Analysts: Sanctions Relief Package Too Small to Prove a Boon to Iranian Economy

WASHINGTON – An Iran expert said the interim agreement on the country’s nuclear program will bring limited relief to Iran and will not necessarily ease the regime’s existential challenge.

Speaking at a panel of Iran experts at the Wilson Center in Washington, D.C., Suzanne Maloney, senior fellow for foreign policy at the Brookings Institution, said she was stunned that the Iranians were willing to accept such a “relatively paltry amount” in terms of funds and the facilitation of new business as part of the Geneva agreement.

“The administration is quite correct when they’ve been describing consistently that the package that was offered in Geneva was a modest one,” she said.

Under the proposal offered in Geneva, Iran will be allowed to access $4.2 billion of its own money held in bank accounts outside of Iran over the next six months. Other sanctions will also be lifted to allow Iran to engage in petrochemical exports, imports for its automobile industry, and gold trade for a period of six months.

She said the relief package would prove not to be a “shot in the arm” to the Iranian economy at this point, but, in fact, it might worsen the predicament of the Iranian economy because of the threat of liquidity flowing into the country.

“Liquidity is not the major demand of Iran…the difficulty is with the domestic structure of the economy and with doing business abroad. The fact that Iranians can’t get a letter of credit and they can’t engage in simple trade remains pretty much the case,” Maloney said. “So whatever additional revenues may accrue to the government…and the Revolutionary Guard as a result of these new sanctions is paltry and would do little to affect the overall competitiveness of the economy until certain structural issues can be addressed.”

Maloney said the economic crisis Iran is facing today is “a louder and stronger echo” of economic crises that the Islamic Republic has faced previously throughout the 1980s and 1990s.

During the Iran-Iraq War, the price of oil dropped and the burdens of the war and social spending became too large and too difficult for the Islamic Republic to bear. In 1993-1994, the postwar boom in imports and consumption contributed to a debt crisis that again forced a retrenchment in government spending.

She said on each of these occasions Iran dealt with the crisis through a couple of different mechanisms, such as trying to establish austerity programs and implementing a series of political and social reforms.

“In each of these cases Iran managed to muddle through,” she said. “The difference between today and those periods…is the sanctions.”

Maloney said Iran had sought during the economic crises of the 1980s and 1990s to mitigate some of the effects of domestic economic pressures by seeking more foreign investment in the oil and gas sector.

Signs of this have started to appear in Iran, Maloney noted. Bijan Namdar Zanganeh, Iran’s oil minister, has begun beating the drum about the return of foreign capital to these sectors after the agreement was announced in late November.

Israeli officials have said the sanctions relief package could be worth as much as $40 billion to Tehran. Senior Obama administration officials have provided a more modest estimate, saying the deal would be worth $7 billion at the most.

“The numbers that have been thrown around by some…$20 or 40 billion…are totally illusory,” she said.