# A closer look at sanctions relief

I want to expand on my earlier post about the size of sanctions relief in the November 24 Geneva Agreement. First, here is a look at the performance of the Iranian economy under sanctions:

This is partly why ordinary people, businessmen, and many politicians welcomed the interim agreement as soon as it was announced. While the government officials presented the deal as a victory for Iran’s nuclear program (since it allows Iran’s to enrich uranium up to 3.5%), what caused joy and celebration for most Iranians was the sanctions relief package that Iran received in return for its concessions. The negative impact of sanctions on Iran’s economy has become so severe in the past two years that what most people were looking for in these negotiations was a partial rollback on sanctions.

As I mentioned in my previous post, the sanctions relief that the group of 5+1 have offered in this agreement can have a significant positive impact on Iran’s dire economic conditions despite being temporary. Some experts have claimed that this package will only have a positive psychological impact on Iran’s economic climate, but a look at the specific components of the relief package point to a potentially deeper impact.

The relief package has five major components: 1) Iran will gain access to a limited amount of its export revenues that have been inaccessible because of the financial sanctions; 2) removal of restrictions on exports of petrochemicals; 3) lifting of sanctions on sea transport services and cargo insurance; 4) lifting of restrictions on imports of parts and technology for Iran’s automobile industry; and 5) lifting of sanctions on gold trade.

#### Value of the Sanctions Relief Package

In response to the conservative critics of the November 24th Geneva agreement, Obama administration officials have argued that the temporary sanctions relief package in this agreement is very limited and will benefit the Iranian economy by no more than $7 billion. Indeed, it is likely to have a more substantial impact on Iran based on what was described above. The value of oil revenues that can now be repatriated legally can be more than this amount by itself. The increased economic activity and job creation in the auto and petrochemical industries (and thousands of associated small industries) can also be substantial. The International Monetary Fund reported Iran’s economic output (GDP at PPP levels) at$988 billion in 2012 and $987 billion in 2013. This lack of growth was mainly a result of the international sanctions and bad economic policies during the final years of Ahmadinejad. During 2000-2011, this measure of economic activity grew by an average of 7.7% per year (see the chart above). The sanctions relief package and the investor optimism that it has generated can return the Iranian economy to this trend growth rate in 2014 if the government adopts a sound economic policy. Even if we adopt a cautious projection and assume that Iran will be able to experience a 5% annual growth rate in the first half of 2014, then the value of the sanction relief package will be approximately$24.5 billion. The significant value of Iran’s gain from the sanctions relief package is likely to increases the Iranian government’s desire to fulfill its obligations and work toward a permanent agreement.

#### Rouhani Emphasizes Economic Prosperity

In a meeting with university students on Iran’s Students Day (Rooz Daneshju), President Rouhani introduced a variation on a popular slogan of the regime. In his speech he said, “economic prosperity is our undeniable right.” This slogan is significant because it rhymes with the well-known slogan “nuclear energy is our undeniable right,” which is often heard in official political demonstrations. Rouhani’s slogan appears as a direct challenge to the official view that all costs are justified for the realization of Iran’s right to develop its nuclear program. Rouhani’s comment is likely to result in a conservative backlash. Rouhani is implicitly suggesting that in thinking about the nuclear policy we should take the economic costs into account. The policy implication of this statement is it is justifiable to forego some components of our nuclear program is the associated economic costs (sanctions) are too high. It is also interesting to note that President Rouhani made this statement in the same day that President Obama advocated granting Iran the right to low-grade enrichment in a final agreement. He also called the zero-enrichment demand “unrealistic.” While there is no evidence of coordination, both presidents defended their deal against domestic opponents on the same day.

Nader Habibi is Henry J. Leir professor of the economics of the Middle East in the Crown Center at Brandeis University, where he is also senior lecturer in the Department of Economics.