A year after the US withdrawal from the nuclear deal: the Iranian economy is heading for the worst

A year after the US withdrawal from the nuclear deal: the Iranian economy is heading for the worst

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US President Donald Trump signed on May 8, 2018, the decision to withdraw the United States from the nuclear deal, while announcing the return of US sanctions linked to Iran’s nuclear program. Trump’s decision found an international and regional resonance. This is because the agreement since it was signed in mid-2015 between Iran and the 5 + 1 group is controversial on the regional and international arenas, especially as it did not lead to any change in the behavior of the Iranian regime, both at home and abroad noting that the agreement at home did not make any positive change, as was the bet of former US President Barack Obama and his European partners, and Iran has not abandoned its military programs, especially the ballistic missile program, and has not cooperated sufficiently with the US view on its nuclear program. And externally, Iran has taken advantage of the agreement to legitimize its regional role, which has fundamentally threatened regional security and peace. The dispute grew more and more when Trump came to power in early 2017 and was one of his priorities to undermine it as the worst agreement signed by the US in its history. Its history, according to Trump, and it does not prevent Iran from developing a nuclear bomb in the future.
The deadline for the six months that the United States has granted to a number of countries buying Iranian oil expired on Thursday to free it from US sanctions against Tehran. Yesterday, US President Donald Trump imposed new sanctions on Iran, including steel, iron, aluminum and copper, the biggest source of profit from non-oil exports to Tehran. Trump said in a statement on Wednesday that the nuclear deal signed by the Obama administration with Tehran has fed Terrorism and increased its missile power and sparked regional conflicts, and pushed Iran to hold American hostages and the persecution of the Iranian people, in addition to the revitalization of its nuclear program. The American president stressed that things can change dramatically within a year, after the US made the decision to protect its national security ,and praised the decisions taken by his administration during the last period where he said that it has caused the suffering of the Iranian regime in the process of financing terrorism, and pushed the Iranian economy into an unprecedented recession, and dried up sources of Iranian profits and resulted in the exit of inflation in Tehran from control . The President stressed that this step falls under the strategy followed by his administration by imposing unprecedented pressure on the Iranian economy. It also targets 10% of Tehran’s total exports, and sends a message to other countries that importing steel and iron from Iran is intolerable. At the end of his statement, Trump called on the Iranian government to accept the conditions set by Washington after the exit from the nuclear agreement and expressed its aspiration to meet Iranian leaders in order to provide a better future for Iran.
US President Donald Trump re-imposed the sanctions last year after he announced Washington’s withdrawal from the nuclear deal with Iran, an agreement he says he wants to renegotiate. Iranian leaders continue to defy US sanctions and say they are determined to overcome them, but the impact of sanctions on living life in Iran are clear. The Iranian economy has been badly affected by the sanctions imposed by the international community as a result of the country’s nuclear program.

Iranian President Hassan Rowhani agreed in 2015 with the United States and five other international powers to curb Iran’s nuclear activities in return for lifting sanctions.
In the year following the implementation of the nuclear deal, the Iranian economy resumed growth and GDP grew by 12.3%, according to the Central Bank of Iran.
However, much of this economic growth was attributed to the oil and gas sector, while the recovery of other economic sectors did not meet the expectations and hopes of the Iranians.
In 2017, growth fell again to 3.7%, fueling anger that led to the biggest anti-government protests in the country in a decade in December.
However, the re-imposition of US sanctions last year – which targeted the energy, shipping and financial sectors in particular – led to a halt in foreign investment and greatly affected oil exports.
A year after the US withdrawal from the nuclear deal and the return of Washington’s sanctions, Iran’s economy has suffered severely, but Tehran, which has not withdrawn, warns that there are “limits” to its patience.
The researcher in the American consulting firm “Eurasia Group” Henri Rom sums up the economic situation in Iran as bad and is heading for “more bad.”
The International Monetary Fund points out that the gross domestic product of the Islamic Republic will fall by 6% in 2019, after declining by 3.9% in 2018.
However, the decline may be more severe as this expectation dates back to the pre-Washington announcement on April 22 to end the exemptions that still allowed eight countries to buy Iranian oil without violating US economic sanctions of foreign influence.
The crisis appears to be in a course worse than the 2012 and 2013 economic downturn, which is still present in the minds of the Iranians, when international sanctions against Tehran’s nuclear program and its programs to develop ballistic missiles have produced its greatest impact.
The text reached in Vienna in July 2015 between the Islamic Republic and the 5 + 1 group (China, the United States, France, Britain, Russia and Germany) allowed for the reintegration of Iran into the international political system.
Tehran won through the UN Security Council’s agreement, partially lifting its international sanctions, and in return agreed to limit its nuclear program significantly and vowed never to seek a nuclear bomb.
However, US President Donald Trump’s ruling that this agreement does not provide guarantees that it made him to declare on 8 May 2018 his intention to withdraw his country unilaterally and re-impose sanctions that were suspended under the Vienna text.
The sanctions have been reinstated as of August 2018, and Washington is pursuing a “maximum pressure” campaign against Tehran to push it to negotiate a “better deal”.
A year later, a European diplomat, speaking on condition of anonymity, points to the absence of any starting point for “addressing, and the absence of any credible plan that would allow for a better agreement” from the 2015 agreement.

