The actual effect, according to the study, has been quite the opposite. The surprisingly rapid recovery of Iran’s economy – characterized by a rate of inflation that has been cut roughly in half, and a shift from contraction to growth of GDP – has diminished the leverage that the US hoped to have at the negotiating table.
Some media outlets are nonetheless reporting that Iran is invested in securing a deal in order to get rid of the sanctions that have crippled its economy. However, regime officials’ statements call this into question. While sanctions can accurately be described as having crippled Iran’s economy in the past, the nation’s leaders are evidently no longer feeling the pain of those sanctions, so they are no longer reacting to it. Instead, the rapid recovery, which has come in return for virtually no changes of behavior on Iran’s part, seems to serve as a boon to regime propaganda.
About a month after the interim nuclear agreement between Iran and six world powers went into effect, Supreme Leader Ali Khamenei called upon his government to enact what he described as a “resistance economy” to overcome sanctions. The nation’s other ruling clerics were quick to declare that the strategy was sure to succeed, with Ayatollah Ahmad Khatami saying on February 28 that “the resistance economy will render all sanctions ineffective.”
By essentially ignoring the role of interim sanctions relief in promoting economic recovery, the ruling clerics have been able to credit themselves with the entirety of the improvement, boosting the morale of their supporters so as to secure greater leverage in nuclear negotiations. This has been reflected in the steadily rising demands imposed on those talks by the Supreme Leader, who last week began to insist that Iran must seek to obtain the equivalent of 190,000 uranium enrichment centrifuges – a 19-fold increase over its current capacity.
The economic recovery has also emboldened Khamenei to suggest that Iran is impervious to all efforts to compel its cooperation, whether economic or military. In a speech in June, Khamenei asserted that the US had taken military options off the table in its consideration of how to deal with Iran. In remarks that seemed to suggest that all previous sanctions were still in full effect, the supreme leader said, “Despite the sanctions imposed upon it, Iran today is launching satellites and sending live organisms into space and is producing nuclear power.”
Last week, Khamenei reiterated this claim, in fact elaborating upon it by saying that “no country can afford” to launch an attack on Iran. The “enemy’s hand is empty in both fields of sanctions and threats,” he said, again ignoring the widely-reported fact that sanctions had been catastrophic to Iran’s economy for years. Those Western measures were credited with Iran’s terrible economic indicators as of the previous fiscal year, including a 6.6 percent contraction of GDP and a 45 percent inflation rate.
Conversely, the suspension of sanctions has clearly been the source of the nation’s reversal of fortunes this year. According to the Roubini/FDD report, Secretary of State John Kerry originally estimated that the so-called limited relief would add about 7 billion dollars to the Iranian economy. In fact, more than 11 billion dollars have been injected into the economy to date, with the possibility of that figure exceeding 20 billion as a direct consequence of the interim deal.
Iran critics and much of the US Congress has expressed concern that such a recovery would come in return for nothing on Iran’s part, and the recent study seems to justify that concern. Furthermore, it reiterates what has been reported by Iran News Update before: that it may be extremely difficult to close the door on this recovery now that numerous foreign businesses have been enticed to defy the law by doing business with Iran, on the expectation that the market would legally open over time.
Ironically, that new source of capital has made it less likely that the market will legally open, as Khamenei and the rest of the Iranian government have seen how much they can get for nothing, raising legitimate questions about why they should give up nuclear ambitions or otherwise concede to Western positions.