June 29, 2015 | Press Release

Iranian Economic Growth After Nuclear Deal Increasingly Immunizes Iran Against Snapback Sanctions

FDD Press Release

WASHINGTON – The Foundation for Defense of Democracies (FDD) and Roubini Global Economics (RGE) released their latest joint report today on the economic impact of a nuclear agreement between the P5+1 and Iran and the implications for the ability of the U.S. to enforce a nuclear deal. Overtime, Iran’s economic growth will enable the government to build resiliency against possible future sanctions-induced economic pressure. At the same time, as the restrictions on Iran’s nuclear activities begin to lapse—or “sunset”—Iran will be positioned to build an industrial-sized and widely dispersed nuclear program with virtually undetectable nuclear breakout before the IAEA reaches a broader conclusion about the peaceful nature of the program.

The report assesses that a final agreement with Iran would result in moderate economic growth of around 2.6% during FY 2015/16 before accelerating to about 4% in FY 2016/17. The report forecasts that Iran’s economic growth will average 3.5-4% in years five-to-10, enabling Iran to build resilience against future economic pressure.

FDD Executive Director Mark Dubowitz writes with Annie Fixler that:

“The economic impact of sanctions relief is likely to be substantial, starting slowly after an agreement and building over time. This relief will enable economic growth, and increased resilience against future sanctions-induced economic pressure. Iran will benefit from regained access to its foreign assets, reduced transaction costs that facilitate first greater imports, then some increase in oil export volumes, and finally investment at home and from foreign players.”

“As Iran’s economy strengthens over time it will be less vulnerable to Western economic pressure to enforce compliance with an agreement.”

“The enforcement of the emerging nuclear deal depends on the ability of the United States and the European Union to re-impose, or ‘snap’ sanctions back into place if Iran violates its commitments. The efficacy of the snapback, however, will diminish as Iran builds a more powerful and resilient economy and international consensus over Iran’s nuclear program weakens over time.”

According to Dubowitz, “Congress needs to vigorously assess the inherent asymmetry in the deal between an expanding Iranian nuclear program over time and diminishing Western leverage. Congress should defend the sanctions architecture against its precipitous unraveling including by maintaining those sanctions imposed for a range of non-nuclear illicit activities including ballistic missiles, terrorism, money laundering and sanctions evasion.”

The study’s other key findings include:

  • The early impact of a final deal would be felt through improved consumer and investor sentiment and increased imports as Iran’s access to greater revenues facilitates imports and strengthens domestic demand. … Investment will lag, and will likely only become more pronounced in FY 2017/18 when foreign investors move beyond an initial phase. In addition to uncertainty about sanctions, Iran’s business climate remains a likely deterrent for investors, given the dominance of IRGC-linked groups in key sectors, a lack of investor protections, and the difficulty in accessing credit. 
  • After growing around 3.2% in 2014/15, Iran’s economic growth is likely to moderate at around 2.6% in FY 2015/16 (which ends in March 2016) and accelerate in 2016/17, as domestic investment picks up, consumption remains the key growth driver, and net exports become less of a drag as oil export volumes begin to pick up. Iran’s GDP growth could reach a 4%-plus pace as early as FY 2016/17 as its economy continues catching up from years of stagnation and recession and should remain at that pace in FY 2017/18.
  • How the Iranian government allocates resources within the economy will be pivotal to determining the scale, scope, and composition of growth patterns and who benefits within the economy. The report assumes that the government will spend some of its foreign assets to support the real economy, carry out some modest structural reforms to improve the business climate, and gradually compromise on its terms with foreign investors in the pivotal energy sector. Failure to take any of these steps would temper the benefit of a deal to Iran’s economy and population. Additionally, the Iranian government might choose to spend more on supporting Iran’s overseas military and terrorist activities, which would change the composition of growth domestically and could leave less for domestic projects. 
  • Iranian government policy decisions will affect longer-term growth and resiliency. Factors that will have a meaningful effect on economic resilience and the efficacy of snapback sanctions include: asset allocation, spending versus saving decisions, investment terms for Iran’s energy sector, fiscal reforms, and the dominance of state owned entities, the IRGC and other entrenched players.

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 TwitterFacebook 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.

Media Contact:
Kevin M. Black, Communications Associate
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(202) 403-2941 

Issues:

Iran Iran Sanctions