The Impact of U.S. Sanctions On Iran:Economic and Social Assessment

Mohammad Hafezi •Ali Mostashari • Roham Alvandi

Iranian Studies Group at MIT

June 2004

                                          

                                          

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Impact on Iranian Macro-economic Indicators

Source: World Bank (2003)

                                          

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Impact on General Economic Structure•Despite increasing privatization, the inability of foreign investors to invest in the Iranian private sector due to sanctions has undermined its growth, resulting in the continued dominance of the state owned industries in the economy.

•A significant percentage of public-sector economic activities are controlled by semi-public "revolutionary organizations" such as the Mostazafan Foundation, which are controlled by conservative elements Current market value of the Foundation's assets is about $4.4 billion. Funds for Hezbollah and Hamas are said to come from these sources.

Source: Law of Unintended Consequences: US Sanctions and Iran’s Hardliners, Mehrdad Valibeigi, January 2004

                                          

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Impact on Iranian Oil Industry The U.S. Iran Libya Sanctions Act (ILSA), first imposed in

1996, seeks to penalize any non-U.S. oil firm that invest more than $20 million in Iran.

Iran's oil production, which was 3.6 million barrels per day in 1997-98, fell to 3.4 million b/d in 2001-02 despite the tremendous importance the Iranian government put on increasing output, indicating the difficulties Iran has faced in updating its oil production facilities.

Iranian oil facilities are at least 30 years old, and production capacity had fallen by 1.5 million barrels a day in the past five years because of ageing facilities. Still, Iran had drawn $22 billion in buy-back ventures since 1997.

                                          

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Output Statistics from Iranian Oil Fields 2002-2003

Iranian oil statistics

 

2002 

2003 

Crude oil production (mbpd) 

3.49 

3.63 

Crude oil prices (Brent; $/b) 

24.50 

27.6 

Iranian Light-33 ($/b) 

18.90 

23.43 

Iranian Heavy-30 ($/b) 

22.9 

22.99 

OPEC quota history (mbpd) 

3.18 

3.59 

Source: EIU; Petroleum Economist

                                          

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Iran Impact on Natural Gas Industries

The sanctions prevent Iran from partnering with U.S. LNG plant manufacturers such as Bechtel Group Inc. of San Francisco, which has built 31 percent of the world's gas liquefaction capacity or Halliburton Co.'s Kellogg Brown & Root, which is constructing similar plants in Nigeria and Mexico.

``There has never been an LNG plant built without any U.S. component. With the sanctions, not even a 5-cent washer or bolt could come from the U.S.,'' said Ball of Gas Strategies. ``This is uncharted territory. It can be done, but nobody has had to do it before.''

This means higher end-prices for Natural Gas for Iran

                                          

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Iran Impact on Petrochemical Industries

Generally the impact of the sanctions on Iran’s state-owned petrochemical industries have been seen as negligible.

Iran's petrochemical sector is predicted to attract $12b of investment under the fourth five-year national plan which starts March 2005.

In the past five years, Iran has invested $11b in its petrochemical sector in a bid to diversify its industry. According to the figures released by the National Petrochemical Company, international financing in the sector totaled $7.2b between 1997 and 2002.

                                          

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Iran Impact on Aviation

There is a consensus that U.S. sanctions have damaged Iran's aviation industry.

Iran has failed to get four Airbus 330 planes because of U.S. opposition because some of the aircraft parts are U.S.-made.

Iran Air has announced that If the sanctions are lifted, Iran would immediately order Boeing airplanes.

Iran still has 15 operating U.S.-made Boeings in its fleet of about 80 passenger planes. Iran has also 28 Airbus (ABI.YY) planes, 11 Fokkers and about 25 leased Russian-made Topolov planes.

 

                                          

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Iran Impact on U.S. Trade

The burden of lost exports to Iran has fallen mainly on the wheat producers of midwestern states, aircraft manufacturers such as Boeing and McDonnell-Douglas, power generation companies such as General Electric and Westinghouse, and banks and insurance companies.

Before the 1979 revolution, the US was Iran's largest supplier of wheat to Iran, sending more than 1.8 million tons a year. In 2001, a year of drought, Iran became the largest wheat importer in the world by bringing in 7 million tons of wheat valued at over $1.5 billion.

                                          

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Year US Exports to Iran

US Imports

from Iran

Balance

2003 93.8 145 -51.22002 31.9 156.3 -124.42001 8 143.5 -135.52000 16.8 168.7 -151.91999 47.9 2.4 45.51995 277.4 0.2 277.21994 328.8 0.8 3281993 616.2 0.1 616.11992 747.5 0.7 746.81991 527.6 230.7 296.91990 162.5 6.8 155.71989 55.2 8.6 46.61988 80.5 9 71.51987 54 1,667.50 1,613.50

Source: US Census Bureau, 2003 

Impact on U.S. Trade

                                          

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Iran Impact on U.S. Energy Companies

According to Bloomberg analysts, Conoco is missing out on Azadegan's projected $100 billion in revenues.

The sanctions seem to be harming the investments of U.S. firms beyond Iran. ExxonMobil was unable to obtain the massive Kashagan oil project in the Caspian Sea because the sanctions prevented an Iranian export route, the most economically viable option.

Despite a renewal of the 1995 sanctions by President bush in March of 2003, several US oil firms have voiced their interest in bidding for new oil contracts in Iran

                                          

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Iran Impact on Iranian Military

Iran’s low-level conventional military purchases do not seem to have been affected by sanctions.

Iran’s WMD efforts seem to have been slowed by the sanctions, but currently it seems that Russia, India, China and North Korea have supplied Iran with its needs, both in terms of missiles and chemical, biological and nuclear materials that can be used for WMD purposes.

Control of Iranian dual-use imports is difficult to achieve through sanctions, and high profit margins have resulted in non-cooperation by China and Russia on deterring access to WMD by Iran.

Source: Cordesman, 2000, CSIS

                                          

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Iranian Military Purchases (1992-1997)

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1992 1993 1994 1995 1996 1997

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•The ILSA Sanctions went into effect in 1996, after which Iranian Arms purchases actually increased.

Source: Anthony Cordesman, CSIS, 2000