Iran’s Economy Reveals the Power and Limits of US Sanctions | Business and Economy News
Tehran, Iran – As economists, politicians and pundits ponder the threat of “swift and severe” US economic sanctions against Russia if the latter invades Ukraine, a country that has long been in Washington’s crosshairs no wonder what such punitive measures can do – Iran.
Some 655 Iranian entities and individuals were sanctioned during the administration of former US President Barack Obama, according to data compiled by the Center for a New American Security (CNAS). But the most brutal punishment began in 2018, after the administration of former US President Donald Trump unilaterally withdrew from the Iran nuclear deal with world powers and Iranian banks were cut off from the Society for Worldwide Interbank Financial Telecommunication – SWIFT, the global financial messaging system.
It was just the opening salvo of the Trump administration’s “maximum pressure” campaign aimed at forcing Tehran back to the nuclear negotiating table by crippling Iran’s economy.
In 2020, Washington imposed more designations against Iranian banks, cutting off the country’s financial sector from the rest of the global economy. That same year, the Paris-based Financial Action Task Force (FATF) – the global currency watchdog – placed Iran on its blacklist.
And those were just the main headlines. The Trump administration has targeted Iran’s economy with more than 960 sanctions, according to CNAS – a barrage that continued unabated as Iran’s health care system crumbled under waves of COVID-19 infections. witnessed in the Middle East, and despite countless pleas from world leaders to offer Tehran a temporary reprieve on humanitarian grounds.
All of these sanctions are still being applied by the current administration of US President Joe Biden.
Today, no sector of Iran’s economy has been spared Washington’s punitive measures, which helped propel the country into a two-year recession and continue to impact all aspects of life. daily.
Annual inflation is north of 42%, according to Iran’s statistics office. The national currency, the rial, has lost more than half of its value over the past three years. Oil exports have fallen from around 2.5 million barrels per day in 2017 to less than 0.4 million barrels per day in 2020, according to the US Energy Information Administration – although they have started to recover slightly last year.
In a speech to a group of businessmen and manufacturers on Sunday, Supreme Leader Ayatollah Ali Khamenei said that data from the past decade, particularly those relating to economic growth, inflation and foreign direct investment, were “unsatisfactory”.
But the Iranian economy did not completely collapse. It began to return to growth – albeit from a low base – last year, thanks to an easing in cross-border trade, rollbacks of COVID-19 restrictions and a strong rebound in price. petrol.
Proving to be more resilient and diversified than some expected, Iran’s economy grew 2.4% in 2020-21, the World Bank said, and is expected to grow 3.1% in 2021-22. .
“The Economy of Resistance”
The administration of President Ebrahim Raisi has set itself a much more ambitious goal. He is aiming for a growth rate of 8%.
The conservative president aims to achieve this through the doctrine of “resistance economics”, which is primarily about building self-sufficiency and business ties with regional neighbors as well as China and Russia.
But even as this policy – which includes the “cancellation” of sanctions alongside negotiating efforts in Vienna to lift them – has brought the economy back to some degree of growth, challenges remain.
“Continued banking sanctions and Iran’s blacklisting by FATF will limit Iran’s international trade potential,” said Bijan Khajehpour, Managing Partner at Eurasian Nexus Partners (EUNEPA).
Continued banking sanctions and the inclusion of Iran on the FATF blacklist will limit Iran’s international trade potential.
Khajehpour told Al Jazeera that if banking restrictions remain in place, the cost of financial transactions will remain high, making imports and exports more expensive. It would also limit the types of markets and businesses Iran is able to engage with.
“Therefore, the Iranian economy will not prosper, although it may generate low growth,” he said.
But to sustain that growth, Iran needs major infrastructure investments that Khajehpour says the country can only afford if sanctions are lifted.
Raisi’s proposed budget for Iran’s next calendar year starting at the end of March, which assumes sanctions remain in place, foresees an increase in oil revenue and a 60% increase in tax revenue, including through the fight against tax evasion endemic.
Yet Iran is expected to run a large budget deficit – a fiscal imbalance that existed even before Trump’s sanctions.
China and Russia
The bulk of projected oil revenue is expected to come from China, which remains Iran’s top buyer.
Exact shipment data is not available as exports under sanctions are kept secret and the oil is marked as coming from Malaysia, Oman and the United Arab Emirates.
However, in mid-January, China officially announced its first import of Iranian crude oil since December 2020 in defiance of US sanctions.
And the market continues to move in favor of Iran. Last week, oil prices were at their highest level in more than seven years, helped by tight supplies and worries about escalating tensions between Russia and the West over Ukraine.
The news came around the same time the Raisi administration announced that its oil exports had increased by 40% compared to the last month of President Hassan Rouhani’s administration in August.
January was also a busy month in terms of Iranian efforts to strengthen bilateral political and economic relations with China and Russia.
Iranian Foreign Minister Hossein Amir-Abdollahian said during a trip to Jiangsu, China that a 25-year comprehensive cooperation agreement signed in 2020 has entered the implementation phase, although didn’t specify what exactly that means.
Meanwhile, Raisi met with Russian President Vladimir Putin in the Kremlin, where the two leaders backed closer ties, and their officials signed a number of agreements that the Iranian side said would have tangible results in a foreseeable future.
The warming of relations with China and Russia cannot, however, fully compensate for the grip of American sanctions, believes journalist and energy analyst Hamidreza Shokouhi.
“There are rivalries between Russia and the United States – as we see now in Ukraine – and China and the United States, and these will naturally have impacts, but it would be too optimistic to depend on the ability of these countries to reverse the sanctions,” he said. told Al Jazeera. “The more Iran becomes dependent on these countries, as it has already become to some extent, naturally that increases the maneuvering power of China and Russia over Iran and that is not a good thing at all. thing for Iran.”
In the energy sector, Shokouhi believes that for now, Iran can only depend on China for limited oil sales, and on Russia mainly for potential development and investment in energy projects, although sanctions are likely to limit this potential.
Last week, Iran’s Economy Minister Ehsan Khandoozi announced that Russia had agreed to allocate a new line of credit to develop the Sirik power plant in Hormozgan following Raisi’s trip, but he did not did not disclose details.
The first agreements for the development of the power plant were signed after the initial nuclear deal was struck with world powers in 2015, but the plant is part of several similar energy projects undertaken by Russia and China that remain unfinished.
Vienna neighbors and talks
According to EUNEPA’s Khajehpour, trade with regional neighbors can continue to contribute to Iran’s economic growth, but there are limits. For example, trade can sometimes involve barter agreements that are burdensome for Iranian businesses.
“Nevertheless, experience has shown that companies that enter export markets, even regional ones, are likely to develop other international markets,” he said.
“Thus, the growing regional trade can be seen as a medium-term platform for boosting Iran’s exports to international markets.”
But both Khajehpour and Shokouhi stress that Iran needs the nuclear talks in the Austrian capital to succeed if it is to unleash its potential for economic growth.
“It seems that the people and the business community in Iran are all eager to reach an agreement on the nuclear deal so that there can be a ray of hope for the economy,” Shokouhi said. “If there is no deal, I cannot imagine a bright outlook for the economy under these difficult circumstances.”