Far from collapse

Iran’s economy has been weakened by the corona crisis, but is not on the verge of collapse. As early as April, the government began to gradually relax the restrictions.

A woman runs across a street in Tehran, Iran.

Dhe countries of the Middle East are feeling the fight against Covid-19 in two ways: through the standstill of the economy and the fall in the price of oil. No other country in the region has been hit harder than Iran. President Hasan Rohani’s government reports 91,472 confirmed infections and 5806 deaths. Even members of the Iranian parliament expect far higher numbers. Still, on April 11th, the government began gradually easing restrictions.

Before that, too, Rouhani had spoken out against strict restrictions, because an economy weakened by curfews could not pay people to stay at home. Rouhani called for a “wise practice of social distancing” and compliance with hygiene rules. Psychologically, the reopening of the great bazaar in Tehran on April 20, which was closed for more than a month, was important. Schools and universities, mosques and restaurants as well as parks remain closed.

Tax revenues are falling drastically

The fall in the price of oil hits Iran less hard than its Arab neighbors. As a result of the reinstatement of the American sanctions in May 2018, Iran’s oil exports fell from 2.5 million barrels a day to just 300,000 barrels. Iran mainly sold its oil to China at a discount of $ 10 compared to the target price for Brent. With production costs of $ 5.50 per barrel, the export was still worth it for Iran. In March, oil exports fell further to 80,000 barrels a day, the New York Times reported, citing traders in the market.

When the price of American oil turned negative on April 20, Iran reacted with malice. The Kayhan newspaper, a mouthpiece for the hardliners, commented that America wanted to bring Iran’s oil exports to zero, but instead the price of American oil has now fallen below zero. However, the crisis in the oil market is also affecting Iran. Because the sale of crude oil, including the production for own consumption of 1.8 million barrels a day, should contribute a tenth of the Iranian state budget to the income.

Since tax revenues are also falling drastically, Rouhani expects that a third of the planned budget expenditures will not be financed. The International Monetary Fund predicts that Iran’s economic output will shrink by 6 percent this year. It had already decreased by 7.6 percent last year. Due to the high unemployment, especially among young people, the government fears new protests. Most recently, in November, the massive rise in low fuel prices triggered protests across the country, which were violently suppressed. Since wages and salaries rise only slightly, but inflation has reached 35 percent, purchasing power continues to decline.

Parliament rejected the government-proposed budget, which began on March 21 and includes spending the equivalent of $ 43 billion, in February. However, with his veto, revolutionary leader Ali Khamenei put it into effect. In addition, the budget is burdened by the measures adopted by the Rouhani government on April 6 to partially offset the income losses of poor families. Most families receive a loan of the equivalent of 60 euros and the poorest households of 120 euros.

Largely self-sufficient in terms of food

In order to finance the deficit budget, Iran applied for a loan of $ 5 billion from the International Monetary Fund for the first time since the revolution in 1979. However, the American government is blocking the award, arguing that the Iranian regime has sufficient funds and could use them for its destructive policies in the Middle East if Tehran were to receive a loan from the Monetary Fund.

To combat the pandemic, the Rouhani government has therefore withdrawn $ 1 billion from the sovereign wealth fund, into which the proceeds from the sale of oil flow, to combat the pandemic. In addition, in mid-April, the government raised billions of dollars from the placement of 10 percent of the shares in the largest social insurance company, Shasta. The IPO was a success because many small shareholders hedge against inflation by investing in the stock market. The Tehran Stock Exchange was one of the capital marketplaces with the highest increases in value in 2019. Due to the success of the largest IPO in Iran to date, Rouhani called on other state institutions to also list shares in their companies.

The boom on the Tehran stock exchange is an indicator that the Iranian stock exchange, although weakened, has developed a resilience over the four decades of sanctions and wars with which it can absorb external shocks. The country is evidently a long way from the economic collapse that the American government is hoping for.

Iran is largely self-sufficient in terms of food, and the structure of the economy is more diversified than that of its Arab neighbors. The health system does not reach the standard of western countries, but in the Middle East it is one of the better. In addition, Iran produces more than two thirds of its medical and pharmaceutical needs.

However, local production is not sufficient for the increasing demand, which is why Iran appeals to relax the sanctions. Many products, such as paper for face masks, are directly affected by the sanctions. Even if humanitarian and medical goods are officially exempted from the sanctions, potential suppliers are holding back because they too have to be expressly approved and the big banks are not ready to transact with Iran. The deliveries that still reach Iran take longer and are overpriced.