While Iranian officials have praised the Palestinian group Hamas for its brutal Oct. 7 attack on Israel, the outbreak of the latest Middle East war has added new strains to an already struggling Iranian economy.
The Iranian currency, the rial, which has steadily lost value in recent years, plunged to half million rials to the U.S. dollar in the immediate aftermath of the Hamas assault. (At the time of the 1979 revolution, one dollar bought 800 rials)
Dawood Manzoor, head of Iran’s Plan and Budget Organization, announced that the government’s revenues in the first seven months of this Iranian calendar year, were 30 percent lower than the projected figure of about 4,000 trillion rials ($7.85 billion) in the budget. He blamed lower than expected oil revenues and the sale of government property at a loss to cover the budget deficit.
The new stress on Iran’s finances comes at a time after successive governments’ failed attempts to fulfill a so-called “vision document” drafted 20 years ago that aimed to make the country the top economic and scientific power in the region by 2025. At the time, Iran’s Supreme Leader, Ayatollah Ali Khamenei, described the plan as the most important document in the country after the Islamic Republic’s constitution.
With only two years left until the end of this national program, however, Iran is lagging far behind its neighbors. The United Arab Emirates, Saudi Arabia, Turkey, and Qatar all outrank Iran in terms of GDP per capita, labor participation, foreign direct investment, and employment.
Problems with the vision document appeared early on. The plan was supposed to be implemented in five-year installments, but they were repeatedly delayed, extended, and altered. A former presidential candidate, Mostafa Hashemitaba, noted that only a quarter of the sixth yearly plan had been implemented.
Iran’s neighbors have also prepared multi-year economic plans. The U.A.E. had its Vision 2021, Saudi Arabia’s its Vision 2030, Qatar its National Vision 2030, and Turkey a Vision 2023. From the figures below, it is obvious that they have all moved ahead faster than Iran.
Iran has not been a hospitable environment for investment because of U.S. sanctions and a host of legal shortcomings involving property rights, transparent banking rules and trade law. Iran’s economic freedom score, as measured by the Heritage Foundation, is 42.2, 169 out of 176 countries listed in 2023. On this index, Iran ranks last among 14 countries in the Middle East/North Africa region and well below global averages.
According to the annual Ease of Doing Business report of the World Bank in 2019, Iran ranked 127 out of 190 countries and 14 of 19 in its region in terms of the ability to create new businesses.
Ideology has been a major impediment to economic development in a country whose revolutionary leader, Ayatollah Ruhollah Khomeini, famously said that his movement was not about “the price of watermelons.”
Entrenching Islamic rule and exporting the revolution has often trumped development goals. Corruption has also distorted the economy, with a number of officials close to the current Supreme Leader Khamenei benefiting from monopolies.
Sanctions have also been a major impediment to progress. The Obama administration sanctioned 655 Iranian entities and individuals. Many of these sanctions were lifted after the conclusion of the 2015 Joint Comprehensive Plan of Action (JCPOA) nuclear deal but they were reinstated by the Trump administration, which added hundreds more sanctions after it withdrew from the JCPOA unilaterally in 2018. Inflation has risen precipitously and the national currency, the rial, has lost much of its value. Oil exports also dropped initially from about 2.2 million barrels per day in 2017 to less than 0.4 million barrels per day in 2020. Exports have risen in the past few months to more than 1 million barrels a day, but it is heavily discounted.
GDP growth plummeted from 8.8 percent in 2016 to minus 2.3 percent in 2018, with sanctions further disincentivizing investment. Iran’s Council of Ministers tried to encourage investment with a decision that foreign nationals investing $250,000 in the country could receive five-year residence permits. But according to Babak Dinprest, a deputy interior minister, not a single request was made to use this offer by September 2021.
Iran did make some strides toward more economic transparency during the run-up to the JCPOA and after its initial implementation but fell backwards again under sanctions.
