The Economic Crisis and the Protest Movement in Iran: One Year after the Renewal of Sanctions

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The Economic Crisis and the Protest Movement in Iran: One Year after the Renewal of Sanctions | INSS
Raz Zimmt

As expected, the renewal of economic sanctions against Iran one year ago led to a worsening of an already bad economic situation in Iran. A number of economic indexes attest to the severity of the economic crisis, mainly the budget deficit stemming from the unprecedented drop in the export of Iranian oil, high inflation, and negative economic growth. In contrast, a number of indexes may also suggest that the Iranian economy is gradually acclimating to the sanctions regime. The deepening economic crisis has heightened the sense of frustration among the public, but thus far has not led to an increase in unrest. On the contrary, in the past year, the scope of popular demonstrations has ebbed significantly. In the final analysis, despite the economic crisis and the rising public despair, it seems that the Iranian regime is managing to withstand the American sanctions, and there is even a possibility of a slight economic improvement in the coming year. As long as the Iranian regime feels that it can hold out over time and that the economic crisis does not pose a serious threat to its stability, Supreme Leader Khamenei’s position of not responding to the demands of the American government will likely be strengthened.

The economic sanctions against Iran, which came into force in August 2018 following the American withdrawal from the nuclear agreement, led, as expected, to a worsening of an already bad economic situation in Iran, as reflected by a number of economic indicators. However, there are also indices that suggest a possible process whereby the Iranian economy is gradually acclimating to the sanctions regime.

The most serious harm to the Iranian economy comes from the difficulty in exporting oil, particularly after the Trump administration decided in May 2019 to cancel the waivers that had allowed eight countries to continue purchasing Iranian oil. The result was a further drop in exports - according to various estimates, from 2.8 million barrels per day in June 2018 to 300,000 to 800,000 barrels per day, an unprecedented low since the Iran-Iraq War. (The range stems from questions regarding the amount of oil smuggled from Iran.) The resulting sharp decline in state revenues required the government to reopen the state budget for the current year, which was based on forecasted exports of 1.5 million barrels of oil per day at a price of about $55 per barrel. In order to reduce the added budget deficit, the Iranian authorities decided on a series of measures, led by the withdrawal of more than $10 billion from the national development fund, which intended to retain some of the oil revenues to prevent shocks to the economy as a result of price changes in the world markets, and the withdrawal of tens of billions of dollars from foreign currency reserves.

More at: https://www.inss.org.il/publication/the-economic-crisis-and-the-protest-movement-in-iran-one-year-after-the-renewal-of-sanctions/