Iran Admits Recession After U.S. Sanctions Worse than Expected

Iran published a report on Sunday showing the national Gross Domestic Product (GDP) contracted by 4.9 percent over the fiscal year ending March 21.

The announcement revealed Iran’s economy contracted much more sharply than anticipated after President Donald Trump reimposed U.S. sanctions.

Voice of America News noted on Tuesday that the World Bank estimated 1.9 percent GDP contraction for Iran in 2018, a steep fall after 3.8 percent growth the previous year. The International Monetary Fund (IMF) expected 3.9 percent contraction for 2018, but even that dire estimate proved a full percentage point shy of the figures released by the Statistical Center of Iran.

Both the World Bank and IMF predicted Iran’s recession would grow much worse this year, projecting contractions of 4.5 percent and 6 percent respectively.

VOA interviewed analysts who saw the deteriorating economy as a big problem for the regime in Tehran, given that Iranians have already demonstrated in the streets against corruption, mismanagement, and Iranian funds squandered on foreign military adventures while the domestic standard of living declines. VOA reported:

In a Monday interview with VOA Persian, New Jersey-based Iranian American economist Siamak Shojai of William Paterson University said Iran’s economy is in a “huge crisis” due to intensifying U.S. sanctions and the Shi’ite-majority nation’s continued involvement in regional conflicts pitting its proxies against some of its Sunni Arab neighbors and Israel.

“Iranian people have trouble meeting their daily necessities,” Shojai said. “Right now, Iran’s economy looks like it is on a war footing without a bullet having been fired.”

Patrick Clawson, research director at the Washington Institute for Near East Policy, attributed Iran’s worsening recession also to its Islamist rulers’ handling of the economy.  

“It’s remarkable how a team of so-called moderates has managed to bungle economic policy,” Clawson told VOA Persian on Monday, in reference to the government of President Hassan Rouhani. “Iran’s current set of policies discourages exports, encourages imports and requires the government to use inflation [that results from printing money] to finance itself. It’s a stunningly bad mix,” he said.

Clawson gave the Iranian government some credit for being honest about the recession, although a less charitable interpretation of its candor would be the regime striving to make the economy look as bad as possible after the reimposition of U.S. sanctions to convince Iranians they should blame their travails on the United States.

Writing at Haaretz on Tuesday, David Rosenberg was optimistic that maximum economic pressure might force the desperate Iranian regime to negotiate with the United States instead of hoping Democrats will rescue Tehran after unseating Trump in the 2020 election. Rosenberg said:

Iran’s paramount problem is that the world doesn’t need its oil right now, so the world’s temptation to resist American sanctions is very small. Also, there has been no fallout in the form of rising oil prices. Quite to the contrary, oil prices are down 20% from their peak in April as U.S. shale oil production heads to record levels. Global demand for energy is weakening and inventories of oil are growing because the world economy has been slowing, and also because of the U.S.-China trade war.

Inside Iran, the Iran Revolutionary Guard Corps and other hard-core supporters of the regime are urging a return to the “resistance economy” of the Obama sanctions years.

Resistance means sanctions-busting smuggling and replacing imports with locally produced products. It may be a highly profitable policy for the IRGC and insiders, but it’s a non-starter for everyone else.

Whatever else you might say about 40 years of Islamic rule in Iran, economically it’s been an abject failure. The country remains almost wholly dependent on oil exports and otherwise produces nothing apart from carpets and pistachio nuts that the world wants. The economy doesn’t even make things Iranians want, as long as they can buy imported products.

Rosenberg noted that Iran’s ruling elite has little interest in opening their economy or culture to the outside world, which was one of the major stated objectives of the Obama administration’s nuclear deal.

Wary of political liberalization, the mullahs and their subservient secular government resisted opening and diversifying their economy. Instead, they spent their Obama billions on military adventures and terrorism. The Iranian economy was therefore woefully unprepared for the double blow of Trump restoring sanctions and world oil prices crashing. If the Iranians had done what they told the Obama administration they would do, they would have been less vulnerable to the Trump administration’s punitive measures.

Struggling Iranians will not be happy to know their government plans to waste even more money on producing uranium to spite the Americans. Recent polling shows Iranians losing faith in their economy as they cope with a job market worse than just about every other country in the region except Yemen.

With Europe unwilling or unable to pull the Iranian economy out of its doldrums, particularly if Iran begins openly violating the nuclear deal with increased uranium production, Iran’s last-ditch effort may involve terrorizing oil shipping to cause a price spike and increase demand for Iranian oil products, or at least reduce the enormous economic advantage enjoyed by the United States.