Why didn’t the Iranian economy collapse under US sanctions?

Why didn’t the Iranian economy collapse under US sanctions?

Iran’s economy has not collapsed under the pressure of harsh US sanctions and embargoes imposed systematically by the White House. What is the secret of the stability of the Iranian economic system? American analysts and experts on Iran tried to find the reasons behind this in an article published on the news portal of the community of US radio stations NPR.

Since 2017, the Trump administration has been pursuing a sanctions line against Iran in order to deprive the current government of financial resources and to force it to negotiate a new nuclear deal.

Secretary of State Mike Pompeo said in a recent speech that the administration’s strategy of “maximum pressure” aims to cut off 80% of Iran’s oil revenues and that “President Rouhani himself said that we have denied the Iranian regime some $200 billion in lost foreign income and investment as a result of our activities.”

However, it seems that the economy of Iran has not gone bankrupt.

“I think the predictions of a quick economic collapse were too optimistic,” says Djavad Salehi-Isfahani, an economics professor at Virginia Tech.

In his opinion, despite the Trump administration’s crushing sanctions, the USA misunderstand the level of complexity of Iran’s economy and how experienced Iran with resisting sanctions.

Of course, the embargo that has been growing since 2017 has hit Iran hard, which has resulted in an increase in unemployment and inflation.

The World Bank and the International Monetary Fund estimate that the country’s GDP will fall by about 9% this year, due to a sharp drop in oil exports.

Before the U.S. pulled out of the nuclear deal in May 2018, Iran exported about 2 million barrels of crude oil per day. Now it’s estimated that Iran exports between 300,000 and 500,000 barrels daily, most of that to China, says Esfandyar Batmanghelidj, the founder of Bourse and Bazaar, an organization that tracks developments in Iran’s economy.

Nevertheless, Iran is not so dependent on “black gold”. “The Iranian economy is a very diverse economy, and manufacturing is really one of the most important areas,” he says. “Currently, manufacturing accounts for about one-fifth of overall employment in the country.”

This includes automotive, metalworking, and plastic manufacturing. On the one hand, US sanctions have made it difficult for Iranian companies to access goods needed for manufacturing industries. There are also obstacles with foreign sales.

But, on the other hand, as Batmanghelidj noted, Iranian manufacturers remain afloat thanks to informal payment systems that do not rely on banks. In addition, some products – for example, food, household goods such as detergent or shampoo – are not subject to secondary sanctions.

In addition, the shortage of imports stimulated domestic production, which in turn led to the growth in the number of jobs.

Suzanne Maloney, an Iran specialist at the Brookings Institution, noted another undeniable fact. Iran also has “well-integrated” relations with regional partners, through which it can trade or use other types of deals to maintain some economic activity.

“The Iranians really do have alternative industries to fall back on and a significant domestic capacity, as well as the ability to leverage their relationships with several of their neighboring states to try to muddle through economic adversity,” the expert added.

Among these neighbors, according to Maloney, are Iraq, Afghanistan, some Central Asian countries, Syria, elsewhere across the region — in short, Iran’s partner coverage goes beyond the US Treasury Department’s sanctions efforts.