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Vivek Y. Kelkar's avatar

A Spring 2024 World Bank report has pointed out that the Iranian economy is in bad shape. It points out:

1. "In 2023-24, only 73 percent of budgeted revenues are estimated to have been collected, primarily since only 55 percent of the planned oil revenues are estimated to have materialized." (The Iranian financial year is from March 21 to March 20. Other sources say that Iranian oil and gas fields are in terrible shape. They need big investment to upgrade and refurbish them, but there's no investment coming in. Even though Iran ranks among the top countries with hydrocarbon reserves, esp. natural gas, it's importing gas from Russia and Turkmenistan and it's had payment problems with Turkmenistan of late. Oil and gas contribute to nearly 50 percent of Iran's GDP.)

2. "GDP growth is forecast to moderate to an annual average of 2.8 percent during 2024-25 to 2026-27."

3. "The growing concentration of trade with limited trading partners such as China, exposes the economy to fluctuations in these partners’ economic prospects." (Other sources point out that nearyl 90 percent of Iranian oil is bought by China.)

4. World Bank scenario simulations indicate "an expansion of the conflict in the Middle East, that would directly involve Iran, suggest it could lead to a 7 percent GDP contraction with significant impact on fiscal and external balances, even if the shock is limited in scope and restricted to 2024-25".

5. Sources also indicate considerable unrest over economic issues like inflation (now at around 30 percent), frequent unpaid wages in the oil sector, unpaid pensions, which now can't cope with the inflation, unfinished housing projects, etc.. There have been protests across the country from the oil-dominated southwest to central Iran, and even in Tehran where pensioners protested in August outside the oil ministry.

Investment from Russia in 2023 was just $2.76 billion, while direct investment from China was just $131 million. China has promised much but delivered little real investment. Beijing has to balance between Iran and the other GCC states like Saudi Arabia and the UAE where the geo-economic stakes are way bigger. Besides China, the other big trading partners are some of the Central Asian states and the OIC, and the last two can't move the trade earnings needle enough to boost the economy. They're also constrained by US sanctions.

The fact is the Iranian economy is in no shape to withstand a war. But one must also note that an all out war could destabilize the global economy. Oil and gas from Qatar, Oman, Saudi Arabia, the UAE could be severely affected; oil prices, which are declining at the moment, could rise again. Trade through the Gulf of Oman could be hit, unless the US secures it, which it well might to strangle Iran. Far too many balls in the air, right now.

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Steve Fleischer's avatar

Great column.

One quibble:

"...Biden is taking this threat extremely seriously..."

Do you really think that Biden is capable of taking anything (except for ice cream) seriously?

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