How will the approaching US sanctions affect Iran’s economy?

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The second round of the United States sanctions on Iran, which starts in the beginning of November, targets the heart of the Iranian economy through disrupting the flow of foreign capital.

In this context, Radio Farda, the Iranian branch of the US government-funded Radio Free Europe/Radio Liberty, considered that this round of sanctions, re-imposed after the US’ withdrawal from the nuclear deal, will slow down the Iranian economy and increase the rates of poverty and unemployment.

Despite what the governor of the Central Bank of Iran, Abdulnasser Hamti, said about the second round of US sanctions on Iranian oil exports and international banking being ineffective, economic facts seem to show much darker results, according to Farda’s report.

The rate of foreign investments in Iran by western companies had increased in the year prior to the US withdrawal from the nuclear deal last May.

However, Iranians still complained from the slow European economic cooperation with Tehran, causing a range of criticism by Iranian extremists, including the supreme leader of Iran, Ali Khanenei.

European banks did not disregard the financial risk around investments in Iran, amid fears that Tehran’s interventions in the region could negatively affect its relationships with western countries.

With the election of the American president Donald Trump in 2016, the interest of foreign investors in Iran slowly started fading, with the worth of investments dropping from $775.3 million to $349.1 million as a result of tensions between Tehran and Washington.

Foreign Investors Leaving

The decline in foreign investments in Iran continued with the beginning of a war of words between Iranian and American officials last May.

More foreign investors started leaving Iran with the approaching date of the second round of US sanctions on November 4.

This also came with the significant rise in the exchange rate of the US dollar from being worth 35,000 Iranian riyal in March to reaching more than 190,000 Iranian riyal in September.

The decline in foreign investment initially affected the oil and petrochemical industries and then began to affect other sectors, eventually reaching the level of small businesses and households.

The International Monetary Fund has changed its expectation about Iran, announcing an economic growth of 1.47 percent for this year, which means expecting a 3.6 percent drop next year.

That leads to an expected decline in the per capita income in Iran from $5521 to $4052 in less than two years.