Iran's Economy in the Wake of U.S. Sanctions And

APuZ 21-22/2020 (pp. 34-38) IRAN’S ECONOMY IN THE WAKE OF U.S. SANCTIONS AND CORONAVIRUS CRISIS Wilfried Buchta Already since before the Coronavirus pandemic, which has been ravaging Iran since February of 2020, Tehran’s economy had been in crisis mode. A situation that was worsened by renewed U.S. sanctions in 2018. At the beginning of 2020, all economic indicators for the economy of Iran, a country with approx. 84 million residents, were negative. While the gross domestic product in 2018 already decreased by 5 percent compared to the one in 2017, there was another almost 10 percent decline in 2019. The International Monetary Fund projects another 6.5 percent drop for 2020. In the time period between 2010 and 2020, the inflation rate fluctuated between 20 and 40 percent. Currently it is at 41 percent, exhibiting an upward trend. As a result, the general public’s spending power experienced a significant decrease, which the impoverished 70 percent of the population are suffering under the most. It is estimated that there are currently six million Iranians who are unemployed, which mainly affects women and young people.1 Foundation and Performance of the Iranian Economy Compared to other wealthy Middle Eastern countries, which typically rely on monostructural economic systems solely built on oil production and its export, Iran also has large oil and natural gas resources. In fact, Iran is in fourth place when it comes to oil reserves and second for gas. But the difference is, Iran also has a large pool of skilled workers to pull from. What’s even more important, Iran has a relatively broad industrial and economic foundation. Tehran Stock Exchange for example listed companies from over 40 different industrial and commercial sectors in 2019, including petrochemistry, mining, mineral products (iron, copper, led, aluminum), construction, steel, automobile, agriculture, cement, textile and clothing, food and food processing, as well as tobacco. The foundation of this broad industrial basis was created under the Pahlavi dynasty (1925-1979). After the establishment of the Islamic Republic of Iran, the new rulers wasted no time to convert 90 percent of industrial companies and commercial enterprises as well as almost all banks into 1 All numbers under Mohssen Massarrat: „The Economic Misery“, in: Iran. Theocracy and Republic. Edition Le Monde Diplomatique, N° 27, 2020 (March),pp. 35-39, here. p.35 1 stat-run institutions. Furthermore, the new revolutionary regime’s enthusiasm for social egalitarianism translated into economic advantages for broad levels of the population. Primary beneficiaries were Khomeini’s most loyal allies, that means the most impoverished population, whom he had been courting and whose political and social status he had been trying to raise since 1979. They were labelled the mostazafan („downtrodden“) and the members of the this constituency were considered the pillars of the revolution during the overthrow of the Shah regime. The revolutionary regime took aggressive measures to rebuild the infrastructure in a timespan of only ten years. An impressive accomplishment, considering the fact that at the same time, Tehran had to shoulder an enormous economic, financial and military burden due to the war against Iraq (1981–1989). Within the new regime’s first decade of rulership, all of the country’s highways were paved. This created the first ever transportation network to connect cities with even the most remote areas. With the help of agricultural development organizations, which the revolutionary regime had newly established to benefit the rural population, even the tiniest and most isolated villages gained access to electricity and clean drinking water. The health sector, too, was expanded and improved as part of a massive overhaul. Thanks to a reform of the educational system, the illiteracy rate decreased from 80 to under 20 percent. In addition to the growing number of secondary education graduates, the higher education sector was also expanded by founding dozens of new universities all over the country. Today there are 4.5 million students, of which more than 55 percent are female, who attend a variety of universities. In a regional comparison Iran has an excellent foundation when it comes to economic development. Regardless, the economic and social progress is stagnant and has never really lived up to its full potential until today. Why is that? Iran neglected to establish a consistent development strategy that could have helped the country to reach new economic, industrial and technological heights, comparable with the course pursued by South Korea for example. As a result, Iran is unable to permanently secure the wealth and standard of living of the Iranian population. The opposite, actually: Today 50 percent of Iranians live beyond the poverty level. The average minimum wage fell from 400 Dollars a month in 2010 to 100 – 130 Dollars in 2018 – an unmistakable sign for the poverty that is spreading throughout large segments of the population.2 In short: The numbers indicate that Iran’s revolutionary regime has broken their promise to the Iranian people, made in 1979, to provide social justice and wealth. Besides external factors, such as U.S. sanctions, there are also homegrown political 2 See Mohssen Massarrat: „The Economic Misery“, in: Iran. Theocracy and Republic. Edition Le Monde Diplomatique, N° 27, 2020 (March), pp. 35-39, here. p. 38. 