The Longest Iranian Economic Recession

The IMF has announced that Iran's economic growth will fall to 0% in 2011. How do you see this economic downturn, given the denial by Iran's Central Bank?

SL: The Central Bank has not rejected this estimation, but it has stated that these forecasts are pessimistic. If what was announced three years ago was true (and the Central Bank also confirmed it then), then this claim of the IMF is also true. I had also predicted that Iran's economic growth in 2011 would be something between 0 and 1 percent. This pessimism, which the Central Bank refers to, might be because the IMF has not stated that Iran's economic growth could be between 0 and 1%.

As evidence shows, the housing sector will experience initial changes and based on that we will experience a partial boom in the housing sector. However, other economic sectors will be stagnant. A very small growth will appear in the industry, but will be compensated by a decrease in growth or a negative growth. The service sector will experience no growth, if not a negative one; the oil sector also seems it will experience negative growth as well.

Therefore, it appears that this economic recession, which has afflicted the Iranian economy for the fourth year, will be the longest recession ever in this country. In other words, this recession is like the 1337-1341 recession.

IRD: Can we attribute this recession to the developments in the region?

SL: No, we cannot attribute it to the regional developments because Iran’s economic ties with the countries in this region are insubstantial. In other words, besides Iraq and Afghanistan- which are the two main export destinations for Iran- and also the UAE- which acts as a financial mediator and re-exports goods to Iran- we have no other significant economic ties with the countries in this region.

Therefore, since no specific change has occurred in these three countries, the developments in the region will have no negative impact on Iran’s economy. On the contrary, I believe that these developments are in favor of Iran from different perspectives.

The most important benefit of these developments for Iran is the increase in oil prices, because oil price has had a significant rise due to the changes in the Middle East. However, the main reason behind the rise in oil is the economic growth of Western countries, China and India. Meaning that the rise in oil price is first due to global economic growth and then the depreciation of the dollar against the Euro and other valid currencies. Another unstable and temporary factor that increases oil prices is the developments in the Middle East.

Every one-dollar increase in oil price adds $800 million dollars annually to Iran’s revenue. In other words, if the developments in Libya and Saudi Arabia and the concerns over other countries in the region continue and result in a 5 dollar increase in 110 or 115 dollar a barrel oil, Iran will gain about 3.5 to 4 billion dollars from oil in one year.

Therefore, I believe that the developments in the region not only did not harm Iran, they have been to its benefit. In addition the developments in the Middle East have been to Iran’s benefit from another perspective as well, which is not economic, but rather political. These developments moved the world’s attention away from Iran’s nuclear issue and removed Iran from under the spotlight. In other words, they have prevented the West from turning Iran into the region’s main conflict, and further pressuring the country including in military terms.

IRD: What are the impacts of these developments on the economies of these countries themselves?

SL: In general, we can say that these developments have had a negative impact on the economies of these countries. For example Egypt, which had experienced a cycle of economic growth, will face a cycle of recession. It seems that Egyptians, who were reliant on their tourism industry, can no more expect a 5 to 6 % economic growth after 2011. Until a stable political and economic situation is established in Egypt, we cannot expect an economic boom in there. Other countries follow the same rule as well.

These developments in Tunisia, like Egypt, had a negative impact on the economy of that country. They also had negative effects on the Syrian economy, which was experiencing good economic growth in the past few years.

Libya will greatly suffer from this recession. Even though the West has tried to not harm the country’s infrastructure, we can say that the country’s oil export industry was seriously damaged and it will face a negative economic growth.

Although the economic growth of Saudi Arabia, Kuwait, and the UAE will increase due to the rise in oil prices, generally we should be in a state of uncertainty with regard to the future of these countries, which will experience a decrease in their economic growth. However, these developments will not leave similar effects in all countries; in some they will be more severe, and in others less.

IRD: As you mentioned, these developments have caused an increase in oil prices. To what extent is this increase related to the developments, or is it a stable increase? Were the developments in Libya among the most influential ones on oil prices?

SL: I do not think that Libya can be a major challenge in the global oil market, since it only supplies 2% of the global oil supply and 0.7% of the world’s energy. On the other hand, I believe that the main stable factors in this rise in price were the ones I referred to earlier; the first being world economic growth, which is estimated to be something between 4 to 5 percent, as compared to the negative 4 to 5 percent in 2009. In other words, the world economy had a 5% positive growth. 

The other factor being the fluctuations of currencies compared to other valid currencies. Just during the past three weeks, the growth of the Euro against the dollar has been more than 10%. If we add this to the price of oil, we will see that about 10 to 15 dollars of this increase in oil prices is due to the increase in the value of the Euro.

Therefore, we must deduct $11 from the current price of oil, because it has compensated for the dollar weakness against to the Euro. The remaining increase is due to world economic growth, and to a very small extent to the developments in Saudi Arabia and Libya.