Iran's Challenges in Reviving Economic Status After the JCPOA

This image depicts Iran's economic landscape prior to reaching a nuclear agreement: the crippling effects of international sanctions were evident in all areas. Oil exports hit their lowest point. Iranians could not engage in banking transactions with the international community, whether it was a manager of an import-export company or a young person trying to buy a book online. The prices of housing, bread, meat, and everything related to daily life were on the rise, while currency rates fluctuated. Many medications, although not under sanctions, were hard to find at times on the streets of Iran. It was this environment that particularly led Western officials to assess that, to this day, Iran's economic situation was due to sanctions and related issues that convinced Tehran to come to the negotiating table. Whether this assessment is accepted by Iran or not, in such an environment, Iran sat at a purposeful negotiating table regarding its nuclear program. Negotiations during Hassan Rouhani's presidency were more cohesive and targeted; a win-win result for both sides. The goal was for the P5+1 to ensure the nature of Iran's nuclear program and for Tehran to be freed from the sanctions imposed due to this program. The efforts of both sides culminated in an agreement on July 14, 2015. The Joint Comprehensive Plan of Action (JCPOA) was achieved, a deal that many in Iran praised, leading to celebrations in the streets of the capital. Today, one year after that evening when people in Iran celebrated the JCPOA, perhaps not all of those individuals share the same joy they felt a year ago. Like this Tehran citizen who, although still hopeful, sees no change in his business: "Nothing has happened yet that has impacted our lives. Money needs to come into the country for factories to start operating. People hope that the promises made will be fulfilled, that blocked funds will return, that factories will start up, and that the issues of overdue bank debts and claims from the government and municipalities will be resolved... There is hope, but for now, people continue as they have been." Another Tehran citizen sees no change in his life and is not very hopeful about the future, saying: "To tell the truth, the impact has been that the market has become more stagnant; with the things they say, we say we have hope, but I personally do not have much hope because every year is worse than the previous one." Such expressions are frequently heard across Iranian cities. Those who eagerly awaited news of the agreement on July 14 last year thought it would bring change to their lives, and today, they do not see the change they were waiting for. In this regard, my colleague Arash Hassan-Nia at Radio Farda, who closely follows Iran's economic developments, emphasizes two aspects of the JCPOA's effects, both psychological and practical, stating that part of the overly large psychological impact lacked a strong backing for real effects: "Part of the large psychological effect was the government's responsibility because this was the government's trump card, and they constantly talked about it, and in a way, all economic changes were conditional and suspended on where that result would lead. At that time, many independent economic experts warned that raising expectations following the JCPOA—even with the optimism that existed among experts at that time—could be harmful because, after all, for Iran's economy to benefit from the effects that were said at that time, time was necessary. However, if we want to reach the period after the implementation of the JCPOA, in the rest of the economic events and other developments that shock the economies of the world, it is always the case that the psychological effect initially has impacts, but if that real part of the economy does not support that psychological effect, gradually that psychological effect fades away and is like ice melting in the heat, and we no longer have that ice. This exactly happened with the implementation of the JCPOA." The JCPOA was implemented about six months ago. This moment meant that those sanctions imposed on Tehran due to the continuation of its nuclear program were lifted, and it was time for Iran to revive its economic relationship with the global market. Although some movements have been made in this regard, many assess the process of reviving this relationship as "slow." The calmness of this process is even observable in the extent of Iran's access to its blocked assets. John Kerry, the U.S. Secretary of State, stated in May of this year: "Do you remember the discussions about how much money Iran would receive? Some presidential candidates spoke of erroneous figures like $155 billion. We never thought that figure was accurate. Some said it was $100 billion. According to our calculations, that figure is $55 billion. Do you know how much Iran has received of that so far? As of this moment, that figure is about $3 billion." Iranian officials have gradually spoken about the time-consuming nature of this process, and on the other hand, discontent has also been heard within Iran. Discontent that Nikolai Kozhanov in Moscow believes is one source of unrealistic optimism at the time of reaching the nuclear agreement: "Expectations from this agreement in Iran were very optimistic. If we look at the developments in Iran's economy up to this point, although we see signs of improvement, the economy of this country is still going through a tough time, and the improvement of this situation will not be as fast as initially expected." The system of sanctions imposed in the years leading up to the agreement was unprecedented in its nature. These sanctions gradually targeted Iran's banking system, monetary exchanges, oil sales, and many other areas of Iran's economy. Therefore, analysts believe that now that it is time to lift these sanctions, the time-consuming nature will be the main characteristic of this process. Richard Nephew, who was one of the American diplomats responsible for negotiating sanctions during the nuclear talks, and who is now researching at Columbia University in the U.S., refers to examples from Iraq and Myanmar to highlight the novelty of what we are witnessing regarding Iran, stating: "There were not many countries that could emerge from a heavy sanctions regime like Iran's without war. Perhaps Iraq is the closest example in terms of the sanctions regime, which saw a very different situation due to the U.S. invasion and occupation of that country compared to what we are witnessing now regarding Iran. We