News : Sanctions

Iran May Be Running Out of Ways to Prop Up Its Economy

Brian Hook

On Wednesday, the Trump administration’s special representative for Iran, Brian Hook, faced questioning by the Senate Foreign Relations Committee. And although lawmakers from both sides of the aisle expressed legitimate concerns about the impact that an American withdrawal from Syria would have on Iranian influence in the region, Hook expressed confidence that the “maximum pressure” strategy would continue to prove effective in the days, weeks, and months to come.

By a number of measures, the administration’s optimism is well-founded. This was made newly apparent in the wake of the hearing when it was reported that the International Monetary Fund had projected a 9.5 percent contraction of the Iranian economy for this year. President Trump has repeatedly expressed the belief that such indicators would ultimately damage the Iranian economy to the point that Tehran would be desperate to negotiate with its traditional Western adversaries, leaving the US in a position to demand much more comprehensive restrictions on the regime’s nuclear program, regional interventions, and missile development.

Hook used Wednesday’s hearing to make the more specific argument that Iran’s revenue stands to fall to a level at which it will be impossible to maintain a policy of force-projection in the broader Middle East while also spending enough money at home to stave off the domestic revolt. “Iran is going to face a dilemma,” he explained. “They can either support guns in Syria or prioritize the needs of their own people at home.”

The Iranian regime has already faced a great deal of unrest over economic indicators. At the beginning of 2018, issues of unemployment and financial insecurity triggered the mass protests that spanned every major city and town, although these also took on a more broadly anti-government message. Nationwide, the unemployment rate now stands ready to rise beyond its current official rate of 12 percent, according to the IMF figures.

Meanwhile, other assessments of the Iranian economy, including those carried out by the intelligence network of the Iranian opposition group known as the People’s Mojahedin Organization of Iran (PMOI, Mujahedin-e Khalq or MEK), have determined that the official figure is artificially low. In fact, even public statements from certain regime officials indicate that there are some localities in Iran, where every adult male is without legitimate employment.

What’s more, these sorts of reports date to before the full re-imposition of US sanctions in May, following the previous year’s withdrawal from the 2015 Iran nuclear deal. Because those sanctions had been anticipated, many of Iran’s global trading partners had already reduced their dealings with the country by that time. But it is only in recent months that Iran’s oil exports, for instance, have been reduced to as little as 300,000 barrels per day. This stands in contrast to the more than 2.5 million barrels per day that were being exported while the US remained a party to the nuclear deal.

Although that steep decline paints a grim picture of Iran’s economic prospects, regime officials are eager to convince their own people and the international community that the worst is over.

The Financial Times quoted one Iranian expert as saying that an active black market economy could help to forestall the worst of the effects that have lately been predicted. Yet the black market is a perennial feature of the Iranian economy and a key to the Islamic Revolutionary Guard Corps’ development of a thinly veiled financial empire. There is a limit to how much more of a role this can play now that the US sanctions have truly begun to pinch.

While it is certainly true that Iran has used various methods to circumvent US sanctions, it is highly unlikely that there are any the West doesn’t know about.

These do exist, for instance, in the form of Chinese shipping companies that have been turning off their transponders in order to hide their loading and unloading of Iranian oil. But those same entities are increasingly being exposed and put under pressure by the US. On Wednesday, Al Jazeera quoted one senior White House official as saying, “We've been messaging very heavily to the shipping companies, you don't want to do this; it's not worth it. It's incredibly dangerous and irresponsible behavior." The same report notes that on September 25 alone, the US imposed sanctions on five Chinese individuals and two shipping firms for helping Iran evade restrictions.

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