New Estimates of Iran’s Petroleum Exports and Income after the Nuclear Implementation Day and Reductions in Sanctions

3rd Revision

The decades since the first major oil embargo in 1973 have shown all too clearly that no one can predict oil   and gas prices and petroleum export revenues. This is particularly true when key exporters like Iraq and Libya are at war, production is partly driven by the tensions between Iran and its Arab neighbors, new sources of production are coming on line, and the world seems be headed for a China-driven collapse of demand.

There are some important new estimates, however, that indicate that Iran is not going to see any kind of windfall from the lifting of sanctions as a result of the Joint Comprehensive Plan of Action (JCPOA)  nuclear agreement and the lifting of sanctions.

Iran’s Limited Oil Export Capability and Price Pressure From Other Gulf Exporters

The United States Energy Information Agency (EIA), which is part of the U.S. Department of Energy, has just released two important studies covering different aspects of the potential impact of Iran’s future production and exports. One is called Oman is the largest non-OPEC oil producer in the Middle East(01/21/2016). It provides an updated comparison of the current production by key Middle Eastern states that is shown in Figure One.

It is all too clear from Figure One that Iran’s current production levels are limited, and that Saudi Arabia and the other Arab states are the strategic prize in terms of petroleum production, markets, and investment opportunities. Other EIA studies and forecast have also made it clear that Saudi Arabia intended to keep production levels high, maximize its own re venues at a time of low oil prices, and will probably be joined in doing this by other Arab oil exporters.

The high levels of recent Saudi production levels are shown in Figure Two, and Saudi Arabia has made it clear it will not cut them to try to raise prices – especially at a time when it is deeply concerned about Iran’s other actions.

The Saudi Foreign Minister Adel Al-Jubeir denied any connection between high Saudi production and Iran, made the continued Saudi commitment to high production clear at the highest official level. He told CNN on January 19, 2016 that, “People should go back to Adam Smith and basic economics. It’s about supply and demand ...We let the market determine where the equilibrium should be. What we’re seeing now is the market price… You cannot manipulate the market and be able to do so consistently…If you try to manipulate it one way or the other, eventually you overshoot or undershoot and you pay a tremendous price for it. In the Middle East, the conspiracy theories are about what the great powers are doing. In the West, the conspiracy theories are about what the oil powers are doing.” ( ).

Work by the World Bank does support these views to some extent. Its July 2015 study of the impact of lifting sanction, made at a time when oil prices were much higher than now, estimated that,

Assuming that then futures oil price for delivery in December 2015 stands at $66 per barrel, this will reduce oil prices to an estimated $56.  The World Bank estimates that a drop of $10 in oil prices could worsen the fiscal balances of major oil exporters in the MENA region, to the tune of 5 percent of GDP in Saudi Arabia and 10 percent of GDP in Libya. This amounts to a loss of $40 billion for Saudi Arabia and $ 5 billion for Libya in annual oil export revenues. The current account balances  of all  MENA oil exporters  will  also worsen. (

The more recent cuts in oil prices have been so severe that they mean that the World Banks’s conclusion in July that, “Iran will be the least affected oil-exporting country as the additional revenues from increased exports of oil will  outweigh the negative impacts of falling oil prices,” is probably no longer valid.

Figure One: Iran’s Limited Production Compared to Other Middle Eastern States

aph of crude oil and condensate production from countries in the Middle East, as explained in the article text

Source: U.S. Energy Information Administration, International Energy Statistics,

Note: Other non-OPEC Middle East includes Bahrain, Syria, Israel, and Jordan.

