Economic Analysis Reveals Extent of Sanctions Relief to Iran

Washington – The Foundation for Defense of Democracies (FDD) and Roubini Global Economics (RGE) issued a new report today evaluating estimates of the value of sanctions relief under the nuclear agreement with Iran, the Joint Comprehensive Plan of Action (JCPOA). Based on economic analysis of Iran’s oil exports and trade flows and an aggregate of International Monetary Fund and U.S. government estimates, the report determines that the Iranian government has $90-$120 billion in foreign assets. As part of the JCPOA, Iran will gain access to these previously frozen funds.

The report is authored by Mark Dubowitz and Annie Fixler of FDD and Rachel Ziemba of RGE.

The report estimates that of the $90-$120 billion in foreign assets, Iran has $40-$60 billion in the “February 6” oil escrow accounts the contain revenue from the purchase of Iranian oil. The accounts were created as a provision of the Iran Threat Reduction Act of 2012 requiring purchasers of Iranian oil to deposit revenues owed to Tehran in escrow.

The remainder of the foreign funds includes other government assets and moneys pledged to joint ventures in Iran’s energy sector. Although some of the funds may have already been allocated and are therefore not available for new spending, the report explains “because all of these funds are used to support Iran’s domestic economy, they should be counted towards the total amount of sanctions relief Iran will get under the JCPOA.”

The report also provides an update to the FDD-RGE June report on Iran’s economy, noting that previous forecasts for Iran’s economic growth in FY2016/17 “may have been too conservative.” The new report finds that, “An average growth of more than 4-5% in the three years starting that fiscal year is plausible if Iranian authorities continue economic reforms and begin to attract investment, and if Tehran is able to significantly boost oil exports.”

The report’s other key findings include:

• Iran’s economic benefits from the nuclear deal are not limited to the release of frozen assets. Iran is also on track to receive around $20 billion annually in new oil-exports revenue, assuming those export volumes rise by 1 million barrels per day and global oil prices remain around $50 per barrel. Over the coming years, these revenues should grow as oil prices rise. In addition, sanction suspensions will likely pave the way for increased petrochemical and non-energy exports while reducing the transaction costs of imports.
• Both liquid and illiquid assets (such as the $20-25 billion allocated to joint ventures in China) should be considered when calculating the value of sanctions relief to the Iranian economy, even if their impact on the local economy will differ. Assets already allocated for upstream energy investment, for example, will improve Iran’s economy and help the government take part in this development. This is particularly relevant in the case of China, in which administration officials have been arguing that already-allocated funds or currently illiquid assets should not be factored into a valuation of the funds available to support Iran’s economy. However, investment in Iran’s energy sector will help develop the sector and thus should be included even if they could not be reallocated towards other investments in other sectors.
• Calculations of the impact of the release of frozen funds are only part of the economic picture. Iran will also receive relief from the lifting of sanctions on crude oil exports, petrochemicals, the automotive industry, precious metals, and others key sectors, all of which will trigger further economic relief that will be reflected in Iran's improving macroeconomic fundamentals. As with the 2013 interim agreement, which triggered a shift from a severe recession to a modest recovery, this impact of sanctions relief will grow over time, with first Asian and then European countries likely to dominate investment. The scope and composition of economic benefits will depend significantly on Iranian economic reform and government policies including the terms offered to foreign investors and the split between domestic spending and support for regional allies.

Download the full report here.

About the Foundation for Defense of Democracies:

The Foundation for Defense of Democracies (FDD) is a non-profit, non-partisan 501(c)3 policy institute focusing on foreign policy and national security. Founded in 2001, FDD combines policy research, democracy and counterterrorism education, strategic communications and investigative journalism in support of its mission to promote pluralism, defend democratic values and fight the ideologies that drive terrorism. Visit our website at www.defenddemocracy.org and connect with us on Twitter, Facebook and YouTube.

About Roubini Global Economics:

Founded in 2004 by economist Nouriel Roubini, Roubini Global Economics is an independent, global macroeconomic research firm. The firm’s research combines expert insights with systematic analysis to translate economic, market and policy signals into practical intelligence for a wide range of financial, corporate and policy professionals. This holistic approach uncovers opportunities and risks before they come to the attention of markets, helping clients arrive at better decisions in a timelier manner. Roubini Global Economics is headquartered in New York, with offices in London and Singapore.

About FDD’s Center on Sanctions and Illicit Finance (CSIF):

FDD’s Center on Sanctions and Illicit Finance is a project designed to illuminate the critical intersection between illicit finance and national security. The Center relies on regional and sanctions expertise within FDD, including a core cadre of financial, economic, and area experts and analysts, to promote a greater understanding of illicit financing and economic threats. The Center also designs creative and effective strategies, doctrines, and uses of financial and economic power to attack and protect against priority threats and vulnerabilities. More information on CSIF is available at http://www.defenddemocracy.org/csif.

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