Iranian Economy Post‐JCPOA and its Ambitions
| Author | Cyrus Mehdi‐Zadeh |
| Date | 01 February 2018 |
| DOI | http://doi.org/10.1111/1758-5899.12535 |
| Published date | 01 February 2018 |
Iranian Economy Post-JCPOA and its Ambitions
Cyrus Mehdi-Zadeh
Director of British Iranian Chamber of Commerce and Chairman of MZ Group
In a presidential candidates’debate in 2013, Dr. Rouhani
held out a key stating that he was holding the key for
unlocking the challenges to Iranian Economy only to correct
himself some months later saying that it is not going to be
easy as he had not appreciated the extent of work which
needed to be done. So it is worthwhile to look back a little
before the imposition of nuclear sanctions.
Mr Ahmadinejad’s populist policies (2005–2013) lead to
major economic challenges at a period where Iran enjoyed
the highest ever oil prices. In brief:
•high oil revenue was used to support increased subsidies
and irresponsible and un-managed expenditure;
•banks were directed to issue loans to all and sundry (with
no security or due care –almost similar to the sub-prime
mortgage crisis of 2007 in the US which brought about
the International Financial crisis);
•increased liquidity and thus increased inflation;
•increased imports and at a time where industrial output
should have increased, cheap imports stifled local indus-
trial production; and
•these policies created a false feel good economy because
of increase in value of possessions individuals and corpo-
rates held, which was mainly due to increased inflation
and liquidity as well as an unrealistic and artificially low
foreign exchange rate for the Rial. However, by the start
of his second term the reality was starting to hit
everyone.
Although nuclear sanctions against Iran started in 2006, its
effect was not felt initially because of the high oil prices.
However, oil prices began to fall from over $120/barrel to
$60s/barrel in 2009 and followed by further falls. Sanctions
became more comprehensive by 2010 at which time effec-
tively all financial transactions were sanctioned leading to
further negative impacts on the economy. This combination
had the following effects:
•GDP: Iran’s GDP shrank by nine percent between March
2012 and March 2014. It is estimated this was 15–20 per-
cent smaller than it would have been had it stayed on its
pre-2012 growth trajectory.
•Oil: it is approximated that US and EU sanctions have
cost Iran more than $160 billion in oil revenues.
•Hard currency reserves: various figures are mentioned,
but it would be safe to assume that around $150 billion
in hard currency reserves was frozen abroad.
•Currency value: the value of the Rial declined by over 60
percent within a few months between January 2012 and
January 2014.
•Inflation: the decline in currency value as well as sanc-
tions being more widespread, caused inflation to increase
between 2011 and 2013, reaching around 45 per cent
and the start of major economic decline.
•Industrial production: fell by around 30 percent between
2011 and 2013.
•Exports: reduced from over $100b in 2012 to about $20b
in 2014.Oil exports of over 2.8 million barrels per day
(mb/d) came down to just over 1 mb/d
•International markets: final sanctions brought with them
the lack of access to international financial markets and
new technology in all sectors particularly oil and gas
where maintenance and expansion was much needed,
being the main source of income for the country.
However, I believe sanctions also had a long-term beneficial
effect for Iranian economy and psyche of Iranian businesses
by bringing in self-sufficiency and internal innovation. In
2012 the supreme leader, Ayatollah Khamenei announced
the ‘economy of resistance’to combat the ‘forced sanctions’.
His view was: ‘the enemy had targeted the economy and
this was the solution’, that is, a new economic system
whereby there will be less dependency on oil revenues, and
locally produced goods and services would replace imports.
This has had a positive effect for the businesses and manu-
facturers in Iran. Foreign companies were encouraged to
use local manufacturers and services and new major con-
tracts had to have 70 per cent Iranian input!This policy is
still supported and has led to increased advancement in var-
ious technological and engineering fields. For instance, Iran
now stands 6th in nano technology, a position it has held
over the last 7 to 8 years.
In fact over the last few years, many international engi-
neering and technology companies who have travelled to
Iran, have expressed their surprise on advancement of Ira-
nian businesses, manufacturers, engineers despite the sanc-
tions and lack of access to world markets.
In 2013 President Rouhani was elected and immediately
set out to repair a faltering economy. His long-term eco-
nomic policies were based on:
•increasing National Development Fund: 20 per cent of oil
revenue (with an annual 3 per cent increase) –50 per
cent of facilities to be used for private and nongovern-
mental sector, 20 per cent for promotion of foreign
investment, and the reaming 30 per cent is to be
invested in capital markets overseas;
•optimal distribution of subsidies;
•control of liquidity and inflation;
Global Policy (2018) 9:1 doi: 10.1111/1758-5899.12535 ©2018 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 9 . Issue 1 . February 2018 153
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