Reducing the reliance of Iran’s economy on oil revenues and increasing the share of non-oil sector in economic growth have been one of the most frequently discussed subjects among experts.
Statistics, however, show that the growth of Iran’s economy in recent years, particularly in the 2010s, was mainly due to the sale of oil. These were stated by Vahid Shaqaqi-Shahri, an economist, in a write-up for the Persian daily Jahan-e Sanat. A translation of the text follows:
Oil sale has been the most effective factor in boosting economic growth whether in the fiscal 2016-17 when Iran’s economy grew by 12.5% following the conclusion of the Joint Comprehensive Plan of Action and international interactions with the West, or in recent years when we saw negative or close to zero economic growth due to sanctions.
Data show that the value added growth of the oil sector contributed 9.8% of the 12.5% growth in 2016-7. Therefore, we can say with conviction that in the 2010s, Iran’s economic growth was completely dependent on the oil sector, the added value of the oil sector and oil revenues. The higher economic growth registered in 2021-22 compared with last year was thanks to the higher growth of oil revenues last year. In other words, the government managed to sell more oil last year.
In the 2010s, other economic sectors, including agriculture, industry and even services, did not have a significant impact on economic growth. This is worrying because government officials have not been able to realize the dream of ending the economy’s dependence on oil.
For making predictions for the economy, we need to bear in mind that the agriculture sector will not be able to expand significantly, given the water crisis. As a result, the agriculture sector is bound to have a negative impact on economic growth in the 2020s.
Fundamental development and structural changes indicating a real growth in the industrial and services sectors, or their added value, are unlikely. As a result, Iran’s economy will remain dependent on oil revenues; there will be no special change in the country’s economic structure.
This makes us realize that the positive numbers of economic growth are only the result of the increase in oil prices and the sale of oil and oil products. When we speak of positive economic growth in the country, we are in fact referring to the changes in the industry, agriculture and services sectors.
As structural and institutional reforms are nowhere to be seen in these sectors, we can conclude that any positive growth is contingent on oil sales. Therefore, if the sanctions are lifted and oil sales increase, the economy will register growth.
In closing, if the sanctions persist, Iran’s economic growth will hover between 2-3% next year. But if the sanctions are unraveled, the economy will expand by up to 6% owing to the added value of the oil sector. Structural and institutional changes in knowledge-based, services and industrial sectors are vital for Iran’s economy.
Unfortunately, we don’t see any signs of change and reform in the country and this signals the continuation of the economy’s dependence on oil and its sales.