2 and ideological elements to blame for this. The biggest issue of all, however, is the mismanagement and corruption of the power elite, whose lifeline is their share in the country’s oil income. Until this day, Iran’s economy is plagued by poor health, mainly because of its one- sided dependency on state income from oil exports. In 2014 oil sales made up 33 percent of the national budget and 24 percent of the gross national product. As is the case for other Middle Eastern oil nations, Iran’s plentiful oil resources are both a gift and a curse. On one hand, the oil income had served as a catalyst for economic development, technological and health-related improvements to the infrastructure and the preservation of the Welfare State. Keeping the Welfare State alive and well is meant to avoid and absorb social unrest. The regime is subsidizing countless staple foods, heating oil and gasoline in enormous amounts: in 2006 subsidiaries for energy sources and food made up 25 percent of the gross national product.3 Therefore the crude oil prices are playing a big role in Iran’s rise or fall. And from the time the Iran-Iraq War started in September 1980 until the begin of the Coronavirus crisis in 2020 this price fluctuated excessively, much resembling a roller coaster ride. In April 2020 it was only at 20 Dollar. Iran’s oil revenues are currently as low as ever. In order to guarantee a balanced state budget, Iran needs the oil price to settle between 110 to 130 Dollars per barrel of oil (159 liters).4 Tehran’s budget is becoming more and more imbalanced, especially since U.S. sanctions have been reinstated in May of 2018, which made Iran’s oil exports collapse. While there were still 2.7 Million barrels a day being sold in mid 2018, this number gradually decreased to only 144000 barrels per day in April 2020, due to the U.S. sanctions that were becoming aggressively effective over time.5 The long period of denial when it comes to the Coronavirus pandemic, acknowledged late by the government on February 19th of 2020, hit the Mullah regime at an inopportune time. Not only was it in the middle of a severe economic crisis and a shortage of financial resources already, it was also fighting a legitimacy crisis. Weakened by the disastrous economy, that throws them deeper and deeper into suffocating poverty and angered by the shameless profiteering of the corrupt power elite at the top, the people of Iran are leaning more and more to social and political unrest. As a result, this is the worst loss of trust and support among the broad population, including poverty-stricken Iranians, that Iran’s regime 3 Keith Crane: Iran’s Political, Demographic, and Economic Vulnerabilities, Santa Monica, CA. RAND 2008, p. 89f. 4 Amin Saikal: The Survival and Future of the Islamic Republic, New Jersey, 2019, p. 137. 5 Dalga Khatinoglu, IMF Forecasts Rising Government Debt, Declining Exports, Growth For Iran, Radio Farda, April 16th 2020, https://en.radiofarda.com/a/imf-forecasts-rising-government-debt- declining-exports-growth-for-iran/30558857.html 3 has experienced since 1979. The economic misery led to an eruption of two nationwide waves of social protest, one at the turn of the year 2017/18 and another one in November 2019. Both times the regime squashed the unrest with brutal force. During the November protests alone thousands of protesters were thrown in jail and between 500 and 1500 people were killed.6 Future social unrest is likely considering the ongoing economic crisis. The regime’s loss of legitimacy was heightened tremendously by an event that occurred on January 8th 2020 when a passenger plane with 176 Iranian passengers was shot down over Tehran. This explains why only few members of the Iranian population have faith in the regime’s COVID-19 crisis management. Coronavirus Crisis The measures taken by the Iranian regime since February 2020 to combat the Coronavirus sound like a chronicle of neglect, cover ups and failures. One of the reasons being, that the regime had political motives to protect their “China connection”. In order to secure a political, and even more importantly, an economic and commercial future, Iran is at the mercy of a close collaboration with China. Due to the severe financial hardship caused by U.S.

Load more