Iran's economy reels under American sanctions

By Omar Shaban

The American decision to deepen the sanctions on Iran and impose a comprehensive ban on Iranian oil sales will deal a very painful blow to the Iranian economy, which has already suffered hard conditions since the start of the international sanctions upon it — sanctions that began just before the 2015 agreement with the West on Iran's nuclear project was reached.

In May 2018 the American president Trump decided to withdraw from this agreement without coordination with, or the blessing of, the other partner states. Since then the American administration has begun imposing punitive policies on Iran anew; these sanctions have produced deep and multiple crises — a sharp rise in inflation, the collapse of the Iranian currency against hard currencies, and severe disruption in the banks' work; they drove many international companies to withdraw from the Iranian market, and many international companies refrained from supplying the inputs and intermediate goods needed for industry and agriculture, greatly affecting the productive sectors. The Iranian president Hassan Rouhani acknowledged at the end of last January “that his country faces the hardest economic situation in 40 years.”

Oil is one of the most important pillars of Iran's economy, which reached 450 billion dollars in 2017. Oil exports form 80% of total Iranian exports and 60% of total budget revenues. Iran likewise holds fourth place worldwide in confirmed reserves, at a volume reaching 150 billion barrels. Iran produced 6 million barrels daily before the sanctions, but that has fallen to 2–3 million barrels daily at present. The International Monetary Fund likewise expected Iran's economy to contract by 1.5% in 2018, and to contract by 3.6% this year, 2019.

Should Iranian oil sales stop, oil prices are expected to rise unless the other producing states such as Saudi Arabia and the Emirates hasten to raise their production capacity to cover the shortfall — which serves their interest, whether by increasing production volume or by obtaining higher prices for their oil.

Some may ask: will the United States succeed in imposing its will on all states and companies to stop buying Iranian oil? The answer is no. There are many states — among them European states — with strategic economic interests with Iran that will work to circumvent the American sanctions as far as possible. Iran is no small state; it has a strong, diversified economy, borders with many states, and centrality. There are many international companies that will work to exploit these sanctions and buy Iranian oil at prices far below market prices.

No doubt the American sanctions will deepen the economic and political crisis in Iran — but they will not be a death sentence on the Iranian economy.

The former presidential candidate and current member of Iran's Expediency Discernment Council, Mostafa Mirsalim, holds that the crisis in Iran does not go back to the American sanctions alone, but to the spread of corruption and favouritism and the failure to employ competence in the ministries.