Iran’s Economic Resilience Against Snapback Sanctions Will Grow Over Time

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Co-authored by Rachel Ziemba

As the P5+1 and Iran enter the final days to conclude a nuclear agreement, the details of the emerging deal are becoming clearer. In the final deal, Iran is likely to receive substantial payments from oil assets currently held in escrow accounts.[1] Sanctions on Iran’s crude oil export transactions appear likely to be suspended, as will sanctions on key sectors of the Iranian economy including upstream energy investment and energy-related technology transfers, auto, petrochemicals, and shipping, as well as the precious metals trade. The timing of this sanctions relief is still being negotiated between Iran and the P5+1—the Iranian Supreme Leader has demanded an immediate lifting of all sanctions[2] while the P5+1 position reportedly remains that sanctions relief will follow verifiable (but not necessarily irreversible) nuclear commitments.

Sanctions on Iran’s central bank are also likely to be waived; many of Tehran’s previously sanctioned banks will be de-designated; and, with the coordinated lifting of European banking sanctions, these banks will find their way back onto the SWIFT financial messaging system. The Obama administration is also likely to lift sanctions on many Iranian entities designated for their role in Iran’s nuclear program.[3] These “de-designations” reportedly may also include entities which were sanctioned for a variety of illicit activities, notably ballistic missiles, money laundering, and sanctions evasion, in addition to those that are strictly nuclear-related. Whether or not these de-designations will include specific Islamic Revolutionary Guard Corps (IRGC) entities, like NIOC (the National Iranian Oil Company), the giant IRGC conglomerate Khatam al-Anbiya, and IRGC banks remains an open question.[4] Finally, European economic sanctions, almost exclusively based on Iran’s nuclear-related activities, will be terminated leaving Iran free to sell its oil, access insurance services, re-engage with European banks, and expand its trade in many key sectors.

The following report examines the impact of this sanctions relief on Iran’s economy. It builds on previous Roubini Global Economics (RGE) and Foundation for Defense of Democracies (FDD) economic analysis reports which have measured and forecasted the economic impact of sanctions relief.[5] Our previous analyses assessed that Iran would experience a moderate bounce-back in growth in FY 2014/15, which has been confirmed by Iranian officials at just over 3%. This new report concludes that, if Iran receives the sanctions relief as outlined above, the country is likely to experience moderate growth in FY 2015/16 followed by an acceleration of economic growth in FY 2016/17 as domestic investment begins to pick up. This report forecasts that Iran’s economic growth will average about 3.5-4% after the initial two years of the agreement, suggesting it will slowly begin closing the output gap.[6]