A recent report by SUSRIS notes that Khalid Al-Falih, the Chairman of Aramco stated at a panel at Dafos on January 23, 2016 that,

“We are not going to accept to withdraw our production to make space for others…This is the position that we’ve earned...we are not going to leave that position to others…Saudi Arabia has never advocated that it would take the sole role of balancing market against structural imbalance…If there are short-term adjustments that need to be made and if other producers are willing to collaborate, Saudi Arabia will also be willing to collaborate…If the prices continue to be low, we will able to withstand it for a long long time ... obviously we hope it will not happen.” Al-Falih described the current prices are “unreasonable, but are probably not likely to climb much any time soon…Short term, it’s a very bleak picture…(“No production cut to make space for others: Kingdom,” Arab News, January 23, 2016,

Figure Two: Saudi Production Trends

audi Arabia Crude Oil Production Chart

Source: SUSRIS and Arab News,

The Impact of Lifting Sanctions

The other EIA study is focused on Iran alone. It is entitled Iran’s petroleum production expected to increase as sanctions are lifted, and provides both an updated analysis of Iran’s current production and a forecast of the range of near-term increases that Iran may be able to make now sanctions are lifted. These data are summarized in Figure Three – which shows the history of Iran’s production and exports before sanctions, production after sanctions, and estimated production through 2017.

The key portions of the EIA analysis are:

Sanctions relief will lead to an increase in Iran's oil production and exports, which had been subject to an EU embargo among other sanctions. Iran's crude oil production has been relatively flat over the past three years while sanctions were in place, averaging 2.8 million barrels per day (b/d) in 2015, representing 9% of total crude oil production from the Organization of the Petroleum Exporting Countries (OPEC). In EIA's January Short-Term Energy Outlook (STEO), which assumed implementation day to occur this quarter, Iran's annual average crude oil production is forecast at 3.1 million b/d in 2016 (10% of projected total OPEC production), and almost 3.6 million b/d in 2017.

Consistent with these forecasts for average annual production, Iran's crude oil production reaches 3.3 million b/d at the end of 2016 and 3.7 million b/d at the end of 2017. EIA estimates a subjective uncertainty range of +/- 250,000 b/d surrounding these year-end projections, with actual outcomes dependent on Iran's ability to mitigate production decline rates, deal with technical challenges, and bring new oil fields into production.

Most of Iran's forecast production growth comes from Iran's preexisting crude oil production capacity that is currently shut in, while the remainder comes from newly developed fields. Iran has a number of new oil fields that Iranian and Chinese companies have been developing over the past several years, which have the potential to add 100,000 b/d to 200,000 b/d of crude oil production capacity by 2017. The STEO forecast also accounts for production declines at Iran's mature oil fields.

… Beyond crude oil, Iran's condensate and natural gas plant liquids (NGPL) production is currently almost 750,000 b/d, of which 75% is condensate and the remainder NGPL. Iran's non-crude liquids production has grown over the past few years. The main buyers of Iran's non-crude liquids have been in countries in Asia, mainly China, and the United Arab Emirates (UAE).

Iran's non-crude liquids production is expected to grow by 150,000 b/d by the end of 2016 and by an additional 100,000 b/d by the end of 2017, as more project phases at the South Pars natural gas field come online. More than 80% of Iran's condensate production comes from the South Pars field located offshore in the Persian Gulf, which is Iran's largest nonassociated gas field. Lack of foreign investment and insufficient financing, stemming from international sanctions, have slowed the development of South Pars. However, some progress has been made in recent years, and sanctions relief is expected to quicken the pace of development of its remaining phases over the next decade.

With Iran's petroleum and other liquid fuels consumption expected to remain flat over the next two years, crude oil and other liquid fuels from the production increase is likely to be sold in export markets. The pace that Iran will ramp up its exports now that sanctions are lifted is uncertain. Iran has a considerable amount of oil stored offshore in tankers (between 30 and 50 million barrels), most of which is condensate, and crude oil stored at onshore facilities. Initial post-sanction increases in Iranian exports will most likely come from storage, while meaningful production increases will occur after some of the storage is cleared.

The EIA is very careful to note the levels of uncertainty involved, but its forecasts would only mean an increase of some 500,000 barrels of crude oil day by the end of 2016, rising to 900,000 barrels a day at the end of 2017. The total would rise to 600,000 a day in 2016 if natural gas liquids (NGL) and condensate were included and 1,150,000 barrels in 2017.

