For a decade, the U.S. and other major powers squeezed Iran’s economy to force it to rein in its nuclear program. That ended in early 2016, creating an opportunity for Iran to bounce back. By many measures, it has. Notably, its oil production exceeds pre-sanction levels. Still, Iran hasn’t reaped as large a dividend as many citizens expected when the country agreed in 2015 to limit its nuclear program and subject it to external inspections. One obstacle has been U.S. sanctions that remained even after every world power lifted its nuclear-related ones. And under President Donald Trump, who opposes the accord, the U.S. keeps pulling the noose around Iran tighter. At stake is more than Iran’s gross domestic product. Its prosperity affects the role the country plays in the world’s most volatile region.
Economic grievances were the original focus of a week of anti-government demonstrations that erupted in Iran starting in the last days of 2017, in which at least 21 people died. Since the nuclear deal, Iran’s economy has risen out of recession, but citizens complain that benefits have not filtered down to ordinary people. Almost all the economic growth has been in the oil industry. For other businesses, lack of access to finance has been a major impediment. Prospects for Iran’s economy grew cloudier in October, after Trump refused to certify to the U.S. Congress that continuing to waive nuclear-related sanctions on the country serves U.S. interests. That opened the possibility that Congress would restore those sanctions and so added to uncertainties about investing in Iran. Since Trump became president in January 2017, the U.S. has imposed new sanctions related to Iran’s ballistic missile program and its premier security force, the Revolutionary Guards Corps, neither of which are covered by the nuclear accord. Even before that, U.S. sanctions on financial transactions with Iran made international companies wary of doing business there. Some overseas oil and construction companies as well as airplane and car manufacturers like Airbus Group SE and PSA Peugeot Citroen have inked deals, but not to the extent projected by President Hassan Rouhani, a moderate and champion of the nuclear accord who has courted foreign investors. Iranian officials say that in 2017, visits by trade delegations slowed and larger companies held back on making commitments. 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.
The Pahlavi monarchy that ruled Iran from 1925 transformed a small agrarian economy into a booming one, developing both manufacturing and oil production. Industrialization and an influx of rural Iranians into the cities led to cultural tensions that were among the factors that provoked the 1979 revolution. Subsequent leaders have never quite settled on the appropriate shape of the economy in an Islamic state. At first, much of the economy was nationalized. Starting in the late 1990s, the country’s leaders tried privatization. Many assets, however, ended up either with the Revolutionary Guards, Iran’s premier security corps and the most powerful economic actor in the country, or with its affiliated corporations or religious charities. Elected in 2005, President Mahmoud Ahmadinejad took a populist turn, expanding credit, spending freely and handing out $15 a month in cash to every citizen. These policies fueled inflation just as sanctions began to bite. Rouhani was first elected in 2013 promising to end Iran’s economic isolation.
Should the rest of the world want Iran’s economic revival to succeed? Some in the U.S. and Europe think that supporting Iran’s economy — about the size of Austria’s — is the best way to boost political moderates represented by Rouhani. They say that better integrating Iran into the global economy creates incentives for the country to abide by the nuclear agreement and other international norms. Skeptics argue that such thinking underestimates the commitment of Iran’s leaders to expanding their power in the region. They say an Iran with more money is just a more dangerous Iran, better able to support allies such as Syrian dictator Bashar al-Assad as well as militant groups like Hezbollah, Hamas and Iraq’s Shiite militias.
The Reference Shelf
- A report by the International Monetary Fund on Iran’s economy.
- The U.K. government publishes a guide on doing business in Iran.
- A Foreign Affairs article examines implications of the end of sanctions on Iran’s economy.
- A Project Syndicate commentary explores economic challenges after Iran’s 2016 parliamentary elections.
- QuickTakes on Iran’s nuclear program and oil industry.
First published April 18, 2016
To contact the editor responsible for this QuickTake:
Lisa Beyer at email@example.com