Iran's Year Under Maximum Pressure
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January 2020 - 14 Pages
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Executive Summary
Since the Trump administration reimposed secondary sanctions on Iran on November 5, 2018 as part of its campaign of “economic war” on the Islamic Republic, there has been a great deal of speculation as to whether unilateral sanctions would prove sufficient to bring Iran’s economy “to its knees.” One year later, the serious impacts of the Trump administration’s “maximum pressure” policy are impossible to deny. The International Monetary Fund (IMF) projects that Iran’s economy will contract by 9.5 percent this year, the largest contraction since the height of the Iran-Iraq War in 1984. However, there are already signs of readjustment in the Iranian economy. The IMF’s also projects that Iran will return to zero growth in 2020—a rebound that would parallel Iran’s experience in 2012-2013, in which Iran rebounded from a 7.4 percent contraction to minor 0.2 percent contraction the following year.
In the second half of 2019, marked improvements in several areas of Iran’s economy suggest that the country may emerge from its recession in 2020. Foreign exchange markets have largely stabilized, manufacturing activity is expanding, and non-oil sectors of the economy are beginning to generate new jobs. However, significant risks remain. A recent move by the Supreme National Security Council to reduce a long-standing fuel subsidy, which effectively tripled the price of gasoline, triggered widespread protests beginning in the nighttime of November 15. The subsequent violent crackdown, which led to more than 300 deaths and thousands of arrests, no only gave rise to a crisis in state-society relations in Iran, but has also threatened to undo much of the progress in the government’s efforts to stabilize the economy. The Iranian rial lost 10 percent of its value in the weeks following the protests. Events at the outset of 2020, including the airstrike that killed Qods Force commander Qassem Soleimani and the accidental downing of Ukrainian International Airlines Flight 572 by Iranian air defense, have further contributed to political and social instability in Iran, which may have a bearing on economic resiliency moving forward.
Trump administration officials have pointed to the unrest in Iran to argue that their maximum pressure campaign is working, and have warned that Iran’s government is poised to collapse. These prognostications are premature, despite the seriousness of the recent protests and the strain in state-society relations. Macroeconomic indicators point to a considerable ability among Iranian government institutions and economic operators to adapt to the headwinds. This report will present a narrative analysis of the Iranian economy in order to describe both the factors that continue to stave Iran’s economic collapse as well as areas of ongoing vulnerability.
