The authorities in Iran have been blaming economic problems such as poverty, inflation, unemployment, and the depreciation of the rial on sanctions. but will Iran’s economic problems go away if all sanctions are lifted?
The reality is that in more than four decades of clerical rule, Iran’s economy have been damaged beyond repair. Past experience has shown that the economy will not be revived by giving planeloads of cash and access to international financial channels. And this time, if things have changed, it is only for the worse.
State of Production
A healthy economic cycle needs a solid production infrastructure, factories, companies, and organizations that manufacture products, create jobs, create wealth, hire new talent graduating from universities, create opportunities for new enterprises.
But when you look at Iran, the production infrastructure is threadbare and on life support. Large companies such as HEPCO and Haft Tappeh Sugarcane Agro-complex, which were symbols of Iran’s economic power, are a shadow of their past glory. And their decline did not happen overnight or as a result of sanctions. It happened through decades of corruption and destructive policies, the fraudulent privatization of government-owned companies to corrupt regime-linked individuals.
At the same time, other vital areas of activity such as agriculture and livestock farming have been brought to a near halt because of the regime’s destructive environmental policies.
Meanwhile, the monopoly that the Revolutionary Guards (IRGC) have over different industries and domestic production have made it increasingly difficult for Iranian entrepreneurs to launch their own businesses and compete in Iran’s market. The IRGC and regime supreme leader Ali Khamenei control a lot of Iran’s industries through organizations such as Astan-e Qods, Setad, Bonyad-e Shahid, and Khatam al-Anbiya Garrison.
The IRGC’s control over Iran’s ports and borders have also resulted in a tax- and customs-free import business that has resulted in huge profits for the regime at the expense of national production. Workshops, factories, and local businesses have shuttered because of the IRGC’s clout over the market.
At this point, Iranian people must either choose to throw in their lot with the regime and become part of what has become known as the “mafias” that are controlling different industries or get out of Iran and find their fortunes elsewhere.
This is why Iran is faced with a massive brain drain. Every year, hundreds of thousands of university graduates, doctors, engineers, and others are migrating to other countries, where they have a bigger chance to find success. This is not likely to change if sanctions are lifted because the IRGC will continue to maintain its hold on Iran’s economy. Iran’s talent flight is worth more than the country’s oil revenue.
Stock Market
One of the ways to reach economic growth is to attract foreign investment in the country’s stock market. If you have a healthy and stable stock market, foreign investors will invest in your companies, increasing the flow of capital and creating new opportunities to create jobs and value.
But Iran’s stock market is anything but stable. It is tightly controlled and manipulated by the regime and the Revolutionary Guards. In 2020 the regime’s senior officials, including then-president Hassan Rouhani and supreme leader Ali Khamenei, encouraged the people to invest in the stock market. The artificial and unwarranted optimism artificially inflated the stock market and drew thousands of ordinary people to invest in Iranian stocks.
But shortly after, the bubble burst and the stock market collapsed. Billions of dollars were wiped from the market in a matter of days. The IRGC, which was pulling the strings and orchestrating this Ponzi scheme, made huge profits. Ordinary people got the short end of the stick.
At the same time, this government-induced market manipulation destroyed the last vestiges of trust that remained in Iran’s stock market. Any rational investor will think twice before investing in Iranian stocks because it has become evident that the number being displayed on the billboard of the Tehran Stock Exchange does not reflect the real value of Iran’s stock market.
Therefore, even if all financial and trade channels are opened to Iran, the regime will find it very difficult to attract foreign investment and oil the economy’s wheels.
Political Situation
Finally, even if all sanctions are lifted and all obstacles removed, Iran still faces other problems that prevent it from joining the international trade cycle.
Anyone who wants to do business with Iran will have to go through the Revolutionary Guards, who have a huge control over nearly all major businesses. At the same time, the IRGC is involved in a lot of illicit activities, including money laundering and financing terrorism in the Middle East, human rights violations, hostage taking, and more. The regime is on the FATF blacklist for its lack of financial transparency. And many of the regime’s key officials and economic influencers are sanctioned for their role in illicit activities. These are problems that will not go away if nuclear sanctions are lifted.
As an example, during the presidency of Mahmoud Ahmadinejad, Iran’s oil sales reached unprecedented levels. But the economy continued to tank, unemployment and poverty continued to rise, and public satisfaction continued to decline. Also, the 2017-2018 nationwide uprisings happened while Iran’s regime was not under any nuclear-related sanctions and was fully enjoying the economic benefits of the 2015 nuclear deal.
In a nutshell, Iran’s economic problems won’t be solved by infusing cash into its markets. They are deeply ingrained into the nature of the regime ruling Iran. And without regime change, there will be no economic flourishing.