U.S. sanctions 'will cripple the economy' of Iran, say economists

“The next round [of sanctions] begins on 4th November, aiming at the country’s economic lifeline – the oil industry – and will deliver a major blow to growth,” wrote Oxford economists.

September 5, 2018 07:12
3 minute read.
An Iranian gas platform

Iranian oil platform, Iran flag. (photo credit: Reuters)


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The slated US sanctions targeting Iran’s energy and financial sectors in early November will pulverize the Islamic Republic’s struggling economy, according to a new analysis released last week by economists.

The organization Oxford Economics wrote that the second wave of US sanctions will hit Iran’s “oil industry and crude exports which form the backbone of the economy and the primary source of revenue and foreign currency for the government” and “will cripple the economy.”

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The UK-based global forecasting company wrote in its analysis: “We expect the sanc - tions to tip the economy back into recession, with GDP now seen contracting by 3.7% in 2019, the worst economic performance in six years.”

The US government re-imposed a first phase of sanctions on Iran in August that cover precious metals, the automobile sector and the use of US currency. Iran is the leading state-sponsor of terrorism, according to the US state department.

“The next round [of sanctions] begins on 4th November, aiming at the country’s economic lifeline – the oil industry – and will deliver a major blow to growth,” wrote the economists Mohamed Bardastani and Maya Senussi from Oxford Economics.

The economists added the Islamic Republic “now has to ensure that the remaining key trading partners will continue buying its oil and not bow to US demands. The EU, Korea, Japan and UAE collectively accounted for 41% of the average 2.6 m[illion] b/d [barrels per day] Iran exported in the first half of 2018. As US allies, and under significant pressure from the US administration, they are all likely to cut down (if granted waivers by the US, which is unlikely with the hawkish US stance towards Iran) or completely halt their crude imports from Iran after November. President Trump said the US aims to bring Iranian exports down to zero...”
US: Iran misusing World Court with suit aimed at lifting sanctions, August 28, 2018 (Reuters)

The goal of US President Donald Trump’s Iran strategy is to compel the clerical regime in Tehran to negotiate a comprehensive agreement that permanently bars Iran from building a nuclear weapons device. According to the Trump administration, the new, exhaustive agreement needs to end Iran’s support for terrorism in the Middle East and stop its missile program. The US withdrew from the 2015 Iran nuclear accord in May 2018 because of serious defects in the accord, said Trump.

The Oxford Economics analysis views two countries – China and Turkey – that will seek to bust US sanctions by purchasing Iranian oil and engage in overall non-compliance with the penalties.

“The world’s second-largest economy [China] is the biggest single importer of Iranian oil, with an average of 675k b/d in H1 2018 or 26%,” wrote the economists.

India is a wild card, according to the analysis. “The degree to which India will cut energy imports from Iran is least certain. The country is reportedly looking for alternative payment options to continue importing Iranian crude and avoid US sanctions. India and Turkey collectively accounted for 773k b/d of crude imports from Iran in H1 [first half] 2018,” noted the analysis.

The Oxford Economics report depicted a bleak outcast for major economic indicators in the Islamic Republic. “The impact of the sanctions will not be confined to the oil industry and will weigh on all components of GDP on the expenditure side.”

The economists predict private consumption will plummet by 2% in 2019 because of rising inflation and a feeble currency.

“The official rate for the Iranian rial has depreciated by 18% since the start of the year, while the black-market rate has fallen 58%. Government revenue will take a marked blow from falling foreign currency earnings from oil exports and it will have to cut its spending; we see government consumption dropping by 3%,” the analysis noted.

Oxford Economics expects “investment to decrease [in Iran] by 13% in 2019, as we have already seen big firms pulling out of the country... we expect exports and imports to decline by 16.2% and 10%, respectively, in 2019 as countries shy away from trading with Iran to avoid their own conflict with the US.”

While noting that Iran’s Supreme Leader Ayatollah Ali Khamenei “is still strong,” the economists wrote “The impact of the sanctions will spark further civil unrest and public discontent as Iranians struggle to cope with deteriorating economic conditions, increasing unemployment (already at 12.1% in Q [uarter]1) and rapidly rising price levels.”

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