Iran’s Uncertain Horizon: Economic Stagnation, Social Strife

Iran’s post-COVID economic recovery, boosted by the easing of U.S. pressure on Iran’s oil sales, is now showing signs of reverting to its pre-pandemic growth levels. Coupled with a myriad of economic and social challenges, particularly affecting the youth, this downturn promises a bleak outlook for the nation in the new Persian year.

The head of the Plan and Budget Organization has reported a decrease in Iran’s economic growth to 5.1 percent this autumn, marking a decline from 7.1 percent in the summer and 7.9 percent in the spring. This trend indicates a gradual slowdown in Iran’s economy, which suffers from Dutch disease with its heavy dependence on oil sales and scant investment. Despite the GDP figures from the Statistical Center of Iran showing a slight year-over-year increase, economists highlight that the growth observed in the past two years primarily stems from the service sector’s recovery post-pandemic and a temporary easing of oil sanctions due to the Russia-Ukraine conflict. Looking ahead to the Persian year starting 21 March, in an optimistic scenario without further sanctions tightening, Iran’s economic growth is projected at something between 2 and 2.5 percent, modestly below the long-term average of 3 to 3.5 percent. This projection is largely attributed to the agriculture sector’s negative growth, driven by water scarcity and insufficient investment. In a less favorable scenario, with increased sanctions on the oil sector, Iran could face negative economic growth in the upcoming year and beyond, reflecting the oil sector’s sensitivity to sanctions and volatile oil prices.

Iran’s economy, already deemed a high-risk environment due to sanctions, faces heightened risks and uncertainties across three major areas: FOREX rate shocks, inflation rates of 35–40 percent, and a negative real interest rate, where inflation surpasses the nominal interest rate. Observers characterize these sectors as deliberately targeted by sanctions, exploiting pre-existing vulnerabilities to maximize their impact. For instance, the FOREX rate, previously stabilized through harmful policies affecting trade and production, experienced a sharp increase during periods of regional political and military tension. Although moderate adjustments helped somewhat, concerns persist about the efficacy of these policies in the coming year. Given the current and forecasted budget deficits, with little hope for sanctions removal, economists are also pessimistic about lowering the inflation rate. The debate over interest rates is notably complex, involving numerous stakeholders and a web of conflicting interests. On one side, some contend that elevated interest rates hinder investment and curtail production. On the other, there are arguments that the disparity between the nominal interest rate and the inflation rate not only stifles production but also facilitates profiteering activities. Institutionalist economist Hosein Raghfar criticizes the profiteering from inflation by influential individuals and entities within the establishment, which contributes to widespread public discontent.

Meanwhile, the nation is increasingly grappling with a range of social challenges, particularly affecting its youth, while legislators appear largely indifferent or powerless to address these issues. The ministry of sport and youth has identified ten critical challenges confronting young Iranians, with the foremost being the lack of unity and the absence of a robust entity dedicated to tackling these issues. This is closely followed by unemployment, physical and mental health concerns, and societal problems such as drug addiction, divorce, delayed marriages, public mistrust, identity crises, and generational divides. Sociologists emphasize that the authorities’ disregard for public demands and the escalating injustices in society are among the primary challenges exacerbating these issues, often leading to violent societal responses. According to sociologist Taqi Azad-Armaki, this trend threatens to undermine the political system if it continues to ignore or inadequately address these concerns. In contrast, it will bolster an unofficial social system tasked with navigating this violence, until society potentially decides to take matters into its own hands, mirroring the revolutionary fervor of 1979.


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