Iran’s economy will continue to struggle during Biden presidency
Some politicians, scholars and policy analysts believe Iran’s economy might rebound after Joe Biden moves into the White House in January. The argument goes that President-elect Biden will rejoin the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear deal, meaning funds will flow back into the treasury of the Iranian regime, just as they did in 2015.
However, Iran’s situation is more complicated now and, due to several critical factors, its economy is less likely to rebound to the high levels seen after the nuclear deal was first struck. After the JCPOA was reached between the P5+1 world powers and Tehran, the Iranian leaders enjoyed a free ride in the global financial system, not just because of the nuclear deal but also because they promised the major global financial institutions that they would strengthen the country’s anti-money laundering and anti-terrorism financing rules. Iran pledged to implement the Financial Action Task Force’s (FATF) 10 reforms in order to bring its national laws against money laundering and the financing of terrorism in line with global standards. As a result of that promise, financial restrictions were removed and the nuclear deal facilitated the flow of additional international revenues, foreign trade, business dealings, and financial capital.
The Iranian leaders’ promises to FATF and other major global financial institutions were a collection of words rather than action, with Iran having not acted on all of the 10 reforms. As the Iranian regime continued its funding for terror groups and money laundering, the Paris-based FATF, which monitors money laundering across the world, in 2018 gave Tehran a deadline to carry out the reforms it promised. Marshall Billingslea, the US assistant secretary for terrorist financing, who presided over the FATF at the time, warned Tehran: “We expect Iran to move swiftly to implement the commitments that it undertook at a high level so long ago. In line with that, we expect that it will have adopted all of these measures by February. If, by February 2019, Iran has not yet done so, then we will take further steps.” The director of communications at the International Monetary Fund, Gerry Rice, also urged Iran to strengthen its anti-money laundering and anti-terrorism financing rules by the February 2019 deadline.
It was not surprising that Iran did not halt its money laundering and terrorism financing. In February this year, the FATF’s patience with the Iranian leaders was over and the global watchdog placed Tehran on the terrorism financing blacklist, stating that, “given Iran’s failure to enact the Palermo and Terrorist Financing Conventions in line with the FATF Standards, the FATF fully lifts the suspension of counter-measures and calls on its members and urges all jurisdictions to apply effective counter-measures.”
Even if the Biden administration rejoins the nuclear deal, many companies and financial institutions will be reluctant to deal with Iran.
Dr. Majid Rafizadeh
It follows that, even if the Biden administration rejoins the nuclear deal, many companies and financial institutions will be reluctant to deal with Iran. That is why, when 15 countries, including Iranian ally China, this month signed one of the world’s largest free trade agreements, Tehran was not included. Even Iranian state-controlled newspaper Asr-e-Eghtesad acknowledged: “Due to Iran’s non-membership in reputable and powerful organizations such as Shanghai, Iran’s economy has benefited less from the benefits of globalization and international relations. This issue has made many foreign investors reluctant to enter the Iranian market.”
Another Iranian newspaper, Otagh-e-Iran, also pointed to the importance of the FATF in March. It wrote: “Failure to cooperate with the FATF will result in the isolation of the country in question. In the case of Iran, these consequences will be twofold. Because Iran’s economy is not in a normal situation. Unprecedented economic instability and the return of sanctions against Iran, along with financial isolation due to non-cooperation with the Financial Action Task Force, will bring a new shock to the country that the economic strength will not be tolerated.”
The second reason Iran’s economy will struggle to bounce back is its ongoing currency crisis. It is unrealistic to think that Iran’s currency, the rial, which is now trading now at about 250,000 to the dollar, will return to its 2015 value of 25,000 to the dollar. Historically, currencies do not see a 10-fold increase in valuation in just a few years.
More fundamentally, Iran’s currency crisis is not squarely related to the nuclear deal. The rial has been declining ever since the establishment of the regime in 1979 and it continued to fall even at the time of the nuclear agreement. In 1979, one US dollar was worth 70 rials; about 10 years later it was roughly equal to 800 rial; in the year 2000, it was worth about 7,000 rials; in 2010, the currency’s value declined to 20,000 rials to the dollar; and now it is hovering at about 250,000. This shows that Iran’s currency has lost almost 10 times its value every decade regardless of who is in the White House. The reasons for this staggering fall include the systemic mismanagement of the economy, financial corruption among officials and their connections, and the squandering of the nation’s wealth on supporting terror groups and proxies across the region rather than improving the economy and creating jobs.
This shows that the Iranian regime’s economy will continue to struggle even if Biden does rejoin the nuclear deal.
- Dr. Majid Rafizadeh is a Harvard-educated Iranian-American political scientist. Twitter: @Dr_Rafizadeh