Iran's Economy: Impact of Nuclear Deal and Sanctions

How the Iran Nuclear Deal Affects You

Woman in black chador in mosque in Shiraz, Iran. Photo: Chekyong/Getty Images

Iran's economy received a boost when the United States lifted sanctions in 2015. In February 2016, Iran began shipping oil to Europe for the first time in three years. Four million barrels were shipped to France, Spain, and Russia. (Source: "Iran's Crude Oil Starts Shipping to Europe," WSJ, February 16, 2016.)

Nuclear Deal

On July 14, 2015, the United States, the European Union, Russia, China, and Iran signed a historic agreement.

Iran agreed to limit its nuclear development program in return for the end of economic sanctions imposed by the United Nations in 2010. The arms embargo will remain in place for five years.

Specifically, Iran will reduce its 12,000-kilogram stockpile of enriched uranium to 300 kilograms. It must remove 10,000 centrifuges (about two-thirds) that produce that uranium. It must remove the core of the Arak plutonium reactor.  Iran will neither produce nor acquire highly enriched uranium or weapons-grade plutonium.  The UN's International Atomic Energy Agency inspectors must have daily access to the Iran's entire nuclear production supply chain. 

The agreement guarantees that, for ten years, Iran would be a year away from producing a nuclear weapon. That is much longer than its pre-agreement "breakout time" of two to three months. 

Sanctions

The UN lifted trade sanctions in December 2015. The UN's Atomic Energy Agency found no evidence that Iran was producing nuclear weapons.

It ended its ten-year-long investigation. Iran will receive a windfall of $13 billion once the sanctions are eliminated. That equates to a 2.8% increase in per capita income.(Source: U.S. Set to Lift Sanctions on Iran," WSJ, December 3, 2015.)

These trade sanctions created a recession. They caused Iran's economy to contract 6.6% in 2012, and 1.9% in 2013.

 Gross Domestic Product grew just 1.5% in 2014. (Source: "Iran's Peace Dividend," Global Finance, October 2015. Parties in Iran Nuclear Deal to MeetWSJ, September 28, 2015.  GOP Leaders: Any Nuclear Deal With Iran Will Face Deep Opposition in CongressWSJ, July 12, 2015)

Economy Facts

Iran is the world's sixth-largest oil producer, pumping three million barrels per day. It exports nearly half of that or 1.2 million barrels per day. It plans to double that amount as the nuclear deal goes through and current sanctions are lifted. Oil makes up 80% of its exports. Its primary export markets are China (26.8%), Turkey (11%), India (10.6%), Japan (7.3%), and South Korea (5.9%).  (Source: Iran Wants to Double Oil ExportsWSJ, July 7, 2015)

Current low oil prices are causing further economic difficulties. Iran has 10.3% unemployment and 15.8% inflation. However, the economy had somewhat of a cushion, after high oil prices from 2008-2014 allowed Iran to amass $70 billion in foreign exchange reserves.

Iran's standard of living (as measured by GDP per capita) was $16,500 per person in 2014, higher than China or Mexico. However, 18.7% of the population lives in poverty. (Source: CIA World Factbook, Iran's Economy)

Iran has a command economy. That's because the government, or its state-controlled enterprises, own 60% of it. (Source: "With Sanctions Lifting, What's in Store for Iran's Economy?" Wharton School of Business, October 27, 2015)

Pros and Cons

The agreement reduces Iran's ability to create a nuclear bomb. Despite the sanctions, Iran had increased its number of centrifuges from 164 to thousands. It had also accumulated enough fissile material for ten to twelve nuclear bombs. Iran promised to reduce its centrifuges and the amount of bomb-grade nuclear material, making it less likely that it will create a bomb.

The agreement does not remove many other problems with Iran's behavior. These include its support of terrorism, its refusal to turn over four American hostages, its ballistic missiles, and its human rights violations. But it does make it easier to address those issues, knowing Iran is not a nuclear power. (Source: Press Release on Nuclear Agreement, U.S. State Department, July 14, 2015)

Critics in the U.S. Congress, Israel, and Saudi Arabia warned that the agreement allows Iran to build nuclear weapons after the ten-year moratorium. Removing sanctions gives Iran more economic power to fund terrorist organizations in Syria, Lebanon, and Yemen. (Source: Iran, World Powers Reach Nuclear Deal, WSJ, July 14, 2015)

Why Was a Deal Negotiated Now?

In 2013, Hassan Rouhani was elected President. He promised economic reform, moderation, and more engagement with the West. His goal is to take a leadership role in the developing world.  To prove his point, he brags that his Cabinet has more American Ph.D. graduates than even President Obama’s. (Source: "Nuclear Deal Could Unleash Iran's Economy," Al Jazeera, April 27, 2015)

The United States imposed sanctions on Iran in 1979 after it seized the U.S. Embassy in Tehran. The UN imposed crippling sanctions in 2010 to convince Iran it must fulfill its nonproliferation obligations under the Nuclear Non-Proliferation Treaty. Iran insists it is producing nuclear power for peaceful purposes, within its rights under the Treaty. (Source: Iran Sanctions, U.S. Department of State)

In 2006, the U.S. asked the United Nations Security Council to impose sanctions on Iran if it didn’t agree to suspend uranium enrichment. Iran ignored repeated Security Council Resolutions. It believed that sanctions would never be approved by its allies in the Council (Russia and China). It also thought France and the UK wouldn't want to interrupt their oil imports.  Iran was wrong.

In 2007, Iran announced it would use euros for all foreign transactions, including oil. Iran also converted all dollar-denominated assets held in foreign countries to the euro.

Iran's Role in the Middle East

Iran supports disruption in Iraq, Syria, and anywhere else its fellow Shiites are fighting Sunni Muslims. Between 1980-88, Iran fought a war with Iraq that led to clashes between the U.S. Navy and Iranian military forces between 1987 and 1988. The United States designation Iran a state sponsor of terrorism for its activities in Lebanon. To understand more about Iran's pivotal role in this conflict, see Sunni-Shiite Split.

Iran-Contra Scandal

Through much of the 1980s, the United States financed the Nicaraguan “contras” rebellion against the Sandinista government by secretly selling arms to Iran, leading to the Iran-Contra Scandal in 1986 which implicated members of the Reagan Administration in illegal activities.

The U.S. assisted the military activities of the Nicaraguan contra rebels during the prohibition on such aid (October 1984 to October 1986). It financed this by selling U.S. arms to Iran in contravention of stated U.S. policy. That was also possibly in violation of arms-export controls.

In late November 1986, Reagan Administration officials announced that some of the proceeds from the sale of U.S. arms to Iran were used to fund the Contras. The Iran/Contra Report of Independent Counsel found that some of Reagan’s most senior advisers and some Cabinet members sitting on the National Security Council (NSA) set up Oliver North and several other NSA employees as scapegoats to protect the Reagan Administration in its final two years. The report added that much of the best evidence of the cover-up was made in the last year of the Counsel’s investigation, too late for most prosecutions.