This would have been a major increase in revenues at a time when oil was a nominal $110 a barrel, particularly if Iran could export most of the increase by limiting domestic demand, and would have had a critical impact on Iran’s export earnings and  government revenues.  The EIA reported in April 2013 that, “Iran's 2012 net estimated oil export revenue, at $69 billion, was significantly lower than the $95 billion total generated in 2011. Oil exports make up 80% of Iran's total export earnings and 50% to 60% of its government revenue, according to the Economist Intelligence Unit.” (

Iranian oil and NGL/condensates never had the quality to have captured an average of $110 a barrel, but if one does assume that average price, 600,000 barrels a day equals 219 million barrels a year, and $24.5 billion a year. A total of 1.15 million barrels a day equals 420 million barrels a year, or $46.2 billion at $110 a barrel, and these are optimistic estimates based on the end of year production being the annual average and the entire value of the oil being export revenues – far higher totals than can be achieved in practice.

Fast forwarding to today’s prices, the maximum possible gross revenues are radically different. If oil sells for a relatively high current estimate of $60 a barrel, the annual revenues from 600,000 more barrels a day at the end of 2016 are only $13.1 billion, and the revenues from 1.15 million more barrels at the end of 2017 are $16.8 billion. Once again, Iran’s actual earning would be shaped by the quality of its exports, by its actual production increases over time, and have to take account of the cost of production. The real-world totals would be lower.

If oil sells for an average of only $40 a barrel after the maximum projected increase in each year, the maximum additional revenue including NGL/condensates would be less than $8.8 billion in 2016 and $11.3 billion in 2017. And, once again these figures are far higher than what Iran can actually achieve and do not take account of any increases in Iranian production and development costs.

Figure Three: Iranian Past and Probable Production: 2011-2017

Exports of Crude and Condensates by Importing Country During Sanctions (in Millions of barrels)

aph of Iran's crude oil and other liquids production history and forecast, with key milestones noted, as explained in the article text

aph of Iran's crude oil production forecast and uncertainty, as explained in the article text

Source: U.S. Energy Information Administration,, May 2013;Short-Term Energy Outlook, January 2016; and

The Procedural Impacts of Lifting Sanctions

A third EIA report in This Week in Petroleum ( provides still further perspective. It states that states that,

As EIA has already reported, the sanctions were lifted on January 16, which was implementation day for the Joint Comprehensive Plan of Action (JCPOA), an agreement among the P5+1 (the five permanent members of the United Nations Security Council and Germany), the European Union (EU), and Iran. On that day, the International Atomic Energy Agency verified that Iran had completed the key physical steps required to trigger sanctions relief. With this milestone, the United States, the EU, and the United Nations have lifted nuclear-related sanctions against Iran, which include oil-related sanctions that have limited Iran's ability to sell its oil on the global market since late 2011. With nuclear-related sanctions being lifted:

    • Some Iranian banks can get back on the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system to conduct financial transactions electronically on the world market.
    • Iran can access its foreign reserves held in banks worldwide. According to the U.S. Department of Treasury, Iran's Central Bank has $100 billion to $125 billion in foreign exchange assets globally, but Treasury estimates Iran's usable liquid assets to be just slightly more than $50 billion.
    • Non-U.S. companies can invest in Iran's oil and natural gas industry, including the sale, supply, and transfer of equipment and technology.
    • Countries within the EU and elsewhere that had ceased imports of energy from Iran can again import Iranian oil, natural gas, and petrochemical products. Countries that are already importing from Iran can increase their purchases.
    • European protection and indemnity (P&I) clubs can provide Iranian oil tankers with insurance and reinsurance.

Nonetheless, U.S. sanctions related to human rights abuses and terrorism are still in place, and some Iranian individuals and entities that were delisted under nuclear sanctions are still covered under existing sanctions. As a result, non-U.S. companies may be slow to rush back into Iran as they figure out how to resume business with Iran without violating the non-nuclear sanctions that remain in effect.

