, Europe and the Middle East.

Iran would be foolish to think it will escape unscathed from the downturn.

News page 20