UK Paper Explains Resilience of Iran’s Economy

LONDON (Dispatches) -- In the past fortnight the global pressure on Russia’s finances has increased dramatically. Iran’s experience is instructive. In the past decade it has suffered recessions, devaluations and chronic inflation under the pressure of U.S.-led sanctions. Its economy has been whacked. But it has not collapsed.
“That is in large part because Iran’s manufacturers have proved resilient. Tehran’s flourishing stockmarket is testimony to the economy’s hardiness. Many of the firms that have survived and prospered are listed there,” leading London-based weekly publication The Economist wrote.
American sanctions have been a fact of life in Iran for decades. They began in 1979 when President Jimmy Carter imposed a ban on imports of oil from Iran and froze Iranian assets held in America following the seizure of the American embassy in Tehran. But sanctions on Iran really started to bite when other countries joined in. To press Iran into curbing its nuclear program, a wave of sanctions was imposed and steadily tightened between 2010 and 2012. Iran’s oil exports and banks were targeted. The foreign assets of its central bank were frozen. And commercial banks worldwide were proscribed by America from financing any business with Iran in dollars. Since then, a sanctions regime of varying degrees of severity has remained in place.
As a result, Iran’s oil exports fell from 2.5 million barrels per day in 2011 to 1.1 million in 2014. Its economy suffered deep recessions in 2012 and 2018. The embargo on Iran’s oil exports left a large hole in government finances. Lacking access to its reserves or reliable dollar revenue from oil exports, the authorities have been unable to support the exchange rate. The result has been chronically high inflation.
“There has been a lot of hardship. The latest World Bank report on Iran refers to a lost decade of negligible GDP growth. It might have been a lot worse, though,” the British paper said.
According to the Economist, there are three explanations for Iran’s resilience.

First, though sanctions have been extensive and assiduously policed, they are subject to leakage. Iran has been able to export several hundred thousand barrels of oil a day. And dollars are not the only hard currency: there is the yuan, of course, but also the UAE’s dollar-pegged dirham.

A second source of resilience is export diversification, the paper said. Iran has a range of manufacturing industries. Some of the bigger ones, such as mining and metal-bashing, benefit from access to cheap, reliable energy. In addition Iran has land borders with several populous countries, including Pakistan and Turkey. A chunk of Iran’s land-based trade is undocumented and thus hard to police.

A third factor, it said, is import substitution. The weaker rial has put imported goods beyond the reach of many Iranians. But it has been a boon for manufacturers serving the home market of 83m. Go shopping in Tehran, says a local, and you will find Iranian-made clothing, toys and household goods. “If there were a global self-sufficiency index, Iran would be ranked highly,” he says.

“Iran’s stockmarket reflects this resilient economy. Some of the larger firms are on the sanctions list, but hundreds of smaller ones are not. Stocks have proved a good hedge against devaluation and inflation,” the Economist wrote.

Iran’s officials have touted a “resistance economy”. But its hardiness mostly reflects a bottom-up struggle for basic survival, not a top-down strategic choice, argues Esfandyar Batmanghelidj of Bourse & Bazaar, a think-tank, in a recent essay. Economies are made up of ordinary people. They adapt to changed circumstances the best they can.

“For Iranians, there is now a real prospect of better days ahead. For the Russian people, the painful adjustment is just beginning,” the paper said.

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UK Paper Explains Resilience of Iran’s Economy