Iranian officials are rarely held accountable for their mistakes. Ideological governments are usually made up of circles of relatives and cronies, and loyalty is more important than efficiency.
While some governments – those of Hashemi Rafsanjani and Mohammad Khatami in the 1990s and early 2000s and of Hassan Rouhani from 2013-2021 – have recruited technocrats as ministers and managers, the current government of President Ebrahim Raisi has put loyalty above expertise. The politicization has also undermined the educational system. Recently, a number of capable university professors were fired because of their perceived sympathy for protests last year after the death of Mahsa Amini in the custody of the so-called morality police. Mohammad Mehdi Esmaili, the Minister of Culture, recently announced that he planned to recruit 400 professors considered more loyal to the system.
Regime loyalists have rarely been prosecuted for corruption. In 2022, the Iranian parliament completed a three-year investigation of Mobarakeh Steel Company in the city of Isfahan. The probe identified 90 violations and the disappearance of some 900 thousand billion rials ($1.8 billion) in revenue. President Raisi ordered that the violators be fired and asked the judiciary to follow up on the case. However, no action has been taken and the head of the investigation commission has not even confirmed the findings of his own report.
Another case involved Babak Zanjani, who reportedly made billions exporting oil under the regime of President Mahmoud Ahmadinejad. Zanjani was charged with and convicted of embezzlement, but his death sentence was commuted to life and it is believed that he has been set free.
Iran’s vision document has thus been a colossal failure when compared to its neighbors’ plans. The reasons include sanctions, corruption, and the regime’s emphasis on ideological positions over national interests. Among the many other reasons that Iranians are growing ever more dissatisfied with their government is its failure to provide tangible economic benefits and a vision for a more prosperous future. Mohammad Salami is a research associate at the International Institute for Global Strategic Analysis, an Islamabad-based think tank. His areas of expertise include politics and governance, security, and counterterrorism in the Middle East, especially the Persian Gulf. Follow him on Twitter @moh_salami.
Gaza War Puts New Strain on Iran’s Economy
By Mohammad Salami
Middle East & North Africa
While Iranian officials have praised the Palestinian group Hamas for its brutal Oct. 7 attack on Israel, the outbreak of the latest Middle East war has added new strains to an already struggling Iranian economy.
The Iranian currency, the rial, which has steadily lost value in recent years, plunged to half million rials to the U.S. dollar in the immediate aftermath of the Hamas assault. (At the time of the 1979 revolution, one dollar bought 800 rials)
Dawood Manzoor, head of Iran’s Plan and Budget Organization, announced that the government’s revenues in the first seven months of this Iranian calendar year, were 30 percent lower than the projected figure of about 4,000 trillion rials ($7.85 billion) in the budget. He blamed lower than expected oil revenues and the sale of government property at a loss to cover the budget deficit.
The new stress on Iran’s finances comes at a time after successive governments’ failed attempts to fulfill a so-called “vision document” drafted 20 years ago that aimed to make the country the top economic and scientific power in the region by 2025. At the time, Iran’s Supreme Leader, Ayatollah Ali Khamenei, described the plan as the most important document in the country after the Islamic Republic’s constitution.
With only two years left until the end of this national program, however, Iran is lagging far behind its neighbors. The United Arab Emirates, Saudi Arabia, Turkey, and Qatar all outrank Iran in terms of GDP per capita, labor participation, foreign direct investment, and employment.
Problems with the vision document appeared early on. The plan was supposed to be implemented in five-year installments, but they were repeatedly delayed, extended, and altered. A former presidential candidate, Mostafa Hashemitaba, noted that only a quarter of the sixth yearly plan had been implemented.
Iran’s neighbors have also prepared multi-year economic plans. The U.A.E. had its Vision 2021, Saudi Arabia’s its Vision 2030, Qatar its National Vision 2030, and Turkey a Vision 2023. From the figures below, it is obvious that they have all moved ahead faster than Iran.
