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No
Prosperity for Iran after Nuclear Deal
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Originally published under the title "Fleeting Chimera:
No Prosperity for Iran after Nuclear Deal."
As a matter of arithmetic, Iran is flat broke at the prevailing price
of hydrocarbons. Under the P5+1 nuclear deal, Iran will recoup somewhere
between $55 and $150 billion of frozen assets, depending on whether one
believes the Secretary of the US Treasury or one's own eyes. The windfall
is barely enough to tide Iran over for the next two years.
P5+1 nuclear diplomacy with Iran went forward on the premise that Iran
would trade its strategic ambitions in the region for economic
prosperity. The trouble is that prosperity is not a realistic outcome for
Iran, which has nothing to gain by abandoning its strategic adventures.
Iran now exports 1.2 million barrels a day of oil. At $30 a barrel,
that's $14 billion year (and perhaps a bit more, given that some Iranian
light crude goes at a higher price). Iran also sold (as of 2014) about
9.6 billion cubic meters of natural gas, which might bring in another $4
billion at today's market prices.
As of 2014, the Iranian government spent $63 billion a year, according
to western estimates. No data is available for 2015, and the Iran Central
Bank doesn't publish data past mid-2013. That brought in a bit over $40
billion a year (not counting gas exports). Iran has a $40 billion hole to
fill. Unfrozen assets will tide the country over for a couple of years,
but won't solve its problems. This year Iran plans to spend $89
billion, the government announced Dec. 22.
Iran's windfall from the nuclear
agreement will barely tide it over for the next two years.
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Iran's government plans to raise taxes across
the board, supposedly to decrease dependency on oil in the government
budget. But tax revenues for the fiscal year starting March 2016 are
estimated at only $28 billion. Even under the assumption that Iran can
sell $22 billion worth of oil, the budget gap will rise to about $40
billion, or about 10% of GDP. In nominal dollar terms, Iran's GDP shrank
from $577 billion to $415 billion in 2014, and almost certainly shrank
further in 2015.
None of the big projects now under discussion will move the needle far
from the empty mark. The long-discussed Iran-Pakistan pipeline might
produce revenues of about $3.5 billion a year under ideal conditions, and
Iran would pocket a fraction of that.
In December, Iran said that it hoped to increase oil production by
500,000 barrels, earning $22 billion a year, a 50% increase from its
present rate. But on Jan. 16, Iran's oil minister Bijan Zaganeh told an
incredulous CNN interviewer that it would boost oil output by 1.6 million
barrels a day by the end of 2016. Most experts believe that Iran can't
pump that much oil if it wanted to, and if it did, it couldn't sell it if
it tried.
There are a lot of countries that need to sell more oil, notably
Russia. Russia's oil exports to China now exceed Saudi Arabia's. China
has good reasons to buy more from Russia, given the convergence of
Russian and Chinese strategic objectives in Syria and elsewhere. China
clearly wants to improve relations with Iran. President Xi Jinping's Jan.
23 visit to Tehran featured an agreement to increase trade by $600
billion over the next ten years. The question is not whether China wants
to trade with Iran, but whether Iran can pay for it. Like Russia, China fears
the expansion of radical Sunni Islam in the region, with the potential to
spill over into China's Western province of Xinjiang. There are no Shia
Muslims in Russia or China, and Iran's sponsorship of Shia jihadists is
of little concern to the two Asian powers.
It seems unlikely that China would shift oil purchases away from
Russia to Iran in order to help the Tehran regime. China will invest in
Iranian extraction, petrochemicals, and infrastructure, but even the most
optimistic projections won't do much for Iran's finances.
Unless oil prices rise sharply, Iran's windfall from the P5+1 deal
will cover two years' worth of deficits, with little left over for
urgently-needed maintenance of existing oil and gas capacity. That may
explain why the Tehran regime has played down the importance of the
nuclear agreement with the West. The end of sanctions is unlikely to
yield much improvement in ordinary Iranians' conditions of live, and the
government did not want to raise expectations.
Iran's economy is bad stressed. The official unemployment rate is 11%,
but only 37% of the population is considered economically active, an
extremely low ratio given the concentration of Iran's population in
working-age brackets. Some social indicators are alarming. The number of
marriages has
fallen by 20% since 2012. "In Iran, the customary marriage age
range is 20-34 for men and 15-29 for women...46% of men and 48% of women
in those age ranges remain unmarried," according to the national
statistics agency. So-called "white marriage," or cohabitation
out of wedlock, is so common and controversial that the regime
banned a women's magazine last year for reporting on it.
The end-of-sanctions bonanza won't
lift Iran out of the economic doldrums.
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Economic problems explain part of the falling marriage rate, but the
corrosion of traditional values also is a factor. Iranian researchers
estimated late in 2015 that one out of eight Iranian women was infected
by chlamydia, a common venereal disease that frequently causes
infertility. According to the Center for Disease Control, one out of 170
American women carry the infection. The combination of falling marriage
rates and epidemic rates of venereal infection point to a society that is
losing cohesion. Iran's theocratic leaders are too prissy to gaze at statues
of nudes in Italy, but they are presiding over a disintegration of
family values unlike anything in the world.
That is especially disappointing to the regime, which has tried to
raise Iran's fertility rate from just 1.6 children per female by offering
incentives to prospective parents and by reducing availability of
contraceptives. If anything, Iran's demographic spiral seems likely to
worsen. Iran's population is already aging faster than any in the world,
and the young generation's rejection of family life points to
catastrophic economic problems twenty years from now.
From a financial vantage point, Iran faces something of a Red Queen
effect: it needs more money from abroad merely in order to stay in place,
that is, to maintain its existing energy infrastructure. The
end-of-sanctions bonanza saves Iran from an economic crash after the oil
price collapse, but it doesn't lift the country out of the doldrums.
David P. Goldman is a senior
fellow at the London Center for Policy Research and the Wax Family Fellow
at the Middle East Forum.
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