‘Iran’s economy is on the verge of collapsing,’ says one expert. expert said

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Following a time of inaction, the United States and Iran have resumed talks in recent weeks to return to mutual compliance with the Iran nuclear agreement – the Joint Comprehensive Plan of Action (JCPOA). Until now, Iran has played hardball, insisting that the United States step first to finally revoke the restrictions it has placed on businesses doing business with the Islamic Republic. However, Iran may lack the economic fortitude to maintain its stubbornness while still surviving economically under sanctions.

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In 2018, then-US President Donald Trump behaved in line with his stern critique of the JCPOA by withdrawing immediately from the deal. He then reinstated harsh economic sanctions against Iran. Importantly, these sanctions contained secondary sanctions that barred American companies from doing business with non-Iranian organisations that did business with Iran.

The Joint Comprehensive Plan of Action (JCPOA) is a multilateral deal negotiated in 2015 by former President Barack Obama. The pact, with Iran on one side and the United States, European allies, China, and Russia on the other, limits Iran’s nuclear programme while still providing for oversight. In exchange, Iran’s previous economic sanctions were lifted.

As part of his election campaign, President Joe Biden famously vowed to return to the Iran nuclear agreement. In a CNN op-ed, Biden dubbed Trump’s “maximum pressure” approach a “boon to the regime in Iran,” allowing the Islamic Republic to get closer to creating a nuclear weapon – something Tehran denies.

Indeed, analysts agree that Iran has taken major strides towards developing a nuclear weapon. Following the removal and reimposition of sanctions by the United States, the Islamic Republic has steadily breached its commitments under the JCPOA, enriching uranium outside the agreement’s limits, for example.

However, while the sanctions have not deterred the Iranian government from following its nuclear aspirations, they have dealt a significant blow to the country’s economy. “I believe Iran’s economy is on the verge of collapsing more than ever before. Many who say that Iran’s “resistance economy” has succeeded because it has been immune to crushing sanctions are right. Dr. Mahdi Ghodsi, an economist at the Vienna Institute for International Economic Studies and an expert on the Iranian economy, told The Media Line, “But the stamina is now fading.”

Dr. Gil Feiler, an expert in Middle Eastern economies and senior researcher at Bar-Ilan University’s Begin-Sadat Center for Strategic Studies, told The Media Line, “Iran has reached a low point because of Trump’s sanctions. …  The [Iranian] rial lost 50% of its worth in less than two years. Meaning that Trump’s sanctions had an immense effect,” he said. “Almost 6 million people are unemployed.”

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According to an International Monetary Fund (IMF) study released in April 2021, unemployment, which currently stands at 10.8 percent, is predicted to continue over the next two years.

Aside from the sanctions, Iran has been hard hit by the coronavirus pandemic. According to Ghodsi, Iran’s crisis is a “double-edged sword that wounds the society deeper than other countries” because of sanctions and COVID. To make matters worse, according to another IMF study, the nation is not supposed to vaccinate a large portion of its population until mid-2022.

Ghodsi points to the high inflation that has plagued the country in recent years as one indication of Iran’s economic predicament. “Annual inflation was very high (up to 50%) in the past three years,” he says, “Many people who were receiving monthly cash handouts since the time of the populist [former President Mahmoud] Ahmadinejad, rose out of poverty. But because of very high annual inflation since that policy of Ahmadinejad and more strongly since the ‘maximum pressure’ campaign, that monthly cash handout is now worth perhaps 1 to 2 kilos of chicken.”

“The Iranian debt reached $254 billion,” says Feiler, pointing to another economic indicator. “That’s a huge debt and you have to remember that the Iranians aren’t living luxuriously in recent years.” The expert also adds that, for the first time since the Iranian Islamic revolution in 1979, the Islamic Republic turned to the IMF last year and asked for emergency assistance. Iran stated, it should be noted, that the requested $5 billion of assistance were intended to help it fight against the pandemic.

The Iranian economy has shrunk in recent years, experiencing almost 13% negative growth in 2018-2019, after the sanctions were put in place.

Despite all this, the Iranian economy isn’t expected to collapse in the very near future, say both experts, even if sanctions remain in place. Ghodsi says that “the Islamic Republic responded to the outside ‘maximum pressure’ [campaign] with the domestic ‘maximum suppression,’” killing hundreds of protesters in nationwide anti-government demonstrations that erupted in November 2019. The repression has helped the regime silence discontent with the economic hardship that has resulted from sanctions. “I can say that Iran’s resistance economy along with the ‘maximum suppression’ will allow the government to continue its economy,” Ghodsi said.

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In addition to the repression of activists, Feiler cites a new agreement signed by China and the Islamic Republic, which cements a 25-year agreement to collaborate in trade and other areas. This agreement, along with other measures by countries that circumvent American constraints, provides the system with the breathing space it requires to survive.

While the Israeli expert admits that the Iranian economy will not crumble tomorrow, he believes that its ability to continue with sanctions in place is severely constrained. “If Trump’s sanctions had remained in place for another four to five years, and [if] they had tightened them even more and monitored smuggling,” he claims, the Iranian government would have failed. “What Biden is going to do is throw a lifeline to them.” Discontent caused by the unemployment and hunger may have taken the government down. All of this puts pressure on Tehran to resurrect the JCPOA, which the US and its European allies have failed to do, according to Feiler.

The Vienna expert does not speak of a political crumbling but says, “If sanctions are not removed quickly, the government may borrow again from the central bank, and the money supply will continuously grow more than the size of the economy. This may potentially lead to hyperinflation beyond control, perhaps similar to what was observed in Venezuela. Then, given the exacerbated circumstances, the ticking bomb of cyclical nationwide protests will implode into a stronger domestic uprising. Therefore, the prospects [for the Iranian regime] cannot be depicted optimistically if the sanctions are not removed.”

With this threat in mind, Ghodsi claims that the Iranians would “compromise in order for the US to return to the JCPOA.” Instead of seeking a complete lifting of sanctions, Tehran should advocate for a concerted return to the agreement “while Iran’s noncompliance is still six or seven steps away from the JCPOA.” Furthermore, since Iran wants sanctions unrelated to its nuclear programme lifted, such as those relating to human rights abuses, Ghodsi proposes that a broader resolution be negotiated after returning to the nuclear deal – a direction that has previously been proposed but has been staunchly rejected by Tehran.

Once the sanctions are out of the way, the Iranian economy is expected to flourish. “One can expect that Iran’s economy will grow by exporting oil to its level prior to the US secondary sanctions under Trump,” Ghodsi says. Agreements with other countries will also boost the economy. He cautions, however, that business with Western companies may be slower in resuming because “Western firms may still need some time to evaluate the political risks around Iran.”

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“They can leap ahead” once sanctions are lifted, says Feiler, “leap politically, militarily and economically, and this will, of course, strengthen the regime.” The Iranian economy has huge potential, the Bar-Ilan expert says. However, he doesn’t view this in a positive light. The Western powers “don’t have a true understanding of the Iranian regime,” or the fact that they will be strengthening it, and thus empowering tyranny and encouraging human rights violations.


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