U.S.– and E.U. – led sanctions on Iran’s oil and gas industries have hit the country hard: oil exports fell 39% in 2012 to their the lowest levels since 1986, according to the U.S. Energy Information Administration. The sanctions were first imposed in 2011 to pressure Tehran to give up its nuclear program, and tightened last year with an agreement not to purchase Iranian oil or extend insurance coverage for tankers carrying Iranian crude. That took a commensurate bite out of Iran’s estimated net oil export revenue last year, too. It fell to $69 billion from 2011’s $95 billion.
Those numbers stand in sharp contrast to what Iran has to say about the effect of the sanctions. Oil Minister Rostam Qasemi was recently quoted by the Tehran Times as saying Iran needed even more capacity to ship its oil exports than it did before sanctions. He did not back this statement with evidence but stressed that Iran has other customers to thank for having “maintained our presence in the market.”
Those would include Japan and North Korea. In the first case, its crude imports from Iran rose 16% in February year-on-year, reaching the highest level since March, 2012. Meanwhile, the oil ministry announced last week, that Iran plans to export to North Korea.
It no longer encompass India. In January, India accounted for a quarter of Iran’s oil exports even though Indian refiners had already cut back on their imports by more than a fifth in the previous 10 months. Recently India said it would stop importing oil from Iran’s refineries as well.
Qasemi also said recently that Iran plans to invest $30 billion in its petroleum industry this year, up from $25 billion last year, as a way to prove that sanctions aren’t that damaging. Yet Shamseddin Hosseini, Iran’s finance minister, acknowledges that international sanctions have effected Iran’s economy. They’ve pushed inflation above 30%, up from an official rate of 21% a year ago, he said during a visit to the U.S. to attend the IMF/World Bank Spring meeting. However,”I don’t believe that such sanctions have crippled us”, he told Christiane Amanpour.
They have knocked the legs from under the country’s currency, though. The rial has lost 80% of its value against the U.S. dollar over the past two years. “One important lesson we’ve learned from the sanctions: We have to use all kinds of foreign exchange. We don’t depend on euros or dollars,” he said in an interview with the Wall Street Journal. Hosseini says the country’s foreign reserves remain above $100 billion.
Iran has seen imported goods prices increase considerably. The government continues to encourage domestic producers to increase the output of local products and food, creating an emerging barter market.
In 2012, the country imported $57 billion in goods and exported $34 billion in non-oil products. Non-oil exports covered 60% of last year’s import bill, compared to 24% in 2002 and 14% in 1992. “Iranian merchants scrambling to become exporters portend a stronger civil society – one that might someday convince Tehran to abandon its isolationist policies,” the Washington Institute said in a recent policy analysis, Iran Beyond Oil.
With the economy barely growing and unemployment officially 11.2% and unofficially at least twice that level, President Mahmoud Ahmadinejad’s economic policies are deeply unpopular with many Iranians. He is planning more economic reforms, including reducing energy subsidies. (Read more: End energy subsidies, IMF says.) But with presidential elections scheduled for June, nothing is expected to happen before then, leaving the economy being slowly squeezed more and more.