Ali Ghasemi
As Iran’s economy faces a new challenge known as the “snapback” of UN sanctions, structural imbalances and longstanding economic inefficiencies continue to weigh heavily on domestic industries. Over the past decades, large corporations listed on the Tehran Stock Exchange (TSE) have benefited from government subsidies and currency devaluations, which helped them report strong financial growth. However, since the intensification of international sanctions in the early 2010s, economists have consistently warned of their long-term, irreversible consequences. Fifteen years on, listed industries are now grappling with the reality of an economy eroded by sanctions and structural decay. At the same time, the government’s gradual reduction of energy subsidies has added further pressure on production and profitability.
While the activation of the snapback mechanism may not drastically disrupt company sales or exports in the short term, the hidden and indirect costs of sanctions are far greater than what financial statements can reveal. Interestingly, the TSE has shown resilience over the past decade and a half. Far from collapsing under sanctions, it has often surged in response to currency depreciation. Even in 2018, when former US President Donald Trump withdrew from the JCPOA and vowed to drive Iran’s oil exports to zero, the stock market defied expectations—delivering spectacular returns as corporate sales data indicated limited immediate impact. Yet, over the long run, the costs of sanctions manifested in other forms: heavy export discounts, industrial depreciation, exchange-rate volatility, runaway inflationary expectations, and rising interest rates have all chipped away at economic profitability.
Today, corporate profit margins have shrunk to below 10 percent, while investors demand returns of roughly 45 percent to offset high interest rates, elevated risk premiums and persistent government intervention. This dynamic has effectively eroded real economic gains.
Looking ahead, the Tehran Stock Exchange may still have room to climb if a weaker rial acts as a growth catalyst. However, direct state interference in production, rising energy costs and declining global commodity prices could limit stock returns, preventing them from outpacing currency gains. In other words, many investors may continue to favor safer, inflation-hedging assets such as gold, coins and foreign currency, which offer competitive long-term returns with lower policy risk.
Moreover, with inflation expectations already elevated—well above 40 percent—domestic production can no longer sustain such high price pressures. As a result, the government is likely to raise interest rates further by issuing new debt to cover budget deficits. Given these conditions, the TSE’s price-to-earnings ratio, which has historically averaged between 6 and 8, may remain below its long-term mean. Consequently, overall market returns are expected to lag behind alternative assets, even though select stocks in specific sectors may still deliver standout performances.