have seen this piecemeal lifting of sanctions in Myanmar, and this illustrates the complexity of the situation regarding Iran because this has not been done before. Lifting sanctions after a long period of imposition is difficult, especially when a vast array of sanctions tools has been employed." Following the implementation of the JCPOA, visits by senior officials from various countries to Tehran began. These visits were undertaken by diplomats along with dozens of economic activists. Additionally, senior officials from the Ministry of Foreign Affairs of Iran emphasized that economic diplomacy is now a priority, leading to numerous trips, particularly to European capitals. There was talk of the willingness of Western and Eastern companies to invest in Iran, and those who had left Tehran under the pressure of sanctions announced their return to the Iranian market. These movements have led to the signing of numerous memorandums of understanding between Iran and international companies. Among these are agreements with two aviation giants, French Airbus and American Boeing. Alongside the aviation industry, Iran has advanced an agreement with Peugeot and Citroën valued at $450 million, and the agreements made with Italy's metal industry and the Danieli group are estimated at over $6 billion. Nevertheless, Iranian officials report multiple obstacles in their way. This dissatisfaction is evident in part of the speech of the Supreme Leader of the Islamic Republic on June 15, where he reiterated points previously made by Ayatollah Ali Khamenei in various forms: "Well, the responsibility of the other side was to lift the sanctions; they have not lifted them; the sanctions remain. They have lifted some of the sanctions in some way, but in practice, they have not been lifted. You know that what was under discussion were the secondary sanctions. They have maintained the primary sanctions with full force, and this affects the secondary sanctions. I ask those involved to pay attention; let’s not keep saying the sanctions have been lifted; no, the issue of bank transactions has not been resolved, and large banks do not conduct transactions." The primary U.S. sanctions are those imposed due to non-nuclear issues and are not new, including prohibitions on financial communications with Iran, Iran's use of the U.S. financial system, or the dollar in its transactions. These sanctions target American companies, which, aside from cases like the sale of aircraft that have been freed under the agreement, are not allowed to transact with Iran, and on the other hand, prevent Iran from using the U.S. financial system and its dollar in its transactions. The current problem for Iran also stems from this second aspect, as Iran needs to secure resources through international institutions and banks for its international transactions, which have not yet reached a conclusion on how to proceed with the use of the dollar. The reason for this uncertainty is the threats currently being heard from the U.S. Congress, and as Mehrdad Emadi, an economic advisor in Britain, states, large banks have not received the green light necessary to conduct transactions with Iran: "It has never been stated before that an HSBC official told me that the amount of green light that should be shown has not been given. And large banks, having paid most of the fines, are apprehensive, but initially, there was no talk of duality in red lines or green and orange lights depending on the size of the banks; if there had been, I would take this risk now and say that the flexibility and cooperation that Iran showed did not indicate this during the negotiations." Mr. Emadi also mentions that regarding the Boeing and Iran Air agreement, the threats from members of the U.S. Congress to impose sanctions or penalties on those who cooperate with Iran in this area have posed a serious challenge to the financing of this contract. In the U.S. itself, some have warned that lawmakers' proposals to exert pressure and prevent cooperation with Iran will also impact the U.S. economy. One of these proposals is to prevent the use of the dollar by non-American entities, which, according to Richard Nephew in New York, also jeopardizes the position of the U.S. dollar: "The U.S. dollar has become the main currency because it is recognized as a stable, non-political, and reasonable currency. From this perspective, every time you impose a prohibition on its use, you undermine its value as a currency in international transactions. After all, advantages accrue to us due to the use of the dollar in international transactions, one of which is the use of sanctions. Therefore, my concern is that a misguided attempt to prohibit the use of the dollar in trade related to Iran—which will not even help the advocates of sanctions—could undermine the use of the dollar in international transactions, and this is a threat to the U.S. economy and the centrality of the U.S. financial system in global trade." This warning comes at a time when some threats from Congress even include raising taxes on companies that assist Iran in contracts. American lawmakers are seeking to create these barriers because they believe that these economic transactions assist a country that the U.S. State Department has identified as a major supporter of terrorism. While Richard Nephew and his colleagues warn about the impact of this approach on the U.S. itself, some economists like Steve Hanke at Johns Hopkins University in Baltimore believe that such actions have created a regime of uncertainty in the entire international economy: "This is not just about Iran; a regime of uncertainty has taken over the international financial system, and this regime means that no one knows what the exact rules of the game are. If there is any possibility that an action by banks might fall under the sanctions regime, banks pay close attention to that, and at least large Western banks will not enter this trade. As a result, this is a regime that has slowed down international transactions overall. This is one of the reasons why global growth rates have not increased. Iran is part of this picture, but the main story is much larger than this." When discussing Iran's difficult conditions for reviving its economic status, like any other phenomenon, one must also look at the other side of the coin. If one side of the coin is the problems Iran still faces regarding sanctions, the other side of the challenge must be sought within Iran's borders. The Iranian economic system and its shortcomings is a topic that the officials of the Islamic Republic themselves...