Ultimately, nuclear-related sanctions relief will lead to an increase in Iran's oil production and exports …Iran's crude oil production has been relatively flat over the past three years while sanctions were in place, averaging 2.8 million barrels per day (b/d) in 2015, representing 9% of total crude oil production from the Organization of the Petroleum Exporting Countries (OPEC). In EIA's January Short-Term Energy Outlook STEO, which assumed implementation day to occur this quarter, Iran's annual average crude oil production is forecast at 3.1 million b/d in 2016 (10% of projected total OPEC production), and almost 3.6 million b/d in 2017.

The impact of lifting nuclear sanctions is equally unclear. Press reports also talk about lifting as much as $100 billion in frozen Iranian assets, and some strong opponents of the JCPOA have talked bout as much as $150 billion. The NSC and U.S. Treasury put this money under $52 billion, once existing obligations are subtracted, and note that it may take months or longer for the money to be freed, non-banks to freely deal with Iran, and the structure of Iran’s finances to stabilize.

The Impact of Higher Revenues on Iran’s Economy and Budget

The put Iran’s post-sanctions earnings in perspective, the EIA summarizes the past impact of sanctions is summarized as follows (

The sanctions have prompted a number of cancellations and delays of upstream projects. The United States and the European Union (EU) enacted measures at the end of 2011 and during the summer of 2012 that affected the Iranian energy sector more profoundly than any previously enacted sanctions. The sanctions impeded Iran's ability to sell oil, resulting in a near 1.0-million b/d drop in crude oil and condensate exports in 2012 compared with the previous year.

Iran's oil and natural gas export revenue was $118 billion in the 2011/2012 fiscal year (ending March 20, 2012), according to the International Monetary Fund (IMF) In the 2012/2013 fiscal year, oil and natural gas export revenue dropped by 47% to $63 billion. The IMF estimates that Iran's oil and natural gas export revenue fell again in the 2013/2014 fiscal year by 10% to $56 billion. The revenue loss is attributed to the sharp decline in the volume of oil exports from 2011 to 2013. Iran's natural gas exports increased slightly over the past few years. However, Iran exports only a small volume of natural gas, because most of its production is domestically consumed.

Nonetheless, international sanctions have also affected Iran's natural gas sector. Iran's natural gas sector has been expanding, but production growth has been lower than expected as a result of the lack of foreign investment and technology. However, in 2014, Iran experienced higher production growth than usual because new phases at the South Pars natural gas field came on line.

The CIA World Factbook estimate of Iran’s exports only goes up to 2014. They totaled $86.47 billion that year and the CIA some 80%  -- or $69.2 billion were petroleum. (The rest were largely related exports of chemical and petrochemical products, plus fruits and nuts, carpets, cement, and ore.) (])

The EIA estimates that, “Brent crude oil prices averaged $52/b in 2015, down $47/b from the average in 2014… North Sea Brent crude oil prices averaged $38/barrel (b) in December, a $6/b decrease from November, and the lowest monthly average price since June 2004. Its January 12, 2016 Short Term Energy Outlook also estimates that,  “Brent crude oil prices average $40/b in 2016 and $50/b in 2017. Forecast West Texas Intermediate (WTI) crude oil prices average $2/b lower than Brent in 2016 and $3/b lower in 2017. However, the current values of futures and options contracts continue to suggest high uncertainty in the price outlook..” (

While Iranian petroleum products sell at a variety of different prices, the trends in Brent Crude prices are a good illustration of the pressure recent cuts in all oil prices have put on Iran. They are illustrated in Figure Four, which shows just how sharply prices have dropped since sanctions were imposed on Iran.

Figure Four: End of day Commodity Futures Price Quotes for Brent Crude Oil


As Figure Three has already shown, there are sharply different estimates of how soon Iran can increase exports, it’s sustainable production capacity, and what time, investment, incentives and technology are required to increase that production capacity. The same levels of uncertainty apply to how quickly Iran can export the oil it has stored on tankers and Iranian soil since sanctions were imposed, and the prices it will receive.

