What The End Of Sanctions Means For Iran

A woman celebrates the tentative Iran nuclear deal. — AFP/Getty Images
Apr 03, 2015 at 11:13 AM ET

After two years of complicated and contentious negotiations, Iran, the United States and five other international powers announced a tentative nuclear deal on Thursday. If finalized, the U.S. and others will lift severe sanctions imposed on Iran in exchange for its limiting its nuclear weapons program for the next 15 years.

The historic deal is expected to dramatically improve Iran’s economy—sanctions have hampered its growth for decades—but to get a better understanding of how the sanctions have handicapped the country and the impact their removal could have on the people of Iran, Vocativ spoke with an expert: Kenneth Katzman, a senior analyst at the U.S. congressional research service, specializing in the Middle East.

The interview has been condensed and edited for clarity.

Vocativ: What impact have the sanctions imposed by the U.S. and other countries had on Iran?

Katzman: It has been quite severe. They had a fairly significant recession as the sanctions really started to bite in 2012 and 2013. There has been a slight rebound since the interim nuclear agreement suspended some of the sanctions and they have been able to at least stop the bleeding any further but it hasn’t helped Iran get back to any real robust growth. A lot of businesses are still shuttered, a lot of debts and bank loans are going unpaid and there is a great deal of underemployment and unemployment.

There are a variety of sanctions—from regulations on banking to imports and exports. Are there any that you can point to as really triggering the economic hardship in Iran? 

I would say basically two things. One is that the sanctions dramatically cut Iran’s exportation of crude oil, very sharply, by about 60 percent. Then the sanctions have basically shut Iran out of the international financial systems. They can’t move money around the world and they can’t get financing to buy imports. They have well over a hundred billion dollars in hard currency reserves that are in various banks around the world but they can’t move that money back to Iran because of the sanctions. Those are the main crippling elements I would say.

How do the sanctions manifest in the daily lives of Iranians? Is it just in high unemployment rates and struggling businesses, or are they seeing the impact of the sanctions in another way?

Well, unemployment and underemployment is definitely affecting them deeply. As I said, there are a lot of factories shut down or maybe some of them didn’t shut down entirely but they are working reduced hours. You have a lot of Iranians who are showing up to work but they are either not getting paid or they are not really doing anything, and they show up to work and just basically don’t really produce anything anymore. A lot of people are going unpaid for long periods of time. Many people are getting paid three or four months late and they are not paid what they are owed. Prices have also gone up because the value of Iran’s currency declined so a lot of people cannot afford some things that they are used to buying. It has been quite harsh, quite harsh.

How do the sanctions placed on Iran compare to those placed on Cuba?

It’s on the same level. There were very extensive U.S. sanctions on Cuba but Cuba is not an oil exporter. Cuba is dependent on oil from Venezuela and other suppliers. So Cuba in many ways was hurt worse. Cuba has basically been in a time warp and hasn’t developed in many years. I would say that it is probably a little worse with Cuba because they didn’t have any oil but Iran has at least had some exports of oil to fall back on and some other products. Also, Cuba is an island whereas Iran has borders with neighboring countries so there is a lot of smuggling, informal trade and getting around the sanctions at the edges. Iran I think has been able to muddle through a bit easier than Cuba.

If the sanctions are lifted, how will it affect Iran, and how long do you think it will take for this impact to be seen?

I think you are going to see some improvement pretty quickly. Particularly if Iran is allowed to increase its oil exports again and if it is allowed to access the well of foreign currencies reserves around the world. You could, depending on the phasing—and we don’t know from the announcement what the sequencing is going to be in terms of time frames for various sanctions to be lifted—but the rebound could be pretty dramatic, pretty quickly.

What about the daily lives of Iranians, do you think it will take longer to see an impact there?

Well it always does. Let’s say a factory owner who makes cars is able to ratchet up again, it is going to take a while to get the parts, get the assembly lines set up again, so there will be a little bit of a lag but it could be quick that they will see a bit of an improvement. The value of the currency is going to go up right away, which will be good.