The author says the new set of UN and U.S. sanctions, although intended only to
force the suspension of Iran's nuclear and missile programs, could nevertheless
aggravate the existing economic hardships.
UN sanctions on Iran that are being voted on today would be followed by a
package of economic sanctions, expected to be confirmed in the U.S. Congress by
late June, in the hope of coercing Iran to suspend its controversial nuclear
Today's UN Security Council vote is the result of months of brinksmanship and
intense diplomatic efforts by the United States and its allies to persuade
Russia and China to support the new resolution.
Following an unscheduled telephone conversation between U.S. Secretary of State
Hillary Clinton and Russian counterpart Sergei Lavrov on June 4 about the
content of the new measures, the Russian foreign minister announced that a draft
resolution on Iran that does not entail "crippling" economic sanctions was
The new measures are primarily intended to target the Islamic Revolutionary
Guards Corps (IRGC) commanders and affiliated organizations. But, if adopted,
they could further harm Iran's already badly weakened economy.
The new set of sanctions could take effect prior to the implementation of a
subsidy reform package in the second half of the current Iranian year, which
begins at the end of September. President Mahmud Ahmadinejad has described that
reform plan as "Iran's greatest economic project of the last 50 years."
The economic plan passed by the Iranian Consultative Assembly (Majlis
Shora-ye-Islami) in January 2010 is designed to reform public subsidies.
The Islamic government of Iran has been subsidizing the prices of more than 16
different consumer goods and products for the last 32 years. The costs of
government subsidies for the current year are estimated to be in excess of $90
billion, which is equal to 25 percent of Iran's annual gross domestic product
(GDP). Refined oil products, natural gas, and electricity top this list.
Due to the current fuel shortage, the Iranian government imports 40 percent of
the domestic market's needs which account for 25 million liters of gasoline and
11 million liters of diesel fuel per day. In 2009 alone, Iran spent paid $11
billion on imported fuel.
The price to consumers of refined oil products in Iran covers barely a fraction
of the production costs, and is therefore well below international market
Subsidizing fuel prices has been the primary factor accounting for a 500 percent
rise in Iran's domestic energy consumption over the past three decades, while
the size of the population has doubled over the same period.
The disproportionate increase in the rate of energy consumption relative to the
rate of population growth could only be justified if translated into increased
economic productivity. However, per capita production in Iran has increased only
1.5 times in the last 30 years (5 percent per year on average).
According to the International Energy Agency, per capita energy consumption in
Iran is 15 times higher than in Japan and 10 times higher than the European
Union. Iran's energy efficiency, or so-called energy intensity, is the highest
in the world at three times the global average. Even in comparison with the
oil-rich countries of the Persian Gulf region, Iran's energy efficiency (2.5
times the Middle Eastern average) is excessively high. Energy intensity is a
measure of energy efficiency of a country's economy and is calculated as units
of energy consumed per unit of GDP.
The lavish consumption of cheap energy resources has caused environmental
hazards in towns and cities all over Iran. Consequently, air pollution in
Tehran, Isfahan, and Tabriz is among the highest in the world, concurrent with
the decline in living standards.
Crude oil exports constitute 85 percent of Iran's foreign income. Over the last
18 months, oil prices have fallen by 50 percent. In the meantime, Iran's oil
production capacity has dropped from 4.2 million barrels a day in 2009, to less
than 3.6 million. As a result, Iran's hard currency earnings in 2010 are
expected to be substantially less than in 2009.
Iran's oil exports are currently less than 2 million barrels per day (bpd),
378,000 fewer than in 2009, which adds up to a $9.5 billion deficit in the
country's foreign revenues. Iran is no longer the fourth largest oil exporter in
The most optimistic estimates suggest that Iran's economic growth rate by the
end of this year will be just about zero. The rate of inflation, however, is
currently 15 percent, thanks to the economic stagnation of the past two years.
That at least is an improvement compared with last year's figure of 25 percent.
With the implementation of the new economic plan and deep cuts in subsidies, the
cost of living in Iran, according to the Majlis Research Center, could rise by
up to 60 percent. The International Monetary Fund, however, has predicted a more
moderate rise in inflation of just 32 percent as a result of those measures.
The new set of UN and U.S. sanctions, although intended only to force the
suspension of Iran's nuclear and missile programs, could nevertheless aggravate
the existing economic hardships.
The recent statement issued in Tehran on 17 May followed by the nuclear swap
deal proposed to the International Atomic Energy Agency (IAEA) on 24 May seem to
have pushed the Iranian government over its own self-declared "red lines." Under
any other economic circumstances, the hard-liners in Iran wouldn't have
volunteered to send 1200 kilograms of their low-enriched uranium abroad. Perhaps
the new set of sanctions could serve to push the Iranian regime to make further
concessions, without the need to resort to military force.
Reza Taghizadeh is a regular contributor to RFE/RL's Radio Farda. The views
expressed in this commentary are the author's own, and do not necessarily
reflect those of RFE/RL
Copyright (c) 2010 RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036. www.rferl.org