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Weapons of Mass Destruction (WMD)

Background Q&A: What Sanctions Mean for Iran's Economy

Council on Foreign Relations

Author: Lionel Beehner, Staff Writer
May 3, 2006

Introduction

As the UN Security Council debates options to deal with Tehran's nuclear program, experts say sanctions—provided they include Iran's oil and gas sectors—would have a damaging effect on Iran's already-battered economy. Despite escalating oil prices, Iran's oil-dependent economy remains hamstrung by high unemployment and high inflation. Economists say the government has failed to capitalize on its windfall of oil profits through its inability to scale back administrative controls, reform the bloated state-run sectors of its economy, and curb government spending on subsidies and its uranium-enrichment program, thus inviting future inflation. Others say Iran's nuclear posturing has scared off foreign and domestic investors.

What is the status of Iran’s economy?

Not good, experts say. Iran's unemployment level remains around 11 percent (Reuters says it could be as high as 25 percent). One out of every four Iranians lives in poverty, according to the New York Times. And double-digit inflation is expected to climb higher based on President Mahmoud Ahmadinejad's recent budget proposals to ratchet up spending on job-creation programs and nebulous charity groups. "Massive foundations that are philanthropic only in name monopolize key sectors of the economy, operating with little competition, regulation, or taxation," wrote CFR Senior Fellow Ray Takeyh and Kenneth Pollack of the Brookings Institution in the March/April 2005 issue of Foreign Affairs. Experts say Ahmadinejad's government continues to support these mullah-run groups.

Some 90 percent of Iran's population receives its income from the state. Private enterprise in Iran is restricted mostly to farming and food-services industries, experts say. Meanwhile, with one-third of its population below the age of fourteen, Iran's labor markets are becoming overstretched. An estimated million young Iranians look for jobs each year, while the economy produces less than half that many jobs, according to the Economist.


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Copyright 2006 by the Council on Foreign Relations. This material is republished on GlobalSecurity.org with specific permission from the cfr.org. Reprint and republication queries for this article should be directed to cfr.org.



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