Nevertheless, the near term impact of the nuclear agreement and lifting of sanctions seems certain to be far lower than anyone estimated at the time the JCPOA was signed.

What is far more critical in terms of the strategic impact of added production, however, is the massive cut in oil prices relative Iran’s probable oil exports levels.  As Figure Two shows, Iran will not be back to its 2011-2012 production levels until the end of 2016 at the earliest and will not have add production capacity until the end of 2017.

This means that earlier estimates by experts like those in the World Bank – which made then conservative estimates based on then current estimates of oil prices and Iran’s probable real world rate of increasing exports are now likely to be very optimistic. The World Bank estimated in July 2015, that,

The most significant change will be Iran’s return to the oil market. The World Bank estimates that the eventual addition of one million barrels a day (mb/d) from Iran, assuming no strategic response from other oil exporters, would lower oil prices by 14 percent or $10 per barrel in 2016. Oil importers, including the European Union (EU) and United States (US), will gain while oil exporters, especially the Gulf countries, will lose.

Secondly, once sanctions and restrictions on financial transactions are relaxed, Iran’s trade, which had both declined in absolute terms and shifted away from Europe towards Asia and the Middle East, will expand. The World Bank estimates that sanctions reduced Iranian exports by $17.1 billion during 2012-14, equivalent to 13.5 percent of total exports in that period. Our analysis suggests that the countries that will see the largest post-sanctions increase in trade with Iran include Britain, China, India, Turkey, and Saudi Arabia.

Thirdly, the Iranian economy, which was in recession for two years, will receive a major boost from increased oil revenues—conservatively estimated at about $15 billion in the first year—and lower trade costs. In addition, there are estimates that Iran holds about $107 billion worth of frozen assets (including LCs and oil exports earnings) overseas, of which an estimated $29 billion will be released immediately after sanctions removal. Finally, foreign direct investment (FDI), which had declined by billions of dollars following the tightening of sanctions in 2012, is expected to pick up. There has already been some interest shown by foreign multinationals since the April2015 framework agreement, especially in the oil and gas sectors. The World Bank expects FDI to eventually increase to about $3 - 3.5 billion in a couple of years, double the level in 2015 but still below the peak in 2003. (

Even if oil should average as much as $60 a barrel through 2016 – which may well be a high estimate Iran’s oil total and gas export revenues in 2016 will probably not exceed $60-65 billion, and could be substantially lower. Even at average of $40 a barrel, they might well be under $40 billion, and at this writing, prices are closer to $30..

If one assumes that Iran can actually export all of the 1.15 million barrels a day in increased production that EIA projects it might be able to reach at the end of 2017, petroleum export revenues would probably still be well under $72-75 billion at $60 a barrel, and under $50 billion at $40 a barrel.

The Strategic Impact of Higher Iranian Oil Export Revenues

None of these figures are anything approaching a massive windfall for a country that will then have 83 million to 84 million people, and whose GDP will be around $1.4 trillion to $1.6 trillion.  Even with sanctions lifted, the end result is still likely to be that the internal power struggle for money and over military vs. civil needs may become even more serious.

The “hardliners” have a case. Iran has not come close to competing with its Arab Gulf neighbors in arms imports since the fall of the Shah in 1979. A recent CRS report indicates that the Arab GCC states imported arms worth some 24 times more than Iran could afford in 2007-2014. As a result, much of its military inventory is better suited to a museum than creating a hegemon. Its air force and ground based air defenses largely date back to the time or the Shah or Vietnam War era military technology.

The “moderates” – and Iran’s people – have an even better case. Iran now has some 82 million people if one uses the CIA Factbook estimate as a base. It has a very young population and some 42% is 24 years of age or younger. A third of its population is young people depending on others for their livelihood and another 7% of its people are elderly dependents. Youth unemployment or underemployment are at levels of at least 20-25% and career opportunities are poor, and over 715,000 males and 680,000 females reach job age each year.

