AOne door Slam off, other creaks open. Last week, global pressure on Russia’s finances increased dramatically. Meanwhile, the grip of sanctions on Iran is about to loosen again. In 2018, the United States withdrew from a multilateral nuclear deal with Iran. The year-long negotiations to revive it have reached a final stage. An agreement will appear nearby. It does not rule out the possibility that a deal would bring Iranian oil back to the world market.
The Iranian experience is instructive. Over the past decade, it has suffered from recession, devaluation and prolonged inflation under the pressure of global sanctions. Its economy has collapsed. But it did not break. This is largely because Iranian manufacturers have proven resilient. Tehran’s burgeoning stock market testifies to the strength of its economy. Many of the companies that have survived and prospered are listed there.
American sanctions have been a reality in Iranian life for decades. They began in 1979 when President Jimmy Carter imposed a ban on oil imports from Iran and confiscated Iranian assets in the United States after seizing the US embassy in Tehran. But sanctions on Iran really started to bite when other countries joined. To pressure Iran to suspend its nuclear program, a wave of international sanctions was imposed between 2010 and 2012 and continued to be tightened. Iran’s oil exports and banks were targeted. Its foreign assets of the central bank have been seized. And the United States has banned commercial banks from financing any business with Iran in dollars. Since then, a prohibition regime of varying degrees of severity has been in place.
The damage has been extensive. Iran’s oil exports fell from 2.5 million barrels per day in 2011 to 1.1 million in 2014. Its economy suffered deep recessions in 2012 and 2018. The embargo on Iran’s oil exports left a huge hole in government funding. Lacking access to its reserves or reliable dollar income from oil exports, the authorities have been unable to support the exchange rate. The result has been chronic high inflation. There has been a lot of trouble. The latest World Bank report on Iran speaks of a decade of insignificant losses GDP Growth can be much worse, though.
There are three explanations for Iran’s resilience. First, although the bans are extensive and diligently policed, they are subject to leak. Iran has been able to export millions of barrels of oil per day. Most of them end up in China, Malaysia, Oman or the United Arab Emirates (United Arab Emirates) Prohibition-busting is risky. But some privately owned filters are willing to take risks in exchange for a hefty price discount. And the dollar is not just a hard currency: the yuan has, of course, but also United Arab EmiratesIts dollar-pegged dirham.
The second source of resilience is export diversification. Iran has a variety of manufacturing industries. Some large, such as mining and metal-bashing, benefit from cheap, reliable energy access. Iran also has land borders with several populous countries, including Pakistan and Turkey. Part of Iran’s land-based trade is undocumented and thus difficult for the police.
The third factor is import substitution. Weak rials have pushed imported goods beyond the reach of many Iranians. But it has been a boon for manufacturers serving the 83m home market. “Go shopping in Tehran and you will find Iranian-made clothes, toys and household items,” said a local. “If there was a global self-sufficiency index, Iran would rank higher,” he said.
The Iranian stock market reflects this resilient economy. Some large companies are on the sanctions list, but not hundreds of smaller ones. The stock has proven to be a good hedge against devaluation and inflation. The matter has been noticed by many locals. The market exploded in 2020 when retail investors accumulated That mini-bubble has burst since then The stock is cheap again, says Machiavelli Oztal, a fund investing in Amtelon Capital, Iran. The median price-to-earnings ratio for the top 100 companies is close to five, based on forecasts by local analysts.
Iran’s leaders are proud of a “resilient economy.” Its persistence, however, largely reflects the bottom-up struggle for basic survival, not a top-down strategic choice, argues Batfengelidz, a think-tank, bourgeois and marketer in Esfandiar, in a recent article. The economy is made up of ordinary people. They adapt as much as possible to the changed situation. For Iranians, there is a real possibility of a better day ahead. For the Russian people, the painful adjustment is just beginning.
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This article was published in the Finance and Economics section of the print edition under the title “Persian Lessons”.