Sanctions Made Iran Resilient to Low Oil Price, Moody's Says

  • Years of sanctions protected Iran from external volatility
  • Iran structurally reformed sooner than other oil exporters

In an ironic twist, international sanctions against Iran appear to be benefiting its economy as decades of isolation forced the nation to adapt to low oil prices more quickly than other crude exporters, according to Moody’s Investors Service.

Gross domestic product will grow 5 percent in 2016-2017, thanks to a solid foundation built to cope with exclusion from the global financial system, Moody’s said in an e-mailed research note Monday. Removal of sanctions as part of a nuclear deal reached last year will grant Iran access to about $150 billion in its frozen foreign assets, which will be spent on reviving the country’s aging infrastructure, it said. The country also will regain access to the international payment system, lowering trade and financial costs.

“International sanctions meant that Iran had to adapt to the reality of lower oil revenues and implement structural reforms much earlier than other oil-exporters,” Atsi Sheth, an associate managing director at Moody’s, said in a statement. “Most other oil-dependent sovereigns are only just beginning to consider structural fiscal reform.”

Political Risk

Intensification of sanctions in 2012 forced Iran to remove exemptions for some large non-taxpayers and curb fuel subsidies to bring prices closer to market levels.

“Since 2013, a combination of prudent policies, including increasing sources of non-oil revenues to pay for higher capital expenditures, combined with partial sanctions relief following the interim nuclear agreement led to a recovery, with real GDP growth at 4.3% in 2014,” Moody’s said in the report.

Iran won’t suffer from capital flow volatility amid U.S. interest-rate increases because it has had minimal exposure to external debt and foreign direct investment, Moody’s said.

With its $417 billion economy, which is the second-largest in the Middle East after Saudi Arabia and more diversified than other regional oil exporters, Iran has a solid foundation for rapid economic development and growth, Moody’s said. It also benefits from a young, well-educated labor force and a large industrial base, it said.

(An earlier version of this story corrected the company name in the headline.)

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