How Will Iran's Economy Fare After Sanctions? A Bitter Expectation Worse Than Poison

Despite Iranian political officials insisting that no changes will be felt in the economy following the onset of the second wave of sanctions on November 5, and that what the U.S. has planned to pressure Iran has already been implemented in recent months, economic activists are not convinced that good news is on the horizon. This can be inferred from the recent surge in prices displayed at exchange offices, where the U.S. dollar has approached its initial levels again; an indicator of concern about the future situation post-sanctions. The economy is caught in the grip of sanctions. However, beyond these worries and political anxieties, is it really true, as Iranian officials claim, that nothing significant will happen after the new sanctions, and the economy will continue to operate as before? To answer this question, one must consider how economic sanctions operate and how the Iranian economy is affected by them. Given that the Iranian economy remains dependent on oil revenues, the most significant impact of sanctions will stem from reduced oil income and a decline in the export of products and by-products related to this sector. The currency crisis arising from financial constraints and increased transaction costs, a surge in investment risks, and concerns about the future economic situation or potential crises, as well as restrictions on the normal flow of foreign trade, are the main channels through which sanctions affect the Iranian economy. Each of these areas of impact creates behaviors and norms, poses problems and obstacles for the Iranian economy, and imposes costs that ultimately manifest in various economic indicators across different sectors. To predict what the new sanctions will impose on the Iranian economy, one must first look at what happened to the Iranian economy in the years 2012 and 2013, years when the tightening of economic sanctions choked the Iranian economy more than ever and produced figures that could potentially repeat. The economic growth rate, as a result of changes and economic trends, is the best indicator in any economy. The growth rate of the Iranian economy, which fluctuated around 5 percent before the years 2012 and 2013, slipped into negative territory due to economic sanctions during those two years, even falling to about negative seven percent. Overall, the Iranian economy shrank by about 9 percent during the peak of the sanctions. The freezing of economic growth in the winter season of sanctions. Analyzing the quarterly economic growth during the peak of sanctions in 2012 and 2013 and after the implementation of the JCPOA in the winter of 2016 shows how the coming and going of sanctions have affected the Iranian economy, although these changes were also influenced by numerous other factors, including changes in government and parliament during this period. However, the most significant difference between Mahmoud Ahmadinejad's government and Hassan Rouhani's government was the completely different and even contradictory approach of the two administrations to negotiations with the outside world and nuclear negotiations. My pain is from 'oil' and my remedy is also. The Iranian economy is an oil economy, and thus developments in the oil and gas sector leave the most significant and largest impacts on the Iranian economy. On the other hand, Iran's oil sector has the greatest connectivity and correlation with the outside world, making it the primary target of economic sanctions against Iran. The effects of the sanctions of 2012 and 2013 quickly and more rapidly impacted the oil and gas sector than any other sector, leading to restrictions on Iran's oil exports. Production and export capacities were gradually taken offline, and since the oil and gas sector requires continuous investment and technology transfer, this sector faced negative performance in all aspects. The reduction in the volume of oil production and exports in 2012 and 2013 returned to pre-sanction levels by 2016, and in fact, the empty capacities returned to operation. The fire of oil was extinguished. Throughout all seasons of peak sanctions in 2012 and 2013, the oil sector was caught in a vortex of negative growth, with the reduction in oil and gas exports and the prohibition of investment and the presence of major international companies in this sector being the most significant impacts of sanctions on the performance of Iran's oil and gas sector. The sanctions also affected the industrial sector of the Iranian economy for various reasons, including being one of the important economic sectors impacted by the effects of sanctions. The performance of industrial sectors, especially those dependent on the import of capital goods, intermediary goods, and machinery, and sectors collaborating with foreign partners, declined with the imposition of sanctions, pushing the growth rate of value added in the industrial and mining sectors into negative territory. The commercial sector was also one of the real sectors of the Iranian economy that reacted more sensitively to sanctions, with the fever of sanctions quickly becoming apparent in this sector. The depreciation of the national currency on one hand and the problems arising from exchanges and banking payments, as well as the imposition of import and export restrictions, had previously affected the total volume of Iran's foreign trade in 2012 and 2013. Since about 75 percent of Iran's total imports are allocated to intermediary goods and materials needed for production, machinery, and capital goods, this decline in imports also impacted domestic production. The performance of the commercial sector is largely dependent on the performance of the industrial, mining, agricultural, and foreign trade sectors, and all these changes require a banking services infrastructure and a monetary and financial exchange network that faces severe challenges and restrictions under sanctions. The recession in the commercial sector continued from 2012 to 2015, and from that year onwards, the commercial sector, especially foreign trade, managed to return to pre-sanction trends with normalization. Meanwhile, the depreciation of the national currency and Iran's forced barter trade with a limited number of countries will also affect the fluctuations in this sector. In addition to the developments in the aforementioned sectors, other important sectors in the Iranian economy, such as agriculture, construction, and services, were also directly and indirectly affected by past sanctions. The agricultural and construction sectors were deprived of foreign investments and the transfer of modern technology on one side, and the changing priorities of public sector investment and the government's constrained ability to create demand and implement construction projects on the other side were among the effects of sanctions. Similarly, the concerns of domestic investors about new investments or continuing previously planned programs in these economic sectors led to disappointing experiences during the peak of sanctions and even after in these sectors. The services sector, which is fundamentally influenced by developments in other sectors, did not have a favorable situation during the years of negative economic growth. Sanctions; as they were, as they are. Now, with this picture of past sanctions, one can predict what fate awaits the Iranian economy with the implementation of new U.S. sanctions against Iran. Of course, this time there are significant differences from previous sanctions. The previous sanctions were those that were formed with a consensus and agreement among the U.S., the European Union, and the Security Council, but this time the sanctions against the Iranian economy are specific to the U.S. government, although this time the current administration in the White House has fundamental differences in the seriousness of implementing these sanctions compared to the previous U.S. administration. Iran, through the experience of previous sanctions, has become seasoned and has learned ways to circumvent sanctions and avoid the impacts of these restrictions. However, on the other side of the story, the Americans have also recognized the skills and techniques of Iranians in undermining the effectiveness of sanctions.