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What Does The Deal Mean for Iran's Economy?

April 8, 2015
Behrouz Mina
5 min read
Nuclear deal negotiators stand behind their flags.
Nuclear deal negotiators stand behind their flags.

After a week of intense negotiations, on April 2, Iran and the P5+1 countries reached what could be an historic nuclear deal. Iran and the United States, the United Kingdom, China, Russia, and France plus Germany hammered out a solid framework that may dramatically change the face of international diplomacy and global economic partnerships. Though it is not without its critics, the deal met with much excitement around the world and within Iran — including hundreds of Iranians, who took to the streets in celebration. For many, it was regarded as a major victory, a sign of hope for the future of Iran’s economy and the country’s standard of living.

Secretary of State John Kerry, Iran’s foreign minister Mohammad Javad Zarif and Fredrica Mogherini, the European Union high representative, vowed to start working on the draft of the final agreement immediately. Foreign Minister Zarif told Iranian media that all United National Security Council resolutions and sanctions will be voided once the deal, known as the Joint Comprehensive Plan of Action, is implemented. But what immediate economic impact will the Lausanne Announcement actually represent?

Crippled by the effects of US-imposed sanctions for decades, and from EU sanctions for the past few years, Iran’s economy is in severe recession and highly volatile. Over the years, sanctions have severed banking links and disrupted the flow of capital and trade. Oil and aviation industries have been forced to acquire essential parts via the black market, paying hugely inflated prices to do so.

For Iran’s business community, the burning question is: when will sanctions be lifted? This is no easy question to answer.

The economic impact of any deal will be determined by the timing of relief – this, however, remains ambiguous. When discussing the outcome of the Lausanne talks, media commentators and experts in Iran have used words like “simultaneously” and “immediately”; sanctions relief, they reported, is directly linked to implementation of the Joint Comprehensive Plan of Action. But, in reality, the only certainty is that all parties have until June 30 to draft and agree on the plan of action. How long it will take to implement and verify the implementation of the plan is less clear.

The Lausanne Announcement is very clear on preconditions for sanctions relief, as EU High Representative Mogherini told reporters on April 2. "The European Union will terminate the implementation of all nuclear-related economic and financial sanctions and the United States will cease the application of all nuclear-related secondary economic and financial sanctions,” she said. At the same time, Iran is expected to honor its key commitments, to be verified by the International Atomic Energy Agency (IAEA).

The State Department is insistent that sanctions relief will only happen after the IAEA verifies that Iran has carried out its commitments regarding possible military dimensions, nuclear activities at the Fordow and Arak sites, and transparency requirements, as well as its promise to reduce 98 percent of the country’s enriched stockpile.

However one looks at it, this is not immediate sanctions relief. The best-case scenario is that it will take between one and three years for this relief to have an impact on Iran’s struggling economy. It is highly likely that Iran will not see relief throughout 2015, apart from what was already agreed upon during November 2013’s Geneva Joint Plan of Action.

So what will be the immediate economic impact of the Lausanne Announcement? For now, what is most important is that internationally imposed sanctions will not be intensified, and the United States will not impose new sanctions on Iran and its trading partners. Markets across Iran will also be boosted by the news that sanctions relief is most likely on its way, and that overall economic conditions will not deteriorate or be threatened by further sanctions, even though the effects will not be immediately felt. This knowledge and increased ability to plan and hope for the future will bring confidence, encouraging further investment and increasing economic activities, which will in turn increase the gross domestic production to a modest degree. Iranian businesses will be in a position to embark on new enterprises. In this climate, personal initiatives and individual risk-taking will be the driving force.

In Iran, there is widespread hope that the Lausanne Announcement will encourage countries to be less vigorous in their application of sanctions. Countries that are already actively trading with Iran or those that hope to enter a market boasting a population of 80 million people are likely to relax restrictions. They might even offer unilateral sanctions relief in their own areas of business, and benefit from further potential opportunities in Iran. Iranian commercial outfits and banks could well find third country venues more hospitable toward hosting business than before. In the coming months, the relaxation of sanctions will have the most significant impact on Iran’s economy — not the actual relief or lifting of sanctions.

Talks are far from over, and it is hard to believe that a Joint Comprehensive Plan of Action will be easily drafted. Debates on how the economy will fare — as well as its impact on ordinary Iranians — will continue. It is still possible that IAEA inspections will not go forward as planned. It is also possible that the IAEA will not issue the verification required for sanctions relief. So far, Iran has followed the Geneva Joint Plan of Action faithfully, and it is relatively safe to assume it will continue to collaborate with the IAEA. But nothing is certain. For the time being, there is hope that negotiations in Lausanne mark the beginning of the end of a dark era for Iran’s economy. The future is more promising than ever, but anything more than that is pure speculation. At this moment in time, Iran’s economists — and its people — can breathe a little easier after years of suffocation.  There is light at the end of the tunnel. 


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