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Iran’s Predicament: COVID-19, Economic Mismanagement, and Sanctions

COVID-19 presents a major threat to the global economy and the health of millions of people around the world — one that is unprecedented in the post-World War II era. The impact of the pandemic on Iran, one of the early epicenters of the outbreak, has been particularly severe, and the situation has been further exacerbated by several factors, first the lack of rapid response by the Iranian government, the effects of U.S. sanctions, and the Trump administration’s “maximum pressure” campaign.

With official figures of more than 74,877 confirmed cases and nearly 4,683 deaths, Iran is among the top 10 hardest-hit countries. What makes Iran’s case particularly worrisome though is that until just recently, the government and the public seem to have significantly underestimated the threat presented by the virus and social distancing was not taken as seriously as it should have been. For example, the government only recently decided to start imposing travel restrictions between Iranian cities — after a rapid, month-long rise in the number of infection cases and mortalities. Such restrictions should have been imposed long before the start of the Iranian new year, Nowruz, which falls on the first day of spring, when Iranians often travel in large numbers to visit family and friends. Given the current trends, the outbreak is expected to peak around late May and researchers are worried that if the Iranian public and government do not adhere to significantly stricter quarantine and social distancing measures, COVID-19-related deaths could reach around 3.5 million or 4.3% of Iran’s total population.[1]

Depending on how successful Iranians are in containing the virus over the next few months, optimistic estimates put the economic fallout of COVID-19 in 2020 to be around 15% of Iran’s GDP. However, some economists estimate the cost to be as high as 30% of the GDP.[2] Add to this the fact that the Iranian economy was already in bad shape heading into the crisis — it contracted by around 8% between March 2019 and December 2019 —the outlook for 2020 is bleak indeed. Like the U.S. and Europe, alongside small businesses and the transportation sector, the hospitality sector and services in general have been hit the hardest in Iran. The timing could not have been worse because the Persian new year, Nowruz, is the most profitable period for many small businesses, ground and air transportation, restaurants, and hotels in Iran. Finally, the Iranian labor market was already suffering from high unemployment rates before the pandemic, especially among the college-educated youth. The estimated economic contraction in 2020, at the best-case scenario, will put more than 3 million jobs at risk, potentially pushing the actual (not official) unemployment rates from around 20% now to more than 35% in just 2-3 months.

The current situation in Iran is particularly troubling because the weakening economic conditions have severely hampered the government’s ability to address the pandemic crisis, and the situation is only expected to get worse in the coming months. It’s impossible to ignore the central role of U.S. sanctions in the recent faltering of Iran’s economy and its capacity to fight the COVID-19 pandemic, both inside the country and across the wider region. Imposing additional sanctions on Iran and pressuring the IMF to reject Tehran’s request for an emergency loan of $5 billion are the latest moves by the Trump administration as it seeks to choke the Iranian economy at a time when the country and the world are being hit hard by the pandemic.[3] While the IMF has been reluctant to approve Iran’s emergency loan request — the first time in nearly 60 years the country has gone to the organization for funding — in a recent humanitarian gesture, Britain, France, and Germany have offered around $5.5 million through the INSTEX trade mechanism to help Iran in its fight against COVID-19 and have also started to send medical materials and protective gear.[4] [5] This is the first time the Europeans have diverted from the U.S. maximum pressure campaign against Iran after the U.S. withdrawal from the JCPOA in May 2018. Even Iran’s neighbors in the region, Kuwait and Qatar have provided medical aid to help Tehran to face the pandemic. U.A.E. has likewise offered medical aid to Tehran despite the rivalry between the two countries.

The COVID-19 pandemic is a global crisis by every measure and definition and addressing it in a timely and effective manner will require a globally coordinated response. With a population of 80 million plus, a strategic location at the center of the global energy supplies, and a diaspora community of more than 5 million around the world, Iran has an important role to play in the global struggle against COVID-19. In addition to increasing the coronavirus-related deaths in Iran, continued U.S. sanctions and its maximum pressure campaign against the country could gravely undermine the effectiveness of global efforts against the pandemic. In other words, in addition to being cruel, U.S. sanctions against Iran during this severe humanitarian crisis could also prove to be detrimental to global health and economic well-being in both the short run and the long term. The reason for this is simple: If the virus continues to fester in a large, strategically located country like Iran, it can spread everywhere in the world, leading to more deaths and further economic damage globally.

 

 

Amin Mohseni-Cheraghlou is an assistant professor in the Department of Economics at American University in Washington, D.C. He has also taught at the University of Tehran in the faculties of Economics and World Studies. His areas of expertise are Development Macroeconomics, International Political Economy, Economies of the Middle East and North Africa (MENA), and Islamic Economics and Finance. A research consultant for the World Bank Group since 2007, Amin writes frequently on topics related to development economics and economies of the Gulf and the MENA region. He holds a Ph.D. in Economics, an M.A. in International Development, and a B.S. in Electrical Engineering.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.

 

References: 

[1] “Coronavirus pandemic ‘could kill millions’ in Iran,” Aljazeera, March 17, 2020

[2] Farnaz Fassihi, “Iran Says U.S. Sanctions Are Taking Lives. U.S. Officials Disagree,” The New York Time, April 1, 2020

[3] Ian Talley, “U.S. Steps Up Iran Sanctions Amid Coronavirus, as Tehran Charges Cruelty,” The Wall Street Journal, March 19, 2020

[4] “Coronavirus: Iran requests $5bn IMF loan to fight disease, as cases reach 10,075,” Middle East Eye, March 12, 2020

[5] “Europe sends medical goods to Iran in test of sanctions bypass mechanism,” France 24, March 31, 2020

Amin Mohseni-Cheraghlou is a Non-Resident Fellow at Gulf International Forum and an assistant professor in the Department of Economics at American University in Washington, D.C. He has also taught at the University of Tehran in the faculties of Economics and World Studies. His areas of expertise are Development Macroeconomics, International Political Economy, Economies of the Middle East and North Africa (MENA), and Islamic Economics and Finance. A research consultant for the World Bank Group since 2007, Amin writes frequently on topics related to development economics and economies of the Gulf and the MENA region. He holds a Ph.D. in Economics, an M.A. in International Development, and a B.S. in Electrical Engineering.

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