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June 2020, No. 94


Economy

US-Iran Economic War


The Americans have targeted two important aspects of the Iranian economy during the “toughening of the sanctions”.


Dr. Mousa Ghaninejad, in describing the consequences of US sanctions on the Iranian economy, recalls the payroll of Andrea Stramaccioni, the Italian head coach of the Tehran Esteghlal soccer team, and described it as a symbol of the current state of the Iranian economy.

 “This story very well shows to what extent the economy depends on the international banking system, and how nonsensical are the slogans about circumventing the sanctions. This war is political, and should be settled through diplomatic channels.”

 

In your opinion, what is the relationship between sanctions and the performance of the Iranian economy?

The claim that the sanctions had no impact on the performance of the Iranian economy was clearly a political slogan that had no real and scientific content because the Iranian economy - like most other economies in the world today - is virtually dependent on the global economy.

For example, much of Iran’s exports are in oil and the oil trade is a global phenomenon; we can never export oil only to friendly or neighboring countries, therefore, when the effects of the sanctions tighten and oil sanctions become tighter its impacts become more visible. However, earlier sanctions imposed on Iran’s economy since the beginning of the 1979 Revolution had somehow affected us and damaged our economic performance.

The Americans have targeted two important aspects of the Iranian economy during the “toughening of the sanctions”. On the one hand, they have tightened the embargo on oil, and on the other hand, they have put more pressure on the Iranian banking system and prevented our banking transactions with the outside world. The intensification of these two sanctions has had a clear impact on the overall performance of the Iranian economy.

As the country’s oil revenues fell, the government faced a budget deficit. You know that in the last 50 years, on average, about 30 percent of the government’s general budget came from crude oil exports. Although there have been fluctuations in this area over the years, on average there was a figure that was really high. One cannot ignore or replace 30 percent of public budget resources at once or in the short term. Of course, the slogan of converting the oil economy to a non-oil economy has been given all these years, but it remains only a slogan, and no practical work has been done to address the problem. As a result, one of the sectors most affected by the intensification of sanctions was government revenues. Another sector was our banking. Banking sanctions have never been so severe. The weakening of these two sectors had the greatest and worst effects on the performance of the Iranian economy and its effects are still observed.

On the other hand, the misguided policies that have taken place during the era of “intensifying sanctions” rather than those related to the sanctions, are related to economic thinking in the country. Basically, how we respond to an economic dilemma (such as a decline in oil revenues or a subsidy dilemma or recession) goes back to the economic thinking of economic policymakers. I have said many times - and other economists have emphasized this as well - that in the face of tightening external sanctions and the economic siege, we must release the economy even more in order to make the most of our economic potential. But unfortunately we have been doing the opposite, and we have made the sanctions an excuse to intensify price control policies and market suppression. This approach can be seen in all areas of economic policy making, including foreign exchange and trade policies.

And don’t forget that one of the most damaging indirect effects of the intensification of sanctions is the widespread prevalence of economic corruption and rent-seeking. As the government develops and intensifies its misguided policies under the pretext of sanctions, rent-seeking and corruption become more widespread.

This is a very important question that needs to be answered without hesitation. Today we are in an “economic war”. Although I theoretically disagree with this term and concept, it seems to have happened in practice, and politicians on both sides have repeatedly spoken about it. The Americans say we have entered an economic war with Iran to avoid a military war and we have sanctioned Iran. Iranians also say that we are engaged in an economic war that is nothing short of a military war. Some even compare it to the Iran-Iraq war, saying US sanctions were deeper and more destructive than the eight-year war with Iraq.

If we accept the existence of this war, it is natural that the debate is no longer just economic, and on both sides of the spectrum, politicians in the US and Iran are lining up. I have already criticized many American politicians’ views on this issue, saying that the sanctions are contrary to the intellectual principles that Americans claim to defend.

Trade sanctions means preventing free trade that is contrary to the US Constitution. What Americans are doing today is a sign of hypocrisy and of overcoming the political view on the economy. They have turned the economy into a tool to achieve their political goals, otherwise, based on the ideologies and ideals that Americans claim to defend, these actions are in no way justified. In the 2013 anti-sanctions campaign, I, along with a number of Iranian economists at home and abroad, emphasized and exposed these points. We stressed that America’s sanctions policy is not only wrong but is contrary to free trade, economic logic, ethics and the Constitution of the Western countries including the United States.

But on the other side are Iranian politicians who, when they say we are involved in economic warfare, must understand what it means to be involved in war. War is in essence a political concept, not an economic one, so the search for an economic solution is meaningless. There must be a political solution to this war, and to say that we are blocking the path to diplomacy completely does not make sense. Because this is about accepting the stalemate and admitting that we have no solution. Our politicians say we will bypass the sanctions. Can war be bypassed? No matter how much we say we go around boycotting and find a way out, or claiming to solve problems by relying on the economy and internal initiative, or chanting that boycott is an opportunity, these words do not change the realities on the ground. One must see the facts: this war is a political one and must be resolved through diplomatic and political channels.

 

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