Saturday 19 November 2016

Despite the Lifting of Sanctions, Why Iran's Economy Has Plunged Into Recession?

A year after signing the nuclear deal, a transparent atmosphere is created to identify the radical economic problems of Iran. Additionally, the other significant problems such as export restrictions and the prohibition of the international bank transfer (swift) have been resolved. In other words, the question is why the recession is becoming deeper while the sanctions are lifted and the international transaction with Iran has been opened. Undoubtedly, the significant decrease in the oil price has reduced the government revenue and it has also placed pressure on Iran's economy over the past year. By looking thoroughly, other fundamental problems are identified as well which stem from the Iranian government's policy. These problems lay into two categories:

1. Internal issues

On 7th June, the Ministry of Foreign Affairs in Iran sent an official report to parliament regarding the results of the nuclear deal as well as its implementation. In the report, it is explicitly stated that the biggest problem in the country is the lack of security and stability. The report reads:"the biggest challenges and problems that Iran's Deal face is that an atmosphere of confidence and assurance will be created for the foreign parties. The confidence in the interaction and the atmosphere is the most important factor in calculating the costs and benefits of the trading enterprises that are dealing with Iran.

If a trading enterprise figures out that the market is not a secure atmosphere to invest, commerce or for any other economic interactions, undoubtedly neither does it make an investment nor technology. It does not also engage in big investment projects. In the turbulent situation of Middle East, it is natural to have doubts over the commitment of all parties to Iran's Deal thus many trading enterprises react hesitantly."

The lack of security and stability, the lack of confident and assuring atmosphere, the chaotic and capital flight space and the fear of interaction with Iran are the reasons for failure in attracting the foreign investment as well as cooperating with the international companies. The problems arise from political, legal and economic aspects.

The following are some of the factors that are clarified:

A. The domination of the Guardianship of the Islamic Jurist

The economic consulting firm "Control Risks" published a report stating that despite the implementation of the nuclear deal between Iran and world powers, the Iranian markets remain risky. There is a chance that the sanctions will be imposed again and there is not an opaque structure in case of ownership. In addition to that, the governance institutions unpredictably meddle in the economy as well. These factors are the risks to the economy, as the report reads.

Regarding the engagement of governance institutions, undoubtedly the most significant factors are the Guardianship of the Islamic Jurist, its subdivisions such as IRGC, police, Basij, The foundation called ‘Headquarter of Execution of Imam Khomeini's Order’(EIKO),Mostzafan Foundation and Astan Quds Razavi. These intuitions have seized the most of Iran's economy, particularly manufacturing firms, commercial banks, monetary institutions and economic markets. The domineering governance of them is so vast that they finance in military operations in Syria, Iraq, Lebanon and they bear the enormous cost of security controls in Iran.

The former head of the branch of "Total" in Iran and the current deputy, Pierre Fabiani in an association of oil and gas companies, known as GEP-AFTP stated:"I would recommend to all companies to investigate thoroughly if the potential Iranian partners are affiliated with the IRGC or not and if so, they must not establish any partnership with them."

Le Monde Newspaper quoted from its envoy from Iran that it has investigated the issue based on the objective observations and it concludes:"there are no other companies in Iran except those which are controlled by the Iranian Revolutionary Guards and Religious foundations."


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