Can Iran’s Resistance Economy Help It Weather Sanctions?

Published February 11th, 2020 - 06:41 GMT
Can Iran’s Resistance Economy Help It Weather Sanctions?
Despite crippling US sanctions, Iran's economy is finding ways to survive without depending on the dollar. (BalkansCat / Shutterstock)
Highlights
The concept of a resistance economy has become a national ethos for the Iranian government, as it’s seen as the only way to effectively ensure Iran’s long-term economic survival.

By Navid Barani

For six years, Iran had been attempting to integrate with the global economy after signing the 2015 nuclear deal. However, Trump’s unilateral decision to pull out from the deal has forced Iran to rethink its re-entry into the global economy. 

Crippling sanctions imposed by the Trump administration have severed Iran’s access to international markets, placing Iran in a dire economic crisis. Jobs are rather scarce, as one in four youth is unemployed, and food prices and consumer goods are soaring.

The economy contracted at 9.5% in 2019, and Iran’s key export, oil, was effectively zero in December 2019, although it is speculated that smugglers have been able to transport unknown volumes of oil. In light of these hardships, Iranians are becoming more and more restless.

In retaliation to Trump’s “maximum pressure” campaign, Iran has slowly rolled back its commitments to the 2015 nuclear deal and symbolically removed all limits to nuclear enrichment in January. This has forced Germany, France, and Britain to intensify pressure on Iran by triggering a dispute mechanism. The European powers will have 60 days to get Iran to comply with the nuclear agreement, and failure to do so will lead to the snapback of United Nations sanctions

The economy contracted at 9.5% in 2019, and Iran’s key export, oil, was effectively zero in December.

In response to increasing pressure to comply with the 2015 nuclear deal, Iranian Foreign Minister Javad Zarif stated that Iran would withdraw from the Non-Proliferation Treaty (NPT), if Europeans continued with what he called “their improper behavior” or referred Iran to the UN Security Council over its alleged violations of the 2015 deal. Foreign Minister Javad Zarif also pulled out of the World Economic Forum (WEF) in Davos, Switzerland, due to the “backdrop of uncertainty” in the Middle East. 

Can Iran Become Economically Self-Sufficient? 

Iran has a history of being cut off from international markets and investors, stemming from the Iranian revolution in 1979, which led to wide-reaching sanctions, to the recent sanctions in 2012, which were imposed due to Iran’s nuclear activity.

This economic isolation has led Iran to create a so-called “resistance economy,” which involves the state subsidizing strategic industries, investing heavily, while replacing imported goods with domestic production. 

The concept of a resistance economy has become a national ethos for the Iranian government, as it’s seen as the only way to effectively ensure Iran’s long-term economic survival against Western aggression.

President Rouhani has already warned Iranians to brace for “difficult” times, while noting that the government will use its strength in the near future to mitigate declining economic conditions.

The concept of a resistance economy has become a national ethos for the Iranian government, as it’s seen as the only way to effectively ensure Iran’s long-term economic survival against Western aggression.

A vital sector that Iran has invested in is its military-industrial complex, which is now self-sufficient in producing drones, ballistic missiles, tanks, and other weaponry. By indigenizing its ability to build weapons, Iran strives to be self-reliant when it comes to national defense.

Another initiative undertaken by Iran to strengthen its resistance economy was the creation of the Iranian Oil Bourse in 2008, which sought to end reliance on the US dollar for the trade of oil. A month after Iran decided to abandon the petrodollar, Russia followed suit and stated it would allow the sale of oil in rubles.

Furthermore, in December of 2019, during a conference of Muslim leaders in Malaysia, Iran spearheaded an initiative for a new trading system based around the gold standard and barter, to help countries not only to survive but to thrive under sanctions. 

Iran continues to avoid sanctions and actively encourage other nations to consider the possibility of a world free of America’s monetary dominance.

In July 2019, Iran had also stated that it would soon launch a gold-backed cryptocurrency to circumvent US sanctions. Though initially suspicious of cryptocurrency, Iran now seeks to use this untraceable exchange as a method for its customers to purchase its oil. China and Russia have also sought to adopt cryptocurrency as a way to protect their national and economic interests from the United States and conduct trade with sanctioned countries such as Iran. 

Consequently, these moves have enraged US officials, as Iran continues to avoid sanctions and actively encourage other nations to consider the possibility of a world free of America’s monetary dominance. 

What Are the Implications of Iran’s Resistance Economy? 

Unlike Venezuela, which has had its economy crippled by US sanctions that have essentially cut off all government income, Iran continues to persist in the face of US sanctions. Iran is also more heavily sanctioned than Venezuela, Russia, & North Korea combined, which is a testament to its resistance economy. 

Despite the negative repercussions on the Iranian economy, Iran’s leaders still prioritize one goal above all others: their survival.

However, that doesn’t mean that Iran isn’t feeling the pressure. Some economists have stated that Iran’s resistance economy has only delayed the inevitable, as Iran’s budget and banking system are under heavy strain. Its national currency has plummeted, unemployment has surpassed 17%, and annual inflation has been put at 31% this year, according to the International Monetary Fund.

Despite the negative repercussions on the Iranian economy, Iran’s leaders still prioritize one goal above all others: their survival.

Sanam Vakil, the deputy director of the Middle East and North Africa program at Chatham House, has stated that “[t]he hard-liners are willing to impoverish people to stay in power. The Islamic Republic does not make decisions based on purely economic outcomes.”

The ongoing rivalry with America gives hard-liners the chance to develop the resistance economy while at the same time fueling a politically useful nationalist anger.

Though it is predicted that Iran has enough foreign reserves to last two years, its leaders should be cautious to recognize the risks that economic distress can pose to established powers.

Though Iran’s leaders continue to place their bets on its resistance economy, at its current stage, it is only a Band-Aid solution to its economic situation, which prolongs the rate of the regime’s survivability at the cost of Iranian citizens.

In the past year Lebanon and Iraq, Iran’s close allies, have witnessed uprisings due to deteriorating living standards and endemic corruption. Last November, Iran itself faced civil unrest as its citizens protested the government’s decision to end fuel subsidies, which led to deadly clashes in several Iranian cities. 

Though Iran’s leaders continue to place their bets on its resistance economy, at its current stage, it is only a Band-Aid solution to its economic situation, which prolongs the rate of the regime’s survivability at the cost of Iranian citizens. If Iran truly wants its resistance economy to flourish, it cannot do it in isolation.

Instead, Iran needs to form a coalition of resistance economies, which put more effort into adopting cryptocurrency, barter and are willing to stand against American economic hegemony by ending their reliance on the dollar.

Navid Barani is a foreign affairs consultant and a freelance writer on current events with a focus on the Middle East.  

The views expressed in this article do not necessarily reflect those of Al Bawaba News.


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