Country Profile: Iran
• Iran has an Economic Complexity Index (ECI) of -0.158, making it the 66th most complex country. Its economic freedom score is 51.1, making its economy the 155th freest in the 2019 Index.
• Iran’s main imports are machinery, cereals, iron and steel, and chemicals. Major import partners are the UAE, China, South Korea, Turkey and Germany.
• Iran is a founding member of the Economic Cooperation Organisation (ECO) and Organisation of the Petroleum Exporting Countries (OPEC).
• Sanctions previously imposed by the UN, US and EU in an attempt to force Iran to halt uranium enrichment crippled its economy, costing the country more than US$ 160 billion in oil revenue from 2012 to 2016 alone.
Iran is located in Western Asia sharing border with the Caspian Sea, Oman and Persian Gulf. A unique feature of Iran’s economy is the existence of large religious foundations called Bonyad, whose collective budgets represent more than 30% of central government expenditure. In recent years, the country’s economy has declined as oil exports fell significantly following international sanctions imposed in the context of nuclear development. Iran has the third largest proven gas and oil reserves in the world.
Oil and natural gas are Iran’s most important exports along with chemicals, plastics and fruits. Iran majorly exports to Taiwan, China, Turkey, South Korea and India. Iran’s main imports are machinery, cereals, iron and steel, and chemicals and major import partners are the UAE, China, South Korea, Turkey and Germany. Iran is a founding member of the Economic Cooperation Organisation (ECO) and Organization of the Petroleum Exporting Countries (OPEC).
|Iran’s import basket||Iran’s export basket|
|S No||Product description||Values in US$ billion, in 2018||S No||Product description||Values in US$ billion, in 2018|
|1||Total products imported by Iran||41.10||1||Total products exported by Iran||66.62|
|2||Machinery and mechanical appliances||7.76||2||Petroleum and crude oil & mineral fuels||53.24|
|3||Automobiles||4.04||3||Plastics and plastic products||3.30|
|4||Electronic products||3.69||4||Organic chemicals||2.05|
|5||Cereals||3.75||5||Ores, slag and ash||1.77|
|6||Optical, medical and surgical instruments||1.50||6||Iron and steel||1.30|
|7||Articles of iron and steel||1.48||7||Edible fruit and nuts||0.96|
Source: ITC Trade Map, 2019
Iran’s trading partners
|Iran’s top exporting destinations||Top economies from where Iran imports|
|S No||Economies||Values in US$ billion, in 2018||S No||Economies||Values in US$ billion, in 2018|
|3||South Korea||7.22||3||South Korea||3.68|
Source: OEC Data
The economy of Iran has an Economic Complexity Index (ECI) of -0.158 making it the 66th most complex country. Iran’s economic freedom score is 51.1, making its economy the 155th freest in the 2019 Index.
Macroeconomic indicators of Iran
|Population||82 million people|
|GDP at PPP||US$ 1.6 trillion|
|Per capita income at PPP||US$ 20,200|
|GDP growth rate||3.6 – 4.3%|
|FDI inflow||US$ 5 billion|
|% of population living below poverty line||19.5%|
|% of GDP contribution by agriculture, industry and services||9.8%, 35.9%, and 54.3% respectively|
Iran sanctions story
The history of US sanctions against Iran dates as far back as 1979, when detainees were held at the US embassy in Tehran. Over the years, the US government has approved other sanctions. In 2010, amid increasing tensions of Iran’s nuclear program, the US instituted sanctions that its own officials described as ‘unprecedented’. The United Nations and the European Union, and other countries around the world also have sanctions against Iran.
Sanctions previously imposed by the UN, US and EU in an attempt to force Iran to halt uranium enrichment crippled its economy, costing the country more than US$ 160 billion in oil revenue from 2012 to 2016 alone. Last year, when US announced sanctions on Iran once again, Britain, France and Germany issued a joint statement saying they will maintain economic ties with Iran despite the threat of American retribution. Also post the joint comprehensive plan of action (JCPOA) EU lifted the sanctions but USA is still continuing to do so and also creating a pressure on other economies to second it.
Table 1: Summary of Sanctions on Iran
|Time Line||Country implemented/reasons|
|1979||For the first time, US imposed sanctions, due to which Iranian imports to the United States were banned and US$12 billion in Iranian assets were frozen.|
|1984||Due to “support for acts of international terrorism”, USA imposed sanctions on Iran.|
|1992||Due to the Iran-Iraq Arms Non-proliferation Act of 1992, USA opposed Iran|
|1997||US President Bill Clinton issues executive orders to generally prohibit the trade of all goods and services between the United States & Iran.|
|2006||UN imposed sanctions on Iran|
|2007||The European Union has augmented UN penalties against Iran with sanctions that are “nearly as extensive as those of the United States|
|Current Sanctions||Implemented by US|
Iran Sanction Story-Tussle for India
India’s exports to Iran were recorded at US$ 2.85 billion in 2018. The major products of export were cereals (US$ 1.2 billion), organic chemicals (US$ 156.32 million), coffee, tea, mate & spices (US$ 149.1 million) and electrical machinery and equipment (US$ 147.7 million). Iran was the largest importer of Basmati rice from India with total imports of US$ 1.56 billion in 2018-19 (DGCIS).
India is heavily dependent on oil imports from Iran at present, which were available on favourable terms until the US ended its sanction waivers recently. This is expected to raise oil prices in India in the aftermath of the elections.
The first phase of the Chabahar Port was inaugurated in December 2017. The India Ports Global Chabahar Free Zone (IPGCFZ) commenced operations in January this year. The commencement of commercial operations marks a historic step, with India now at the forefront of regional efforts to support land-locked Afghanistan. Chabahar is easily accessible from India’s western coast, helping it bypass Pakistan and providing it easy access to markets in central Asia. The US has assured that its sanctions will not apply to operations of the Chabahar Port.
India and Iran are currently negotiating a preferential trade agreement (PTA). This will benefit Indian exporters a lot. Exporters from India will be getting benefits as they won’t be sceptical in terms of exporting the products. This will boost Indian exports and increase confidence amongst exporters.
India gained a foothold in the Iranian market while the economic sanctions were in place and there was less competition. It will be able to leverage this to expand exports if a PTA is signed. Furthermore, a PTA will help India diversify exports to Iran, which are currently restricted largely to agri products.
Currently, India has an MoU with Iran, mainly on agriculture & allied sector and medical services. This MoU covers exchange in training of medical doctors and other health professionals, assistance in development of human resources and setting up healthcare facilities, regulation of pharmaceuticals, medical devices and cosmetics, and exchange of information among others.