Iran's Economy Will Collapse Under Continued Sanctions

According to a new report from the International Institute of Finance (IIF), if the nuclear talks between Iran and the so-called 1+5 group do not succeed, Tehran's economy will reach a "catastrophic" state. The report was published on December 5 and is available on the institute's website. It states that since the onset of the new round of economic sanctions aimed at limiting Iran's nuclear program, the country's economy has declined by 8.6 percent. The report notes that while 35 percent of Iran's government revenue comes from oil sales, the drop in global oil prices has created another problem, and along with the continued sanctions, has led to a persistent budget deficit in Iran. Gregor Aabed, the head of the Middle East and North Africa section of the IIF, stated, "Sanctions have had a serious impact on Iran's economy. If Iran can conclude negotiations and free itself from sanctions, it can return to the global economic process." Garbis Iradian, the deputy director of the IIF who participated in writing this report, said in an interview with CNBC that with continued sanctions, "Iran's economy will be brought to its knees within the next two years." The IIF further explained that for the Iranian government to balance its budget for the next fiscal year, 2014-2015, it would need to sell each barrel of oil at $148, which is about $50 higher than what was needed before the sanctions. Nevertheless, North Sea Brent oil is currently trading below $70 per barrel, and as the IIF predicts, this figure will stabilize around $80 in the medium term. The report also states that if Iran's economy remains closed off from the world, the situation in Tehran will worsen. Despite Iran's abundant oil resources, extraction and processing require foreign investment, the use of new technologies, and, of course, global customers. Garbis Iradian noted that "in some ways, financial sanctions against Iran have been worse than the oil sanctions. Half of Iran's foreign exchange liquidity is blocked in foreign banks, and the 1+5 group has only agreed to release a fraction of these resources after the Vienna talks." Two weeks ago, Iran and the U.S., Britain, France, China, Russia, and Germany, the 1+5 group, agreed to extend the nuclear negotiations for another seven months after a week of intensive talks in Vienna. The goal of extending these negotiations is to reach a comprehensive agreement to resolve Iran's nuclear file and to lift foreign sanctions against the Islamic Republic. Ayatollah Ali Khamenei, the leader of the Islamic Republic, on December 27, stated that he was not opposed to extending the nuclear talks with the 1+5 countries and that Iran is ready to accept "fair and rational agreements," adding that if these negotiations do not succeed, "the one who will suffer the most is the U.S., not Iran." Garbis Iradian also added that "the achievement of any other temporary agreement - or any type of deal between the two sides - would be very significant and would greatly strengthen Iran's economy." Joe Biden, the U.S. Vice President, stated on December 6 that the chances of reaching a nuclear agreement are less than 50 percent, but the negotiations are still worth pursuing. In this context, Jen Psaki expressed hope that a comprehensive plan would be reached by the end of March, while Wendy Sherman is "seeking to prevent further sanctions" on Iran in Congress. Efforts by supporters of sanctions against Iran in Congress to counter Obama's veto continue. IRNA reported that Iran's nuclear research and development activities will continue over the next seven months. The Speaker of the Iranian Parliament stated that a nuclear agreement is not out of reach. The report also mentions the ongoing conflict in the streets of Iran and the potential radicalization of Iranian society amid the crisis.