Note: What fate awaits the Iranian economy?
Iran's economy, which was subject to high uncertainty and risk in the commercial, economic, and political fields not only during the sanctions period but also in the post-JCPOA period, will now experience a new impetus with the US withdrawal from the JCPOA.
The US withdrawal from the JCPOA - even assuming that the European Union remains - will have significant consequences for the Iranian economy. Many European companies have extensive activities and large capital in the US and will therefore be threatened by the implementation of sanctions. If, in the current situation, the economic cooperation of international companies with Iran, and especially cooperation in the banking sector, can be compared to walking on minefields, then the number of these mines will increase and the risk of their explosion will increase. This will not only fuel the flight of foreign capital, but it will also encourage the flight of domestic capital. In addition, the US and even its Western allies have gained more ability to harm the Iranian economy over the past years, given the extensive experience they have gained from the weaknesses and weaknesses of the Iranian economy.
Therefore, if new sanctions are implemented, the fragility of the Iranian economy - despite being called resistant - will be greater than in previous years. Because this time the sanctions will be more intelligent. For this reason, Iran's exogenous, single-product and inward-oriented, dependent and rentier economy is highly vulnerable to international sanctions. Because with the reduction in imports of technology as well as raw and semi-finished materials, economic units, including the oil and automotive sectors and related industries, cannot be fully active and the opportunity to increase productivity will be taken away from them.
The banking sector is an essential infrastructure for the transfer of liquidity, currency, and capital. Therefore, any type of economic activity - whether short-term or long-term investment, production, or distribution - is more or less dependent on this infrastructure. With the blockade of Iran's banking system, this infrastructure will be disrupted. If the Trump administration's scenario of expanding sanctions is considered, it seems that Iran's banking sector - which is isolated even under the current circumstances - will be the first sector to be subject to expanded sanctions, and then sanctions on the oil export sector will be ordered. In recent years, especially during the sanctions period, investment, especially in the oil industry, has declined sharply. For this reason, the production capacity in this sector of the Iranian economy has not grown in line with regional and international competitors. With the re-imposition of sanctions on this sector, it is natural that Iran's crude oil export markets will be at the disposal of competitors. Iran's current customers are not willing to cooperate with a country that has high risks. Thus, Iran's ability to use foreign exchange reserves will be reduced and its current revenues from oil exports will also be threatened. Thus, the circulation of foreign currency liquidity, which is the lifeblood of the Iranian economy, will come to a halt. As the momentum from the US withdrawal from the JCPOA spreads, it will have various consequences in the short, medium and long term.
Short, medium and long-term consequences of new sanctions
Capital flight, depreciation of the rial against major currencies, reduction in short-term investment, collapse in economic growth, and reduction in job creation will be the short-term consequences of the US withdrawal from the JCPOA. The short-term consequences are, of course, dynamic and are conditional on the continued decline in the activities of enterprises and economic units. In the medium term, however, with the decline in oil revenues, the government budget deficit will increase, and the balance of foreign payments will also become more negative than in the past. These two factors, combined with other factors, will pave the way for the continued depreciation of the rial. Reduction in investment and allocation of resources to current expenses will also be other consequences of the sanctions. If the sanctions are extended in the long term, Iran's domestic production capacity will decrease from what it currently is, and the Iranian economy will become more import-dependent. Reduced job opportunities will be a consequence of the Iranian economy becoming more import-dependent. This will lead to greater externalization of the Iranian economy and its vulnerability to global economic shocks.
Source: Radio Farda
