"Iran Facing Economic Hardship Due to 'Recession and Soaring Prices' from US Sanctions... Can It Withstand Additional Sanctions?"

[Image source=EPA Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] As the United States imposed additional sanctions on Iran in retaliation for Iran's attack on U.S. military bases in Iraq, analyses continue to suggest that Iran's economic situation is not strong enough to withstand 'war.' Since the U.S. imposed economic sanctions in 2018, cutting off financial resources, Iran has been suffering from recession, high inflation, and unemployment.

According to foreign media such as The Washington Post (WP) and CNBC on the 11th (local time), many Middle East experts evaluated Iran's current economic situation as "unable to withstand (a war with the U.S.)." The U.S. banned transactions involving Iranian precious metals, iron, and coal through the first round of economic sanctions in August 2018. Later in November of the same year, the U.S. imposed strong sanctions blocking exports of Iran's key income sources, crude oil and natural gas, and preventing Iranian financial institutions from transacting with foreign entities.

Since the sanctions, Iran's economy has rapidly deteriorated. According to the International Monetary Fund (IMF), Iran's real gross domestic product (GDP) is expected to decrease by 9.5% last year. After the 2015 Iran nuclear deal (JCPOA - Joint Comprehensive Plan of Action), Iran's GDP increased by 12.52% in 2016 and 3.73%, but worsened after the economic sanctions imposed by the Donald Trump administration in 2018. Following a 4.85% decrease in 2018, the GDP decline last year is expected to be about twice as large.

This economic downturn is more severe than when the Barack Obama administration imposed sanctions in 2012. At that time, Iran's GDP decreased by 7.71%, and negative growth was recorded again in 2013. WP evaluated that when sanctions were partially eased by the 2015 nuclear deal, companies flocked to Iran, but President Trump's election and policies reversed this trend.

[Image source=AP Yonhap News]

The core issue is the blockade of crude oil exports among the U.S. sanctions against Iran. Iran's economic growth and most government revenue depend on crude oil exports. Iran's crude oil exports reached 2.3 million barrels per day in 2017 but sharply declined to about 500,000 barrels per day in 2019. Additionally, the Iranian rial exchange rate has been rising since 2018. In January 2015, the rial exchange rate was 35,050 rials per dollar, but after the U.S. reimposed sanctions on Iran in 2018, it exceeded 150,000 rials and rose to around 133,200 rials as of January.

As the economy worsened, inflation surged. Iran's inflation rate is projected to be 35.7% last year. Inflation, which rose to 34.7% in 2013, fell to 9.1% in 2016 but surged to 30.5% in 2018 when sanctions were reimposed and has been on the rise since.

Especially, as prices of food and other living expenses increased, Iranian citizens have been suffering from hardship. According to WP, Iran's Consumer Price Index (CPI), based on 100, was 96.7 in April 2016 but rose steadily to 193.8 in December last year after the U.S. reimposed sanctions in November 2018. Considering the average prices from March 2016 to March 2017 as the baseline, living costs roughly doubled. The price of beef was 87,387.5 rials per kilogram in October last year, 2.5 times higher than 344,587 rials in April 2017. Milk and sugar prices also rose 2.2 times and 1.8 times, respectively, during the same period.

The unemployment rate also surged from 10.40% in 2013 to 16.78% in 2019. The World Bank (WB) pointed out that the lack of employment opportunities could worsen poverty in Iran, noting that Iran's poverty rate rose from 8.1% in 2013 to 11.6% in 2016.

As the economic situation deteriorated, anti-government protests erupted across Iran from November 15 last year, protesting the government's gasoline price hike. The Iranian government harshly suppressed protesters using the Revolutionary Guards and controlled the internet by completely shutting it down for more than ten days. Amnesty International, an international human rights organization, reported that over 300 people were shot dead during the protest suppression.

Iran's economic difficulties are expected to worsen further. The U.S. government announced additional sanctions targeting eight senior Iranian officials, including Ali Shamkhani, Secretary of Iran's Supreme National Security Council, as well as steel, aluminum, and copper manufacturers. This measure sanctions 13 steel companies, including Mobarakeh Steel, the largest steel producer in the Middle East. Some aluminum and copper producers were also targeted. U.S. Treasury Secretary Steven Mnuchin said, "With this action, we can block billions of dollars in support to the Iranian regime."

This content was produced with the assistance of AI translation services.