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Hit by Coronavirus, Drop in Oil Prices and US Sanctions, Iran’s Economy Heads for Free Fall

avatar by Jackson Richman / JNS.org

A man holds Iranian rials at a currency exchange shop in Basra, Iraq, Nov. 3, 2018. Photo: Reuters / Essam al-Sudani / File.

JNS.org – With the coronavirus pandemic sending oil prices to record lows, for Iran, which relies on oil exports as its top revenue source, the economic situation is going from bad to worse.

Reflecting such a state of fiscal affairs, Iran’s parliament this week approved a measure to change its currency from the rial to the toman, which will be set as 10,000 rials. The move is a bid by the Islamic Republic to curb growing inflation.

Already struggling under the US sanctions as part of the Trump administration’s “maximum pressure” campaign, the energy woes will deal another blow to the Islamic regime.

“The Iranian economy has been on the skids for some time, with oil exports sharply limited by US sanctions. As a result, they have already taken a lot of the hit they would otherwise have taken rather suddenly,” said Danielle Pletka, senior vice president for foreign- and defense-policy studies at the American Enterprise Institute. “That said, the rewards from smuggling, especially for the [Islamic Revolutionary Guard Corps], will be lower.”

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The United States designated the IRGC as a terrorist organization in 2019.

On April 30, the United States charged two Iranian individuals and seized more than $12.3 million used in September 2019 to acquire a petroleum tanker, the Nautic—the biggest seizure ever of funds connected to the IRGC’s elite Quds Force.

“These defendants purchased a crude oil tanker valued at over $10 million by illegally using the US financial system, defiantly violating US sanctions,” said US Assistant Attorney General for National Security John Demers. “This is yet another example of Iran brazenly using front companies and false documentation in an attempt to hide the illegal transactions that the Iranian regime desperately needs to fund its malign activities.”

Jason Brodsky, policy director at United Against Nuclear Iran, said “sanctions, the sharp drop in oil prices, and the coronavirus will all contribute to Iran’s increasingly untenable economic woes.”

“Before the coronavirus, the regime attempted to bolster its non-oil sectors like agriculture and manufacturing to compensate for the losses generated by the US maximum pressure campaign,” he continued.

Nonetheless, “the coronavirus will likely prove to be a blow to the services sector, upon which Iran’s economy relies heavily. That’s not to mention the border closures, which will potentially hamper trade with Iran’s neighbors,” said Brodsky. “The regime is increasingly having to make hard choices in this environment, and sadly the bill for decades of mismanagement is coming due.”

Pletka said Iran “will do with less, and as usual, and the Iranian people will be the victims, as they always are. The regime [as individuals] has plenty of money.”

Foundation for Defense of Democracies CEO Mark Dubowitz told JNS that the damage to Iran’s oil sector had already been done because of US sanctions.

“The collapse in oil prices has a limited short-term impact on Iran’s oil revenues because exports have already fallen sharply from 2.5 million barrels per day to a few hundred thousand as a result of the US maximum pressure campaign,” he said. “It does however impact oil production since foreign investors who might be willing to take the sanctions risk when oil prices are high will be less likely to do so if profit margins are much lower.”

‘Helping the Iranian people is not their goal’

“Germany, which was their primary trade partner, was taking pistachios, rugs, and some industrial metals, but it was very limited and the trade was very unbalanced,” said Jewish Policy Center Senior Director Shoshana Bryen. “At the same time, the mullahs are not Iranian nationalists, but Shi’ite supremacists and the single most important element of their policy, foreign and domestic, is undermining Sunni states in the Middle East and Africa, while threatening Israel and inflicting damage on American interests.”

“They have to keep the population as quiet as possible, but helping the Iranian people is not their goal,” she continued. “So look for them to take their very limited funds and continue to use them for their military.”

Dubowitz noted that “Iran’s non-oil exports like petrochemicals are linked to oil prices.”

Iranian petrochemicals and their handlers have been subject to US sanctions. In March, the Trump administration sanctioned companies and individuals allegedly engaged in trading or transporting Iranian petrochemicals.

In January, the United States sanctioned several companies and senior executives allegedly part of the international network supporting Iran’s petrochemical and petroleum industries.

Furthermore, Dubowitz said that “the collapse in oil prices will adversely impact these revenues which have been a major source of foreign currency earnings even under the sanctions regime.”

“Iran is facing an economic depression but its sizable off-the-books assets under the control of the supreme leader and its continued trade with the UAE, Iraq, China, Turkey and others give it a lifeline. Washington needs to double down on the pressure and shut off all remaining economic and financial lifelines.”

‘Limping its way to the US election’

Hudson Institute senior fellow Michael Doran remarked that “despite its protestations to the contrary, the regime does not have any good alternatives to oil, and it cannot circumvent the economic laws of gravity.”

Ahead of November, said Doran, Iran’s objective is “simply to limp its way to the American presidential election. If Trump will be defeated, a Democratic president may lift the ‘maximum pressure’ campaign without Tehran having to make any intolerable concessions.”

The presumptive Democratic presidential nominee, former US Vice President Joe Biden, has not laid out a clear vision on Iran policy if he were to win the White House. Last year, he said that if elected, the United States would re-enter the 2015 Iran nuclear deal when the regime “returns to compliance.”

In a conference call hosted by the Jewish Institute for National Security of America (JINSA), Rapidan Energy Group Founder and President Robert McNally echoed Doran, saying that Iran will be awaiting the results of the presidential election, “hoping Joe Biden will win, and then they got out of jail, if you will, by the second half of next year.”

That scenario, said McNally, would be “a world of hurt.”

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