The Iranian economy manages to hobble along despite “crippling” economic sanctions. The streets are clogged with traffic, ATMs dispense streams of cash, banks issue Iran-only debit cards, and a nation of traders finds ingenious ways to evade legal obstacles.
Oil exports may have collapsed officially, but several Iranians tell me that many thousands of barrels are leaking out secretly via Iraq. One Iranian businessman explains that you can get under-the-table financing for almost anything if you pay an interest-rate premium of 12 to 15 percentage points.
The true burden of sanctions is that this economy is a shadow of what it might be. This cost in lost opportunity will only grow if Iran can’t make a nuclear deal that would ease the squeeze on oil sales and banking. And Iranians know it: Many told me during a visit here last week that their economy could be booming if the country wasn’t so isolated.
“The situation from the economic point of view is very bad, this is no secret,” says Saeed Laylaz, an economic commentator and analyst who advises Iran’s domestic automobile industry.
“Mohammad Khoshchehreh, an economics professor at Tehran University, told me that economic output overall has fallen by about 6 percent over the past year. That’s close to the estimate of a 5.7 percent drop released Thursday by the Institute of International Finance in Washington.
The middle class here is especially squeezed.
“I do not deny the effect of sanctions, but the weight of mismanagement is heavier,” says Khoshchehreh. Some here argue that the current crisis is past, and that officials of the Ahmadinejad regime should be brought to trial for corruption.
President Hassan Rouhani gets good marks for economic management. Iranians foresee a future boom if sanctions are lifted and the nation fully joins the global economy.
Talks with Iranian entrepreneurs give a sense of what’s possible. A professor of molecular biology has developed advanced techniques for treating neurodegenerative diseases that Western companies are eager to license. He’d rather stay in Iran, but it’s difficult to build an advanced biotech company here when the country remains outside the World Trade Organization and intellectual property can’t be protected.
An Iranian banker explains that he’s ready to represent 19 U.S. companies in joint ventures here. But such deals are dead until sanctions are lifted.
It’s a mistake to underestimate the tensile strength of Iran’s economy. Rouhani’s economic team is planning its next budget on the assumption that sanctions won’t be lifted, and that it can raise non-oil exports – iron ore, copper, petrochemicals and electricity – to an $80 billion level that would cover Iran’s import needs. They’ll survive, in other words.
What’s being crippled is Iran’s future. This makes Iranians angry, especially when they see the hard-liners and their cronies making money evading the sanctions regime. That’s the regime’s weak point.
David Ignatius’ email address is firstname.lastname@example.org.