Iran Economy and Environment 2016


Three years after the election of Hassan Rouhani, elected with the clear political mandate to revive the country’s economic fortunes, it is possible to glimpse the first timid positive signs after years of dramatic crisis. The drop in the inflation rate, the strengthening of the rial, the increase in oil exports and the renewed vitality of two key sectors of the Iranian economy, the automotive and petrochemicals, are positive aspects that bode well for an effective recovery.. The government of Hassan Rouhani has halted the drastic negative spiral that reached its peak in 2012, called the annus horribilis of the Iranian economy. The final period of the controversial era Ahmadinejad has in fact recorded decidedly negative economic indicators, revealing a deep crisis and the need for serious measures to revive the economy and remove the specter of social tensions, which would further undermine a system that can count on a now limited consent.

If it is still too early to assess the effects of the nuclear deal reached in July 2015, it is certainly to be recognized that, if the sanctions are lifted according to the envisaged scheme, important benefits could derive for the Iranian economy. Indeed, an increase in incoming foreign investment is expected, especially in the energy, automotive and infrastructure sectors.

However, far-reaching reforms will be needed to definitively overcome the structural weaknesses of the Iranian economy and the negative effects of years of senseless economic management. Only the full reintegration of Iran into international commercial circuits and the re-establishment of a positive climate for investments and the recovery of private consumption can favor the positive turnaround.

The economic isolation caused by the sanctions has translated in recent years into the dramatic growth of the underground economy, which according to the Iranian Central Bank is around 21% of GDP, but also in the reorientation of trade routes in favor of Asian countries such as China., Japan, India and South Korea, as well as Russia and, as regards financial transactions, the United Arab Emirates. Over 7,000 Iranian companies are registered in Dubai, which has become the off-shore safe for the ayatollahs and pasdaran (the guardians of the Islamic revolution), who play more and more decisive roles in the various economic sectors, alongside their traditional function in the paramilitary forces.

Finally, one of the most original features of the Iranian economic system is that of the bonyads, the ‘charitable foundations’. These entities, nationalized after the 1979 revolution, dominate 80% of the economy and have the official purpose of redistributing resources for the benefit of the weaker groups. The bonyads have easy access to state resources, are favored by tax exemption and are accountable for their work only to the supreme leader.

Energy and environment

According to indexdotcom, the issue of Iranian energy resources is complex and multifaceted. They constitute the country’s primary source of income and remain a focal point of some of the most important disputes with regional neighbors and international actors, primarily the United States. Iran is the fourth country in the world for estimated oil reserves (157 billion barrels, behind Venezuela, Saudi Arabia and Canada) and ranks seventh in daily production (3.3 million barrels per day, after USA, Saudi Arabia, Russia, China, Canada and U ae).

It is estimated that the Iranian subsoil contains large reserves of natural gas: in production the country is now in third place in the world, behind the United States and Russia. Due to the structural rigidity of the gas market, due to the fact that it is more convenient to transport it through pipelines rather than liquefying it and embarking it by ship, the Iranian gas reserves could play a fundamental role in the Caucasian, Central Asian and Middle Eastern areas. Also in this case, we await the implementation of the nuclear agreement and the easing of the sanctions that should allow the country to attract investments to put its plants – now marked by severe obsolescence – in a condition to operate at their maximum. potential. In August 2015, Iran and Oman have signed an agreement to finalize the ancient project to create a 400 km long gas pipeline between the two countries. A project that, at current prices, promises to be worth around 60 billion dollars.

For now, however, the country remains a net importer of gas from abroad (mainly from Turkmenistan), due to the large internal consumption of methane. Not even the recent increase in production has managed to fill the gap generated by the growth in domestic demand. Despite its position as an important oil exporter (Tehran sells about 60% of its production abroad), Iran also depends on foreign supplies for petroleum products. Its refining potential is modest and slightly higher than domestic demand: the country is therefore forced to export crude oil – especially to China, Japan and India – and to import its lighter derivatives, such as gasoline.

From a regional perspective, the availability of hydrocarbons has generated and still generates tensions with some neighboring countries. In particular, part of the South Pars field – off the coast of the Persian Gulf – is disputed between Iran and Bahrain. At the same time, Tehran has been calling for the revision of international agreements for the exploitation of the Caspian basin for decades, in a dispute involving Azerbaijan and Turkmenistan, although recently relations with Ashgabat seem less tense. Finally, construction work on the Iran-Pakistan-India gas pipeline (I pi), the ‘peace pipeline’, the design of which dates back to the 1950s. While India has in the meantime exited the project, in 2011 Iran completed the construction of the pipeline section under its responsibility. The successful conclusion of the nuclear dispute has rekindled hopes for the completion of the project. But now Pakistan is slowing down, caught between the need for energy and heavy pressure from Saudi Arabia not to do business with Tehran.

Iran Environment

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