- Sanctions are causing enormous damage to the Iranian economy.
- The country sells much less oil now.
- Inflation has always been very high since the 1979 revolution.
The killing of General Qassem Soleimani by the United States escalated its conflict with Iran to crisis level. Of course, U.S. President Donald Trump has, on numerous occasions, openly declared that his main objective is to put maximum pressure on Iran so as to force it to redact its nuclear program ambitions.
So, What Impact Have The Sanctions Had In The Past Few Months?
The damage is enormous. Iran did not expect a drastic decline in oil sales in 2018. A year and a half ago, it was selling approximately 2.5 million barrels a day. It was a lot, and among the great successes of the nuclear deal. Today, the nation only sells about 300,000 to 500,000 barrels of oil a day, and not all of it is sold through official channels.
The nation’s revenue expenditure is already extending beyond the Iranian budget and will become a major pain-point in the next calendar year. As usual, no revenue from the oil trade will be included in the state budget, and this amplifies the problem. According to the latest IMF report on Iran, “a drop in the Iranian currency following the re-imposition of sanctions has disrupted Iran’s foreign trade and boosted annual inflation, which the IMF forecasts at 35.7% this year.”
The report also pointed out a few discrepancies as well, especially in regard to the prevailing currency exchange rate. It underlined that the official Iranian Rial rate is much lower than the ongoing rate on the free market. “The Iranian rial official rate is set at 42,000 rials to the U.S. dollar, but its market rate stood at around 115,000 against the dollar.”
Can Iran Get Out of This Situation
The economy has already shrunk by 9.5 percent in the past year. The slump in oil sales is largely responsible for this state of affairs. At the same time, the Iranian economy is very centralized. Many semi-governmental companies are more or less directly controlled and supervised by the top leader, Ayatollah Ali Khamenei.
These companies, however, have tax exemptions, so the government doesn’t get much money here either. To counteract this problem, gasoline subsidies have been cut, and taxes have been increased. The budget shortfalls have therefore been put on the shoulders of Iranian taxpayers.
What Does This Mean For People’s Everyday Lives?
Daily life is severely affected. Because Iran is cut off from international payment systems, even medicines are hard to import. In addition, inflation has always been very high since the 1979 revolution. There are only a handful of years in which inflation was below ten percent. It’s usually between 20 and 40 percent.
Wage increases within this period were only 20 percent. The middle class, which has a regular income, has been greatly impacted in the past 40 years. The result is regular strikes by union organizations in the past two years due to falling wages.