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United States sanctions drove Iran into a two-year recession. The economy is now growing, but the upside is limited.
Tehran, Iran – As economists, politicians, and pundits mull the threat of “swift and severe” United States economic sanctions against Russia should the latter invade Ukraine, one country that has long been in Washington’s crosshairs does not have to ponder what such punitive measures can do – Iran.
Some 655 Iranian entities and individuals were sanctioned under the administration of former US President Barack Obama, according to data compiled by the Center for a New American Security (CNAS). But the most brutal punishment kicked off in 2018, after former US President Donald Trump’s administration unilaterally withdrew from the Iran nuclear deal with world powers and Iran’s banks were cut off from the Society for Worldwide Interbank Financial Telecommunication – SWIFT, the global financial messaging system.
That was just the opening salvo in the Trump administration’s “maximum pressure” campaign that aimed to force Tehran back to the nuclear negotiating table by crippling Iran’s economy.
In 2020 Washington levied more designations against Iranian banks, effectively severing the country’s financial sector from the rest of the global economy. That same year, the Paris-based Financial Action Task Force (FATF) – the global money watchdog – placed Iran on its blacklist.
And those were just the major headline grabbers. The Trump administration targeted Iran’s economy with more than 960 sanctions, according to CNAS – a barrage that continued unabated as Iran’s healthcare system buckled under the most brutal waves of COVID-19 infections seen in the Middle East, and despite myriad appeals by world leaders to offer Tehran a temporary reprieve for humanitarian reasons.
All of those sanctions are still enforced by the current administration of US President Joe Biden.
Today, no sector of Iran’s economy has been spared by Washington’s punitive measures, which helped propel the country into a two-year recession and continue to impact every aspect of day-to-day life.
Annual inflation is running north of 42 percent, according to Iran’s statistical office. The national currency, the rial, has lost more than half of its value in the past three years. Oil exports fell from roughly 2.5 million barrels per day in 2017 to less than 0.4 million barrels per day in 2020, according to the US Energy Information Administration – though they did start to slightly recover last year.
In a speech to a group of businessmen and manufacturers on Sunday, Supreme Leader Ayatollah Ali Khamenei said the data of the past decade, especially those for economic growth, inflation and foreign direct investments, are “unsatisfactory”.
But Iran’s economy did not totally collapse. It started to return to growth – albeit from a low base – last year, thanks to an easing of cross-border trade, COVID-19 restriction rollbacks, and a sharp rebound in the price of oil.
Having proven more resilient and diversified than some predicted, Iran’s economy grew 2.4 percent in 2020-21, said the World Bank, and is forecast to grow 3.1 percent in 2021-22.
The administration of President Ebrahim Raisi has set a considerably more ambitious goal. He is targeting a growth rate of 8 percent.
The conservative president aims to achieve that through the “resistance economy” doctrine, which mainly consists of boosting self-sufficiency, and trade ties with regional neighbours as well as China and Russia.
But even as that policy – which includes “nullifying” sanctions in parallel to negotiating efforts in Vienna to lift them – has returned the economy to a degree of growth, challenges remain.
“A continuation of the banking sanctions and Iran’s FATF blacklisting will limit the potential of Iran’s international trade,” says Bijan Khajehpour, managing partner at Eurasian Nexus Partners (EUNEPA).