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Iran’s Economy

relates to Iran’s Economy
Simon Dawson/Bloomberg
Updated on

For a decade, the U.S. and other major powers squeezed Iran’s economy to force it to rein in its nuclear program. Most sanctions on Iran were lifted in early 2016 under a multilateral agreement to limit and monitor the country’s nuclear activities. That created an opportunity for Iran to bounce back, and by many measures it has. Yet doubts about America’s commitment to the accord limited gains. Then, under President Donald Trump, the U.S. in mid-2018 withdrew from the agreement and said it would re-impose, in stages, sanctions it had suspended. By the end of the year, the noose will tighten on Iran’s oil exports, the backbone of its economy. At stake is more than Iran’s gross domestic product. The credibility of President Hassan Rouhani, a relative moderate, rests in large part on his ability to deliver on the promise that the nuclear deal will bring prosperity. At the same time, Iran’s fortunes affect the role the country plays in the world’s most volatile region.

With old U.S. sanctions resuming, the rial went into free fall on Tehran’s black market. Panicked businesses and individuals snapped up increasingly scarce dollars, forcing the central bank to impose capital controls. The depreciation stoked inflation, adding to public anxiety. Even before the U.S. turnabout, the nuclear deal had failed to deliver the returns Iranians had hoped for. In the last days of 2017, economic grievances sparked a week of anti-government demonstrations in which at least 21 people died. Sporadic protests have continued to erupt in some provincial cities. As anger has mounted, Rouhani has faced domestic pressure. Even moderates are complaining while hardliners, who always warned the U.S. could not be trusted, are emboldened. Since the nuclear deal, the economy has risen out of recession, but almost all the economic growth has come from oil exports, which surged as sanctions were eased. For other businesses, lack of access to finance has remained a major impediment. U.S. sanctions on financial transactions with Iran have never been lifted, making it difficult for international companies to do business there. While some overseas oil and construction companies, as well as airplane and car manufacturers like Airbus SE and PSA Group, have inked deals, foreign investment has fallen short of Rouhani’s rosy projections. The re-imposed U.S. sanctions will worsen the investment climate by punishing multinationals doing business in Iran. All along, most American companies have been kept on the sidelines by a sweeping 1995 U.S. ban on trade and investment, triggered by concern about Iran’s links to terrorism. Now, U.S. licenses given to Airbus and Boeing to sell planes to Iran are being revoked