On Wednesday May 8, the same day that Iranian President Hassan Rouhani announced that Iran would no longer comply with two provisions of the nuclear agreement — officially known as the Joint Comprehensive Plan of Action (JCPOA) — US President Donald Trump issued an executive order “to impose sanctions with respect to Iran’s iron, steel, aluminum, and copper sectors, the regime’s largest non-petroleum-related sources of export revenue.”
According to the executive order, the new sanctions target “Iran’s revenue from the export of industrial metals — 10 percent of its export economy — and puts other nations on notice that allowing Iranian steel and other metals into [their] ports will no longer be tolerated.”
But do iron, steel and aluminum exports really play such an important role in the Iranian economy?
How Much is 10 Percent of Iranian Exports?
According to available estimates, last year Iran’s total earnings through exports was less than $100 billion. It is reported that oil makes up around $50 billion of this total [Persian link]. And according to the Iranian Ministry of Industry, Mine and Trade’s Promotion Organization, the total volume of Iran’s non-petroleum exports amounted to $44.3 billion [Persian PDF]. These two figures added together equal an amount close to $95 billion, and 10 percent of this is $9.5 billion.
How Much Metal Does Iran Export?
The Ministry of Industry’s report, entitled “Iran’s Foreign Trade Performance,” classifies the statistics for non-petroleum exports. According to the chart, Iran exported around $3.9 billion worth of “cast iron, iron and steel” and close to $700 million worth of “copper and copper products.” Among the major categories of non-petroleum exports, there is no mention of aluminum. Added together, the total export value for metals is no more than $5 billion. Metals make up 11 percent of non-petroleum exports, or around five percent of Iran’s total earnings from exports.
The latest statistics from the Ministry of Industry paints a similar picture. According to the ministry’s latest report published in early 2019 [Persian PDF], the total export volume of “basic metals” for the first 10 months of the Iranian calendar year 1397 (March 21, 2018 to January 20, 2019) was around $4.3 billion, close to the estimate presented in the report.
So the US government’s estimate that iron, copper and aluminum constitute 10 percent of Iran’s exports is somewhat of an exaggeration — almost twice the amount presented by the latest statistics for the first 10 months of the Iranian year 1397.
Of course, these are figures from last year when, despite American sanctions, Iran succeeded in maintaining exports of crude oil at a level higher than 1.2 million barrels a day [Persian link]. But, given the current situation, it is realistic to conclude that Iranian oil exports will fall sharply due to sanctions, and in that case, the estimate that metals comprise 10 percent of Iran’s export revenues does not seem so exaggerated.
How Much Does Iran Count on the Export of Metals?
Comparing the statistics for recent years shows an increase in the foreign currency revenue from metal exports. According to the Ministry of Industry’s report, in the first 10 months of 1397 (March 21, 2018 to January 20, 2019), the revenue generated by the export of metals increased by more than 17 percent compared to the previous year. However, the increase in volume was no more than one percent and it appears that the increase in earnings is due to the increase in prices in world markets.
The statistics for the Iranian year 1396 (March 21, 2017 to March 20, 2018) show that, compared to the year 1395, the volume of metal exports increased considerably — close to 50 percent in volume and 30 percent in value in one year.
These numbers clearly indicate that the government has planned for an increase in the export of basic metals, and that it has relied on this increase. But it also indicates that any disruption to this plan could be detrimental to Iran’s economy.
How Will Sanctions on Metal Affect the Iranian Economy?
It would be simplistic to think that sanctions on metal exports would mean that Iran is only going to lose around $5 billion in its proceeds from exports. In the context of Iran’s overall foreign trade, $5 billion is not a huge amount and, especially when compared to the loss of revenue due to harsh US sanctions on oil exports. But sanctions will not only have an impact on the actual export of iron, copper and aluminum, it will also disrupt the production process and negatively impact the domestic market.
Most of the iron, copper and steel produced in Iran is for domestic consumption. According to the Ministry of Industry’s report, in the first 10 months of 1397 (March 21, 2018 to January 20, 2019), Iran produced more than 65 million tons of raw steel, steel products, copper rods, aluminum bars, alumina and iron ore. Even if iron ore is taken out of the equation, the total volume of manufactured metal is over 25 million tons.
The volume of exports of these metals is less than eight million tons, meaning that somewhere around 12 percent is exported and the rest is consumed domestically. A 12 percent reduction in production can deepen the recession in Iran’s metal industry.
According the Statistical Center of Iran, in the first nine months of 1397, the Iranian economy shrank by around four percent and the industrial sector by around eight percent [Persian PDF]. With such a recession, it is natural to expect that domestic consumption and demand would drop, and neither general consumers nor manufacturers have the purchasing power to compensate for the losses due to sanctions. This in itself will have a domino effect on the metal industry, as well as on other economic sectors.
All in all, the extension of American sanctions to the metal industry will deepen recession in both the industrial sector and the overall Iranian economy. This recession will also reduce government revenues and, the consequences of which will plague all parts of the Iranian economy — and the lives of all Iranians.
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