Volume. 11884
Sanctions therapy now: Oil-addicted economy needs rehab
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Oil sanctions are an unsought gift for Iran’s rentier economy, a bittersweet present that unfortunately has not received a warm welcome from Iranian economists and decision shapers.
Historically, Iran’s economy has been heavily dependent on oil, and the fluctuations of oil prices and exports over the years have directly influenced various governments’ budgets and actions.
On the last step of this path, in the national budget bill proposed for Iranian calendar year 1393 (March 2014-March 2015), 39.9 percent of government revenues is dependent on the export of oil and other hydrocarbons, such as gas condensates.
In recent years, sanctions have caused a fifty-percent decline in Iran’s oil exports. But the oil-addicted economy, instead of improving its non-oil revenue systems like taxation, restructuring its bloated human resource organizations, and cutting unnecessary additional expenditures, has compensated for the loss in oil exports by devaluation of the national currency in order to double the value of its suppressed oil revenues. The government did this by selling its petrodollars at a higher dollar-rial conversion rate. 
This can be seen as ‘just an economic embargo and its consequences,’ but what is actually happening is that the oil addict is resisting going to rehab. And unfortunately, in such a situation, which can be used as a blessing rather than a curse, officials are also encouraging the addict not to go to rehab.
On the other hand, sanctions can be beneficial for the imposer(s) only in a limited range, i.e., pushing the sanctions more and more will only work up to the specified threshold, and will eventually have some serious negative repercussions for the sanction imposers. In Iran’s case, the “sanctions coalition” has been able to reduce the oil exports of Iran from about 2.5 million barrels per day to about 1 million barrels per day. But what would the coalition gain from bringing Iran’s oil exports down to zero, if they could? Among other things, it would deprive them of their main leverage: the threat to decrease oil exports.
So, if an economist who looks at the big picture prays for an intensification of the oil sanctions, leading to zero oil exports, it would not be odd. Perhaps, after decades of dealing with the “oil curse”, sanctions therapy, however painful, is the only way to reconstruct and diversify Iran’s oil-dependent economy.
Tohid Atashbar is a researcher at the Department of Budgeting of Iran’s Majlis (Parliament) Research Center.

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