Iran’s economic recovery slow one year after historic nuclear deal

Iran’s expectation of a big boom in economy through “economic recovery” after the lifting of UN sanctions has not been realized yet.

Iran pumps more oil into world market

Iran’s crude exports have soared after the lifting of UN sanctions but oil earnings alone cannot increase its capital to a booming level

Many Iranians, although upset by this, still believe this deal is by far the best way for Tehran to end global isolation, recapture lost markets, diversify its foreign relations and win “the ideological war” Iran’s enemies in the Gulf have waged against it.

Iran’s crude exports have soared after the lifting of UN sanctions. Exports have doubled and old customers in Asia and Europe are returning. The country’s market share of global crude exports has returned to pre-sanctions levels.

This is, however, related to recovery of the oil market. Lower oil prices have not done much to increase Iran’s capital to a booming level. Neither could oil earnings alone do this.

While a cursory look at the rating figures suggests a fine recovery, figures can be extremely misleading because of their relative nature. Iran has moved up from number 12 position among 14 Mid-East countries in Foreign Direct investment (FDI) and it is just behind Saudi Arabia and the UAE.

However, this is only one side of the picture. Iranian banks and foreign banks that are to play an anchor role in processing this FDI are not allowed to deal in U.S. dollars — the global reserve currency (read: Iran dealing with Europe in Euro.)

European and Asian conglomerates that would otherwise want to invest in the Iranian market do not know how to bypass many U.S. sanctions which continue to extend to organizations and individuals having ties with the Iranian Revolutionary Guard Corps (IRG) which, by some estimates, directly or indirectly control over 40% of Iran’s economy.

As some recent reports have indicated, the IRG is aspiring to play a “bigger role” in the country’s economy to protect what some believe its own “business empire” that would have to face a lot of competition from foreign companies after real time investments start pouring in. Hence, the slogan of “resistance economy.”

Brigadier General Masoud Jazayeri, deputy joint chief of staff of the armed forces and a member of the IRG, was reported to have said: “The armed forces are ready to play a significant role in the resistance economy and implementing the supreme leader’s suggestions.”

This role, however, has not found enough support from the elected apparatuses of the country. More than anything else, it reflects the on-going battle between the government and the IRG for greater control of economy, leading to political polarization in the domestic sphere and creating an uncertain environment for FDI.

During years of sanctions that kept away many foreign companies, IRG had stepped into the void, building a network of companies that came to dominate Iranian industries from energy to telecommunications.

The nuclear deal, by lifting many of the sanctions, is reopening the doors to those foreign companies. The relatively moderate government of President Hassan Rouhani is trying to nudge aside the conservative Revolutionary Guards in some areas to make way for what it hopes will be a flood of Western money.

On the other hand, while Tehran has made grand pronouncements of billion dollar contracts signed with Boeing and Airbus, it is unclear how such transactions would ultimately get financed. And therein lies the biggest hurdle of the nuclear deal: banking and finance. While the deal lifted EU and UN sanctions on Iran’s banking and energy sector, most of the unilateral U.S. sanctions relating to non-nuclear issues remain.

This factor is primarily pushing hardliners in Iran to propagate against Rouhani’s reformist agenda and his decision to open up to the West. The president, they believe, has been duped into accepting the deal and his failure to boost economy even after a year is an clear proof of the “West’s treachery”, said one Iranian (hardline) academic I met recently.

What adds more substance to this skepticism is the prevailing inability of the Iranian government to materialize deals it has made with some regional countries. This is, however, due also to factors which are beyond Iran’s control.  Iran turned to its North to broker one of the most surprising barter deals — the “goods-for-gas” deal between Iran and Turkmenistan, comprising a $-30 billion deal over ten years.

The purpose was to supply energy to Iran’s north-eastern provinces that are far from its domestic gas fields. This saves Iran from diverting capital into major new pipeline projects. However, the project seems to be behind schedule, as only a fraction of the trade has been realized, probably due to Turkmenistan’s failure to absorb $3 billion a year of Iranian products. And the additional problem is that large imports can strangle the development of domestic producers and the jobs needed.

The situation for Iran’s moderate leadership is, therefore, tricky. Not only does it have to deal with the still imposed U.S. sanctions and  mounting domestic pressure against the nuke-deal, but also the IRG, its own business interests and political hardliners in Iran.

With elections due next year, the pressure on Rouhani’s government is likely to increase if the next U.S. president follows in the footsteps of his predecessor to continue to play the “sanctions game.”

Salman Rafi Sheikh is a freelance journalist and research analyst of international relations and Pakistan affairs. His area of interest is South and West Asian politics, the foreign policies of major powers, and Pakistani politics. He can be reached at salmansheikh.ss11.sr@gmail.com

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