Washington is actually looking, according to the same source, in a “shameless and irresponsible” way of pushing Iran to “violate its nuclear obligations” so that it can “tell the world: Iran is a threat.”
The value of the Iranian riyal is declined compared to the dollar since May 8, 2018 by 57% in the free markets, which resulted in a sharp rise in inflation figures, which are touching 51% a year compared to 8% a year ago, and talk only about the official rates … and Salary does not follow upward layout.
The rise of prices has an impact particularly on food materials, “We have increased our prices by 70 percent” since 21 March 2018 (beginning of the Iranian year 1397). “Without a doubt, we will have to increase by 20% until July,” says a source in the food industry. .
In some of the capital’s shops, red meat is hard to find, and pistachios, which generally existed on all wedding tables, are a luxury that is not available to many.
The US announcement of a suspension of exemptions on Iran’s crude sales to exacerbate the state of grief and unrest in Iran, “What will happen to this country if it can no longer sell oil?” Said one Tehran resident.
The fall in the value of the riyal is attributed to the problems facing the Iranian economy and the high demand for foreign currency by ordinary Iranians who watch their savings fade away and worry that the situation could get worse.

The riyal has regained some of its health since September 2018 when the Iranian central bank pumped dollars into the local market and the authorities repulsed currency speculators when the local currency exchange rate reached 190,000 dollars.

The deterioration of the riyal exchange rate has led to a scarcity of imported goods and products dependent on raw materials imported from abroad, particularly diapers.
The cost of living has been largely increased, President Rohani’s government has managed to reduce inflation to 9% in 2017, but the IMF says inflation has risen to 31% in 2018, and is expected to rise further – to 37% or more – this year if Oil exports continued to decline.

The decline in the value of the riyal has not only affected the prices of imported goods , but negatively affected the basic materials produced locally that in the past 12 months, the prices of red meat and chicken have risen by 57% , milk, cheese and eggs by 37%, and vegetables by 47%, respectively , the Iranian Statistics Center says .

High prices have led to heavy congestion at government-backed food stores, especially those selling subsidized meat. In an attempt to lower prices, the government has banned the export of livestock and imported hundreds of thousands of cows and sheep from abroad. But analysts say some Iranian farmers sell meat to Neighboring countries in order to get hard currency.
There is also a plan to introduce a system of electronic coupons to help poor families to purchase meat and other basic commodities.
It is mentioned that 3% of the Iranians (2.4 million) did not earn more than $ 1.90 per day in 2016. The poor received another blow as the cost of housing and health services rose by about 20% last year.

Jihad Azour of the International Monetary Fund told Reuters last week that Iran could tame inflation monster by working to eliminate the difference between the official riyal exchange rate and its price in the informal market.

Iran has chosen to stay within the nuclear deal and continue to honor its commitments made in Vienna in exchange for the US withdrawal. A diplomat believes that the Iranian government, which faces real difficulties related to the impact of “re-imposition of sanctions, so far shows high pragmatism. The thing that bothers Tehran is that it sees a ” a European inability to liberate from Washington and save the nuclear deal by allowing the Islamic Republic to benefit from the expected economic benefits.

Deputy Foreign Minister Abbas Arqji warned against continued sanctions and pressure on his country, “There are limits to Iran’s patience “.
The creation of France, Germany and Britain a trading system at the end of January that allowed limited exchanges between Europe and Iran by circumventing US sanctions has not followed by any concrete deal so far.

“Iran will need an economically sovereign Europe to maintain the status quo without the United States within the framework of the nuclear agreement,” said Clement Terme, a researcher at the International Institute for Strategic Studies. He added “But the scene requires Iran to continue political dialogue with Europe to avoid US-European harmony and create a united front against the Iranian economy.”
The US administration does not hide the fact that the goal of withdrawing from the nuclear agreement and returning to impose sanctions on Tehran is to force it to retreat to its borders, stop interfering in the internal affairs of the countries of the region and limit its influence and role in Iraq, Syria and Yemen and dismantle its nuclear and missile programs as well as the other dimension which is to obtain direct economic investments under a new agreement that is in line with these conditions.

So far Tehran refuses to accept the American conditions, and maintains its breakthrough in its relations with the international community, provided by the nuclear agreement, and does not accept any concession in any arena that has become the arena of its influence and control, and is ready to adopt a policy of “strategic patience” in front of the US pressures waiting for a change in the upcoming presidential election, or to reach a deal that will guarantee recognition of its companies and its role as a key player in the region, along with the player Washington wants, through which it will move towards the factor of stability and peace in the region.
As a matter of fact ,,after the entry of the US decision , to make the oil exports of Iran zero , came into effect and the threat of Tehran to the need to respond strategically to the American decision and talk about the closure of the Strait of Hormuz and hit US interests in the Persian Gulf, Washington quickly responded by strengthening its military forces with military naval deterrent troops in the Mediterranean Sea and the Arabian Sea in which Tehran did not have the ability to confront or even to contact it, which brought down its military option that it has indicated to use it immediately after May 3, which was clearly expressed by US National Security Advisor John Bolton, who stressed that his country’s goal of deploying the aircraft carrier and bombers is to send a clear and unequivocal message to the Iranian regime that any attack on the interests of the United States or the interests of its allies will be met with unswerving force.
Apparently , the huge American military buildup in the Middle East against Iran raises the possibility of a military confrontation between the two sides, but in practice it could push Tehran to recalculate its estimations if it is convinced of the dangers of rough friction with Washington, which has seriously sounded the drums of war this time as the last chance to force Iran to sound the drums of negotiations.

Iranian Studies Unit
Rawbet Center for Research and Strategic Studies