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Friday, May 17, 2024

Is Iran’s economy collapsing under crippling sanctions by US?

The crippling sanctions by the US on Iran for abandoning JCPOA and continuing its nuclear program have pushed Iran at almost at the brink of an economic crash. GDP low, oil running dry what are the next options for Iran?

Opinion |

The crippling unilateral sanctions imposed by the American policy establishment has began to have a telling effect on the Iranian economy, with public anger spilling on the streets, is the end of Ayatollah regime insight?

Festering grievances – falling standards of living

On November 14, the Iranian government announced rationing and hike in the prices of petrol by almost 200%, just two days later sporadic protests gripped the entire country due to the falling standards of living and effects of skyrocketing inflation on different commodities.

Iranian opposition parties are in disarray, with domestic opposition leaders jailed and those abroad lacking legitimacy among most Iranians inside Iran. A spate of economic protests that erupted in late 2017 led to nearly 5,000 reported arrests and the deaths of at least 25 people.

The external support to the enemies of the Iranian government, particularly by its Sunni rival Saudi Arabia, United Arab Emirates, Bahrain etc and its Zionist neighbour Israel, is a reality.

While the Iranian clerical regime may claim that everything is alright, the biting effect of the American sanctions on different sectors of the Iranian economy from oil, petrochemicals to aviation and banking has began taking a heavy toll on the ordinary Iranians who are finding it extremely difficult to eke out a living.

Ever since the US withdrawal from the Iran Nuclear Deal and reimposition of sanctions in two phases, life in Iran has become challenging for the common people. Iran’s leaders have remained defiant in the face of the sanctions and vowed to overcome them, but the substantial impact they have had on the country is clear.

The reinstatement of US sanctions last year – particularly those imposed on the energy, shipping and financial sectors in November – caused foreign investment to dry up and hit oil exports. The sanctions bar US companies from trading with Iran, but also with foreign firms or countries that are dealing with Iran.

Read more: End of Iran sanctions waivers to hit Indian economy: analysts

As a result Iran’s GDP contracted by 3.9% in 2018, according to estimates from the International Monetary Fund (IMF). The IMF said in late April that it expected the Iranian economy to shrink by 6% in 2019. However, that projection preceded the expiration of the sanctions waivers. For decades, sanctions have prevented Iranians from enjoying the freedom of trading on an open market.

It is a sentiment expressed by many Iranians who still enjoy some level of purchasing power. But in Tehran’s old bazaars, lower-income Iranians complain about the rising cost of nearly every kind of consumer product on the market. Shopkeepers are frustrated as well. With production prices doubling in some cases, businesses say they are left with little choice but to pass the costs on to customers. Even then, profit margins are getting thinner.

Oil and Petroleum industry – cash cow running dry

Iran has the fourth-largest proven reserves of oil in the world, with oil and petroleum contributing almost 40% of Iran’s exports and foreign exchange, there is no doubt that oil is the most important sector in Iran, but the issue is that the main impact of the American sanctions is on the oil sector which can be called the “lifeline” of the Iranian economy.

By March 2019, Iran’s oil exports had fallen to 1.1 million bpd on average, according to the consulting firm SVB Energy International. Taiwan, Greece and Italy had halted imports altogether, while the two biggest buyers – China and India – had reduced them by 39% and 47% respectively. A US official estimated that Iran’s government had lost more than $10bn ($7.7bn) in revenue as a result.

The “maximum pressure” campaign decreed by Mr. Trump has not threatened to collapse the Iranian government or led to a popular uprising, as some critics of the government had hoped. But rising tensions with the United States carry the risk of a military conflict.

The sanctions bar US companies from trading with Iran, but also with foreign firms or countries that are dealing with Iran.

According to Michael Rubin, resident scholar at the American Enterprise Institute – regime change has become a loaded term, since the U.S. invasion of Iraq which deposed Iraqi dictator Saddam Hussein, but when Khamenei dies, it is inevitable in Iran. Alas, the United States remains woefully unprepared.

There is no reason why there cannot be bipartisan consensus on a strategy to channel the inevitable challenge that Iranians will face upon Khamenei’s death into the best possible outcome for Iranians and regional peace and security.

Iran has long-suffered from economic problems since the 1979 Islamic Revolution, which cut the country’s decades-long relationship with the US, and an eight-year war with Iraq which followed it. Despite the falling standards of living and increasing economic woes of the common Iranian, from the realistic point of view, regime change in Iran seems highly implausible given the ubiquitous support the Iranian government and the clerical establishment enjoys.

Read more: US asks UN to extend Iran sanctions and travel ban

Iran which has for years plagued by sanctions has learnt to a large extent to endure economic hardships. Like the tendencies of all ultra-nationalistic governments and regimes, the Iranian policy establishment resorts to the use of the nationalist card to drum up support against the nemesis, in this context the American administration.

However, the external support to the enemies of the Iranian government, particularly by its Sunni rival Saudi Arabia, United Arab Emirates, Bahrain etc and its Zionist neighbour Israel, is a reality. But what appears from now, it is the ordinary Iranian who will suffer for the coming days ahead.

is pursuing his B.A. in Political Science with specialization in International Relations, Jadavpur University. His research interests include the Middle East and West Asia, especially India’s West Asia foreign policy. This article was originally appeared at The Geopolitics and has been republished with the author’s permission. 
The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.