CIA Factbook data indicate that Iran’s per capita income was under $18,000 in 2014 – before the current crash in oil prices. This is far lower than in any Arab Gulf state other than a war torn Iraq. Iraq’s GDP per capita was around $15,300, Kuwait’s was $70,700, Oman’s was $3,800, Qatar’s was $137,200, Saudi Arabia’s was $53,200, and the UAE’s was $66,300.

Iran’s income is poorly distributed, and sharply affected by corruptions and the government’s misuse of its resources. The CIA also reports that, “Iran continues to suffer from high unemployment and underemployment. Lack of job opportunities has prompted many educated Iranian youth to seek employment overseas, resulting in a significant ‘brain drain.’"

The World Bank reported in September 2015 that some progress has occurred under President Rouhani and that Iran has real economic potential, but that it faces major problems from state mismanagement, barriers to investment and growth, and particularly in terms of its population and youth (

Following two years of recession, the Iranian economy recovered during the 2014 Iranian calendar year (i.e., March 2014-March 2015) as the new administration led by President Rouhani took office in July 2013 and a partial lifting of sanctions was enacted under the Joint Plan of Action (JPA). This sanctions relief included the partial removal of constraints on Iran’s oil exports, and the supply chain in key sectors of the economy—such as in the automobiles industry—and on international and domestic banks’ international transactions.

The economy expanded by 3 % in 2014, on the heels of annual economic contractions of 6.6 % and 1.9 % in 2012 and 2013, respectively. As of August 2015, the official and parallel market rates were trading at 29,797 Iranian rials per U.S. dollar and 33,400 Iranian rials per U.S. dollar, respectively, thereby representing a difference of about 13%, down from roughly 190% in the second quarter of 2012 when sanctions were tightened. The inflation rate declined from a year-on-year peak of 45.1% in 2012 to 15.6% in June 2015 in line with the lifting of sanctions and the tightening of monetary policy by the Central Bank of Iran.

The unemployment rate has remained stubbornly high and rose slightly in 2014. The unemployment rate reached 11.4% in 2014, up from 10.4% in 2013. The unemployment rate was much more elevated among women (20.3% for women against 8.7% for men), among the population between the ages of 15 and 29 (17.9% for men and 39% for women in this age cohort) and in urban areas (11.7% in urban areas and 7.4% in rural areas). This weak labor market performance took place within a context of a subdued and declining labor force participation rate with only 37.2% of the country’s population being economically active in 2014, down from 37.6% in2013 (62.9% for men and 11.8% for women). The incidence of underemployment has also become more prevalent, with an estimated 9.5% of workers being considered underemployed (10.3% for men and 4.8% for women). Underemployment is largely concentrated among the youth population.

Stimulating private sector growth and job creation is a mounting challenge for the new government considering the number of workers who should enter the labor market in the coming years, including women and youth. Weak labor market conditions are exacerbated by the large number of youth entering the labor market and low female labor force participation rate. This trend is expected to be maintained in line with the evolving socio-economic profile with the demographics of the country characterized by a disproportionately high youth population with over 60% of Iran’s population of 77 million individuals estimated to be under the age of 30 in 2013. The government estimates that 8.5 million jobs should be created in the following two years to reduce the unemployment rate to 7% by 2016. Tackling youth unemployment in particular is a pressing policy issue.

… In 2005, poverty was 1.45% in Iran using a poverty line of US$1.25 per day (PPP). World Bank projections estimate that only 0.7% of the population (half a million people) lived under this poverty line in 2010, although a large proportion of people are living close to it. Indeed, raising the poverty line by US$0.5 (from US$2 to US$2.50 and from US$3 to US$3.50) could put 4%-6% of the population – over 4.5 million people - in poverty. This suggests that many individuals are vulnerable to changes in their personal disposable income and to the persistent rise in the cost of living.

