The headlines in Tehran have been trumpeting some good news for Iran’s economy lately. In the first 11 months of the Iranian fiscal year, car production climbed 58 percent and pistachio exports shot up 71 percent. Inflation is high but easing, and after a sharp contraction in 2012 and 2013, the economy is growing again.
But the Iranian economy is still a shadow of what it could be if international sanctions were lifted. There is virtually no foreign investment. Unemployment is rampant, especially among the young. Some of the country’s banks are in precarious positions. Corruption is common among politically connected groups that profit by circumventing international sanctions.
“The economy is not healthy,” said Djavad Salehi-Isfahani, a professor of economics at Virginia Tech. “It is a bit like a sick man whose leg breaks and then the leg is repaired, but the other stuff is still there.”
The six global powers negotiating a deal to limit the scope of Iran’s nuclear program are hoping that the prospect of ending economic sanctions will entice Iranian leaders to come to an agreement in the next few days. Reports on the talks suggest that one of the remaining disputes is how fast sanctions would be lifted and which ones might remain in effect while Iran proves its commitment on the nuclear front.
The incentives are these: An agreement on Iran’s nuclear program could reopen markets for more Iranian crude oil exports, which Iran’s oil minister has said could rise by a million barrels a day within months. An agreement also might release a portion of the more than $100 billion in oil receipts now locked in accounts beyond Tehran’s control.
All that would have a huge impact not only on Iran, but also on world oil prices and the geopolitics of the Middle East, where Iran is propping up or advising allies including Hezbollah in Lebanon, President Bashar al-Assad in Syria, Houthi rebels in Yemen and the government of Iraq in its battle against the Islamic State.
Meanwhile, Iran’s economy is struggling.
“I think that the Iranian economy is hemorrhaging on three fronts,” said Karim Sadjadpour, a senior associate at the Carnegie Endowment for International Peace, pointing to the cost of sanctions, low oil prices and the cost of aiding Iran’s regional allies.
How huge an impetus is difficult to say.
“It is evident that sanctions have been completely counterproductive if the objective was to contain the Iranian nuclear program,” said Seyed Hossein Mousavian, a research scholar at Princeton University who was a member of Iran’s negotiating team on nuclear weapons in 2005. “But if the objective was broader, just to harm the Iranian economy, you can say it has harmed the Iranian economy.”
Since 2005, Mousavian noted, Iran has acquired more centrifuges, more advanced centrifuges, more enriched uranium and a new underground nuclear site.
But Sadjadpour argued that “the most onerous sanctions are directly linked to Iran’s nuclear behavior, which is why Iran has shown a willingness to reassess its nuclear ambitions.” Without that link, he said, there would be no change in behavior. “You haven’t seen Iranians begin to reassess their approach to Israel or their support for Assad or for Hezbollah,” he said.
Economic sanctions are blunt instruments. In South Africa, they lasted years before apartheid ended, and even then, internal rebellion was probably more important. Sanctions on India over its nuclear weapons program were eventually lifted without any effect. Economic sanctions on China after the Tiananmen Square crackdown failed to instill democratic values. And President Barack Obama has called for the end of a half-century-old embargo against Cuba, whose Castro brothers have ruled through 10 U.S. presidencies.
In the case of Iran, a series of U.S. and UN sanction measures in 1979, 1995 and 2006 were tightened greatly in January 2012 when the European Union imposed an embargo on Iranian oil and a freeze on the assets of Iran’s central bank.
Payments have been held up, too. A Chinese official last year said it owed about $25 billion. An official told an Indian newspaper recently that India owed nearly $9 billion.
“Iran has been severely impacted by sanctions,” said Bryan Plamondon, an economist at the consulting firm IHS.
