Envisioning the possible: how would Iran's economy look like without sanctions?
The Iranian economy manages to hobble along despite “crippling” economic sanctions. The streets are clogged with traffic, ATMs dispense streams of cash, banks issue Iran-only debit cards, and a nation of traders finds ingenious ways to evade legal obstacles.
Oil exports may have collapsed officially, but several Iranians tell me that many thousands of barrels are leaking out secretly via Iraq. One Iranian businessman explains that you can get under-the-table financing for almost anything if you pay an interest-rate premium of 12 to 15 percentage points.
The true burden of sanctions is that the Iranian economy is a shadow of what it might be. This cost in lost opportunity will only grow if Iran can’t make a nuclear deal that would ease the squeeze on oil sales and banking. And Iranians know it: Many told me during a visit here last week that their economy could be booming if the country wasn’t so isolated.
“The situation from the economic point of view is very bad, this is no secret,” says Saeed Laylaz, an economic commentator and analyst who advises Iran’s domestic automobile industry. Car production has plummeted the last two years, he says, after rising from 6,000 vehicles annually when he started in 1989 to 1.5 million in 2011.
Mohammad Khoshchehreh, an economics professor at Tehran University, told me that economic output overall has fallen by about 6 percent over the past year. That’s close to the estimate of a 5.7 percent drop released Thursday by the Institute of International Finance in Washington.
The middle class is especially squeezed. An apartment for a family of four in central Tehran costs at least $500 a month. Feeding the family adds another $700. So that’s $1,200 a month – more than many jobs pay – before the family even begins paying for incidentals. Typically, both husband and wife must work, often at two jobs, to pay the bills.
Frustration about poor economic performance seems to center on hard-liners such as former President Mahmoud Ahmadinejad and his allies in the Iranian Revolutionary Guard Corps. Several people mentioned to me that during Ahmadinejad’s eight years as president, the Iranian government received about $700 billion from oil sales. Where did that money go? A half-dozen people said they thought much of it had been diverted to the Revolutionary Guard or looted by regime cronies.
“I do not deny the effect of sanctions, but the weight of mismanagement is heavier,” says Khoshchehreh. Some in Iran argue that the current crisis is past, and that officials of the Ahmadinejad regime should be brought to trial for corruption.
President Hassan Rouhani gets good marks for economic management, in addition to his opening to the West in the nuclear negotiations. Since his election in June, inflation is down, private investment is up, and the currency has strengthened on the black market, according to Laylaz.
Iranians foresee a future boom if sanctions are lifted and the nation fully joins the global economy. Four economic analysts separately told me they could see growth at 10 percent or more after 2015, if Rouhani can deliver a deal with the West. That’s the real leverage – not to punish Iran today but to open the door to a much more prosperous future.
Talks with Iranian entrepreneurs give a sense of what’s possible. A professor of molecular biology has developed advanced techniques for treating neurodegenerative diseases that Western companies are eager to license. He’d rather stay in Iran, but it’s hard to build an advanced biotech company there when the country remains outside the World Trade Organization and intellectual property can’t be protected.
An Iranian banker explains that he’s ready to represent 19 U.S. companies in joint ventures in Iran. But such deals are dead until sanctions are lifted. An Iranian-American executive tells me he could sell Iran advanced systems that could add billion of barrels to oil reserves by re-evaluating old seismic and geological data.
It’s a mistake to underestimate the tensile strength of Iran’s economy. This is a country that survived eight years of bloody war with Iraq, and Iranians know how to suffer through adversity. Rouhani’s economic team is planning its next budget on the assumption that sanctions won’t be lifted, and that it can raise non-oil exports – iron ore, copper, petrochemicals and electricity – to an $80 billion level that would cover Iran’s import needs. They’ll survive, in other words.
What’s being crippled is Iran’s future. This makes Iranians angry, especially when they see the hard-liners and their cronies making money evading the sanctions regime. That’s the regime’s weak point.
By: David Ignatius
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