One of the gravest challenges Iranian economic players have had to grapple with in recent years is the cost of sanctions, including oil discounts Iran gives to customers.
With sanctions in place, the country is forced to sell its oil at prices much lower than the global average. On the other hand, economic players cannot receive their financial resources in dollars. Therefore, they are forced to trade in the national currency of other countries, or on credit.
Not long ago, the news about 40% losses of Iranian businessmen in Iraq was published and went viral, Morteza Afqeh, an economist, prefaced his write-up for Persian daily Ta’adol with this note. A translation of the text follows:
Exporters who had traded in dinar suffered losses following the devaluation of the Iraqi national currency. This is despite the fact that President Ebrahim Raisi had promised not to let the fate of the country be tied to sanctions. Not only did this promise fail to deliver, but the economy has also become so sensitive to sanctions that any positive or negative news in this regard gives rise to more problems.
This promise, besides other assurances made by the government, including the production of one million homes and creation of 1.5 million jobs have yet to be fulfilled. The persistence of the current trend will gut Iran’s economy.
The depreciation rate of the economy has outgrown the rate of reconstruction of infrastructures. Iran’s economic infrastructures are eroding and it needs to attract foreign investment to improve its economic indicators, including inflation. But these funds are not forthcoming.
Given the inflation, the economy goes through episodes of recession and erosion. Now that we are hearing good news about the improvement of relations with neighboring countries, the government should also pave the way for the revival of the Joint Comprehensive Plan of Action.
Adverse Impact on Oil Revenues
Before sanctions, Iran used to sell more than 2.8 million barrels of oil per day, which figure plummeted after the sanctions.
Some reports say oil sales have dropped to between 800,000 and 1 million barrels. In addition, it is not clear whether the incomes from the export of oil enter the country or not?
Iran desperately needs its oil incomes, as a significant number of economic problems result from the huge budget deficit caused by the lack of oil revenues. If Iran could sell oil as much as before 2018 and inject its income into the economy, many of the country’s problems would have been solved.
The budget deficit compels the government to borrow from the central bank or the banking system, which consequently propels the growth of liquidity and inflation. Inflation gives way to the spread of poverty and social ills.
The whole process ultimately fuels dissatisfaction. Therefore, returning to the oil market and reviving the JCPOA will pave the way for the entry of needed resources. Iran should examine the costs of sanctions and see whether it can meet its economic needs despite the sanctions. Undoubtedly, the answer to this question is no.
Today, if you talk to any economic player, whether a layman or expert, they all agree on the necessity of ending sanctions. It is high time the government took a step toward the revival of the nuclear deal and resolve the problem of sanctions once and for all. Otherwise, we’ll have to face more problems.