Iran has not been a hospitable environment for investment because of U.S. sanctions and a host of legal shortcomings involving property rights, transparent banking rules and trade law. Iran’s economic freedom score, as measured by the Heritage Foundation, is 42.2, 169 out of 176 countries listed in 2023. On this index, Iran ranks last among 14 countries in the Middle East/North Africa region and well below global averages.
According to the annual Ease of Doing Business report of the World Bank in 2019, Iran ranked 127 out of 190 countries and 14 of 19 in its region in terms of the ability to create new businesses.
Ideology has been a major impediment to economic development in a country whose revolutionary leader, Ayatollah Ruhollah Khomeini, famously said that his movement was not about “the price of watermelons.”
Entrenching Islamic rule and exporting the revolution has often trumped development goals. Corruption has also distorted the economy, with a number of officials close to the current Supreme Leader Khamenei benefiting from monopolies.
Sanctions have also been a major impediment to progress. The Obama administration sanctioned 655 Iranian entities and individuals. Many of these sanctions were lifted after the conclusion of the 2015 Joint Comprehensive Plan of Action (JCPOA) nuclear deal but they were reinstated by the Trump administration, which added hundreds more sanctions after it withdrew from the JCPOA unilaterally in 2018. Inflation has risen precipitously and the national currency, the rial, has lost much of its value. Oil exports also dropped initially from about 2.2 million barrels per day in 2017 to less than 0.4 million barrels per day in 2020. Exports have risen in the past few months to more than 1 million barrels a day, but it is heavily discounted.
GDP growth plummeted from 8.8 percent in 2016 to minus 2.3 percent in 2018, with sanctions further disincentivizing investment. Iran’s Council of Ministers tried to encourage investment with a decision that foreign nationals investing $250,000 in the country could receive five-year residence permits. But according to Babak Dinprest, a deputy interior minister, not a single request was made to use this offer by September 2021.
Iran did make some strides toward more economic transparency during the run-up to the JCPOA and after its initial implementation but fell backwards again under sanctions.
Iranian officials are rarely held accountable for their mistakes. Ideological governments are usually made up of circles of relatives and cronies, and loyalty is more important than efficiency.
While some governments – those of Hashemi Rafsanjani and Mohammad Khatami in the 1990s and early 2000s and of Hassan Rouhani from 2013-2021 – have recruited technocrats as ministers and managers, the current government of President Ebrahim Raisi has put loyalty above expertise. The politicization has also undermined the educational system. Recently, a number of capable university professors were fired because of their perceived sympathy for protests last year after the death of Mahsa Amini in the custody of the so-called morality police. Mohammad Mehdi Esmaili, the Minister of Culture, recently announced that he planned to recruit 400 professors considered more loyal to the system.
Regime loyalists have rarely been prosecuted for corruption. In 2022, the Iranian parliament completed a three-year investigation of Mobarakeh Steel Company in the city of Isfahan. The probe identified 90 violations and the disappearance of some 900 thousand billion rials ($1.8 billion) in revenue. President Raisi ordered that the violators be fired and asked the judiciary to follow up on the case. However, no action has been taken and the head of the investigation commission has not even confirmed the findings of his own report.
Another case involved Babak Zanjani, who reportedly made billions exporting oil under the regime of President Mahmoud Ahmadinejad. Zanjani was charged with and convicted of embezzlement, but his death sentence was commuted to life and it is believed that he has been set free.
Iran’s vision document has thus been a colossal failure when compared to its neighbors’ plans. The reasons include sanctions, corruption, and the regime’s emphasis on ideological positions over national interests. Among the many other reasons that Iranians are growing ever more dissatisfied with their government is its failure to provide tangible economic benefits and a vision for a more prosperous future. Mohammad Salami is a research associate at the International Institute for Global Strategic Analysis, an Islamabad-based think tank. His areas of expertise include politics and governance, security, and counterterrorism in the Middle East, especially the Persian Gulf. Follow him on Twitter @moh_salami.
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