How the Nuclear Deal Boosted Iran’s Economy

Last week, the Central Bank of Iran (CBI) announced a staggering 12.5 percent GDP growth rate for the most recent year on the Persian calendar, which ran from March 2016 to March 2017. While there are significant differences between the growth rates published by different Iranian entities, they all show a very high rate of growth. Iran’s rapid economic gains in the first full year after the implementation of the nuclear deal stand in stark contrast to Tehran’s complaints that the U.S. is holding back its economy.

One important caveat about CBI’s 12.5 percent growth rate is that it is well above the 8.3 percent rate that the Statistical Center of Iran, another government entity, announced in May. Likewise, Iran’s Parliament Research Center estimated the GDP growth rate in 2016-2017 to be 8.9 percent.

Multilateral organizations, which rely on Iranian data, have published slightly lower, but still robust, figures. In February, the International Monetary Fund (IMF) estimated a 6.6 percent GDP growth rate for 2016-2017. In its MENA Economic Monitor, published in April 2017, the World Bank (which uses a slightly different calendar) estimated Iran’s GDP growth rate for 2016 to be 6.6 percent. While we need to be cautious about the data Iran publishes, we can fairly assume the country had a high growth rate in the Persian year of 2016-2017.

Of the 12.5 percent growth announced by CBI, 9.8 percent (or four-fifths of the total) comes from the oil and gas industry. The simple reason for such impressive growth is that the nuclear deal enabled Iran to export substantially more oil, gas, and related products. The Central Bank itself cited the “removal of limits” and increase in production and export of oil and gas products as the main reason for higher growth.

Data from non-Iranian sources confirms that surging oil exports were the leading cause of growth. The Annual Statistical Bulletin published by OPEC shows that in 2016, Iran’s exports of crude oil almost doubled. The IMF reports that Tehran’s income from oil exports grew by more than two-thirds in 2016-2017, an increase valued at $24 billion. This change alone accounts for almost all of the 6.6 growth reported by the IMF.

The non-oil economy in Iran remains weak but shows signs of improvement. According to CBI, Iran’s housing and construction sector, which is still in recession, subtracted 0.8 percent from total GDP growth, while the manufacturing sector was responsible for 0.8 percent of the 12.5 percent overall economic growth. The value added of the manufacturing sector grew 6.9 percent, much better than its 4.6 percent contraction the previous year. Gross fixed capital formation (GFCF) in the machinery subgroup has increased 5.6 percent, reflecting increased investment in the manufacturing sector, which could lead to stronger growth in this category in the future.

There is a low probability of strong oil-led growth continuing this year, unless oil prices increase, since Iran has almost reached to its production and export ceiling. However, CBI reports a continuous upward trend in rest of the economy. While the non-oil sector shrank 1.8 percent in the spring of 2016, the next three consecutive quarters witnessed growth rates of 3.9, 5.4, and 5.6 percent, respectively. This suggests that Tehran may soon find itself on more diversified and solid economic ground. 

Regrettably, if the past sheds any light on the future, it is safe to say that Iran will use its improved economy to challenge the United States and its allies, increase its support for terrorism, and expand its ballistic missile program. This is the ongoing price the U.S. and its allies will pay for the shortcomings of the 2015 nuclear deal.

Saeed Ghasseminejad is a research fellow at the Foundation for a Defense of Democracies. Follow him on Twitter @SGhasseminejad.