The World Bank’s earlier positive estimate of the impact of lifting sanctions – which assumed that the new money would go to civil rather than military needs and there would be major internal economic reforms, has also been overtaken by events and the massive drop in probable oil and gas export revenues. (See, August10, 2015; and, July 23, 2015.)

The medium-term outlook is positive if the JCPOA is now fully implemented and if the government tackles much needed reforms to unleash growth and private-sector led job creation. This estimate, however, also was made at a time of much higher oil prices and is more optimistic that the EIA in terms of how large an increase Iran can make in petroleum production:

Growth will decelerate from 3% in 2014 to 1.9% in 2015 (March 2015-March 2016) against the backdrop of low oil prices despite a projected increase in oil production by 200,000 barrels per day from 3.1 million barrels per day in 2014. If all sanctions are be lifted by the beginning of the 2016 Iranian calendar year (March-June 2016), real GDP should rise to 5.8 % and 6.7 % in 2016 and 2017, respectively, as oil production reaches 3.6 and 4.2 million barrels per day. Reforms to the business environment to promote competition, rationalize licensing and authorization requirements, reduce the imprint of State-Owned Enterprises in the economy, and improve the health of the financial and banking sector are needed to accelerate growth and private-sector led job creation.

An IMF analysis issued in January 2016 – which reflected more recent drops in oil prices, but assumed that Iran might make more ambitious economic reforms in the near future than it had in the past -- stated,

Economic performance has stalled in recent months with key sectors—manufacturing and construction—contracting significantly. Real GDP growth is now projected to decelerate from 3 percent in 2014/2015 to between ½ percent to – ½ percent in 2015/2016, because of the drop in oil prices, and the postponement of investment and consumption decisions ahead of the expected lifting of sanctions.

The recent lifting of economic sanctions is expected to help increase oil production and exports, and lower costs for trade and financial transactions. Access to foreign assets is also anticipated to be restored. Under these assumptions, real GDP growth is projected to accelerate to 4–5½ percent in 2016/17 and to average 4 percent throughout the medium term.

… relief of sanctions also brings forth many challenges to address. Higher oil revenue and greater capital inflows stemming from increased trade and financial transactions could potentially lead to exchange rate appreciation. Mitigating such pressures could be achieved through reforms that support the authorities’ goal of bringing Iran’s inflation to the single digits by 2016-2017 sustainably, down from the high levels experienced in recent years, the IMF noted.

… Continued efforts in reducing fuel subsidies and mobilizing domestic tax revenue would help contain and reduce the fiscal deficit in the years ahead and dampen upward pressures on the real exchange rate, and thus provide room for infrastructure investment,” said Cerisola.

The report also recommends a medium-term fiscal framework, to increase domestic tax revenue collection, and to develop fiscal buffers to protect the fiscal space for investment spending on infrastructure and human capital.

Reducing and stabilizing inflation is also important. Here the authorities’ focus on strengthening the Central Bank of Iran’s mandate on price stability is a critical step in consolidating macroeconomic stability.

“Central to the need to boost sustainable growth and employment are reforms to address structural weaknesses in the economy,” said Cerisola. A durable reduction of real interest rates should be predicated on addressing financial sector vulnerabilities, namely resolving the high nonperforming assets, restructuring banks, addressing unlicensed financial institutions, and strengthening the Central Bank of Iran supervisory framework.

In addition, the country can take measures to increase productivity by attracting modern technology from trading partners, and by implementing reforms targeting specifically labor-intensive sectors, such as services and agriculture.

The fact is that neither outsiders nor Iran can predict its near-term economic future, or the course of action its government will take given the competing needs of the military and civil sectors. What they can predict is that the impact of the nuclear agreement on Iran’s future petroleum revenues will be far more limited than many thought when the agreement was signed, and the Iran will face serious internal pressure over how any additional revenue will be used.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).


Anthony H. Cordesman

Anthony H. Cordesman

Former Emeritus Chair in Strategy