ASSESSMENTS

Why Iran's Government Will Bear the Weight of U.S. Sanctions

Nov 21, 2018 | 10:00 GMT

On the eve of renewed sanctions on Iran's oil sector, an Iranian protester burns a U.S. dollar.

On the eve of renewed sanctions by Washington, an Iranian man burns a U.S. dollar during a demonstration outside the former U.S. Embassy in Tehran on Nov. 4. The demonstration marked the 39th anniversary of the embassy's storming by student protesters in 1979, which triggered a 444-day hostage crisis.

(ATTA KENARE/AFP/Getty Images)

Highlights

Iran's economy will enter a sharp recession in 2019, but Tehran can capably manage any political fallout that may follow.
Economically, Iran will emphasize prudent management and protection of precious hard currency reserves while boosting domestic investment through its public sector and trying to continue financial sector reform.
While it focuses on economic survival in the face of sanctions, however, Iran will make only limited progress on much-needed longer-term reforms, such as strengthening the private sector.
Iran's squabbling political factions will try to take advantage of the economic environment, but in the face of the crisis, they will work together to prioritize regime preservation.

A year ago on Iran's black market, one U.S. dollar would bring 41,000 Iranian rials. Today, it would take more than three times as many rials, about 125,000, to buy a dollar. One year ago, Iran was free to export as much oil as it was capable of producing. Today, the United States has reapplied sanctions related to both Iran's oil exports, which provide about a third of government revenue, and its financial dealings. And while the White House has granted sanctions waivers to a few of Iran's oil customers, the waivers are only temporary, ensuring that Iranian oil exports will fall further in 2019. To put it bluntly, 2019 will be disastrous for Iran's economy, perhaps even precipitating significant economic and social unrest, much like the start of 2018. But while the Iranian economy will bend under the weight of sanctions, they will not break the Islamic republic. Iran's leadership...

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