The imposition of new sanctions on Iran by the United States has led the country to revert to a resilient economy marked by moderate long-term growth prospects and high inflation.
According to the latest report from Crédito y Caución, Iran's ability to comply is not compromised, but political risks, such as possible sanctions from the European Union, are high. The Iranian economy is estimated to have contracted by 4,9% in 2018, which will likely be followed by a 6,5% decline in 2019.
The resistance economy involves a greater reliance on domestic production and a boost to barter trade. Iran has banned the import of over 1.300 products which, along with the sharp devaluation of the rial, will reduce imports, prevent the outflow of foreign currency, and stimulate domestic production.
Iran's oil exports fell from over 2,5 million barrels per day in 2018 to no more than 400 barrels in July, a figure far lower than the 1,1 million recorded during the previous sanctions period. Although exports of non-oil products (around 35%), such as chemicals, plastics, metals, vegetables and fruits, are mainly destined for countries critical of sanctions, such as Turkey, China, India and Iraq, their growth has also slowed significantly. Import restrictions and the fear of sanctions among trading partners constitute a serious setback for Iran's growth potential.
Iran is heavily dependent on the European Union for technology imports. A complete reversal in trade with the country could imply losses exceeding three million dollars for European exporters of capital goods. The share of capital goods in European exports to Iran has increased from 33% in 2013 to nearly 43% since 2016.
Exporters are companies with little exposure to the US market and therefore run less risk of suffering extraterritorial sanctions from the United States. Although " Iran's external payment capacity and willingness to pay are not at immediate risk ," the report explains that payment channels with the country could be reduced in the future. Furthermore, the possibility of the European Union reimposing sanctions in response to Iran's violations of the nuclear agreement cannot be ruled out.
