The Iranian Studies Unit at the Arab Center for Research and Policy Studies hosted Esfandyar Batmanghelidj, founder of Bourse & Bazaar, an Iran-focused think tank concerned with economic development and diplomacy in the Middle East and Central Asia, for a talk on July 28, 2020. The talk examined economic transition and transformation in Iran, in light of internal and external pressures, and international sanctions. Using a range of economic data, Batmanghelidj provided a new framework for understanding Iran through its economic development, and the dynamics that have informed that development from the year 2000 until today.

Batmanghelidj started by emphasizing that for the past decade, “Iran has stagnated in terms of economic growth, but that does not mean that there is an absence of development in the country.” Contending that “analysis on Iran, its foreign relation, and its domestic policies must focus more on the realities of the country’s economic development,” he showed that Iran’s economic development in turn determines how Iran deals with its domestic issues and those related to its relations with foreign countries.

Batmanghelidj explained that between 2000 and 2012, “industrialization in Iran was made possible by foreign technology and management practices being introduced in the country.” Some of the markers of development as the result of government investment and transfer of technology from abroad during the period of the Islamic Republic highlighted by Batmanghelidj were in the automotive, food processing, fast-moving consumer goods (FMCG), pharmaceutical manufacturing, banking and telecommunication industries and sectors. Growth in non-oil exports was made possible given capacity development in Iran in manufacturing, the banking sector, and information communication technology  – in addition to a favorable environment for non-oil trade related to drivers of globalization in the Middle East and the entire world.

During the period between 2012 and 2016, beginning with the imposition of US financial sanctions on Iran and the contraction of Iran’s economy by approximately 7 percent due to sanctions pressure, Iran was able to sustain industrialization and development through “committing more deeply to global trade in the face of financialized sanctions.” Trade with China grew considerably during this period, but “this does not mean that Iran became ‘dependent’ on China.” Explaining the limited degree of Iran’s dependence on China, Batmanghelidj provided a comparative analysis of China’s FDI and contracting, (e.g. dispatch of Chinese labor for construction projects) with Iran and other Middle Eastern countries, and pointed to the “existence of a large domestic labor force willing to work on construction projects and a political reluctance in China to Iran’s having an overly dependent relationship on China.”

In a period of maximum sanctions pressure, 2016 until present, according to Batmanghelidj, Iran’s economy has not collapsed, an industrial resilience largely due to regional trade. During this period, given low oil prices and stringent sanctions, non-oil trade has continued to grow, and has been the key to industrialization and development in Iran. In fact, Iran is one of the few countries in the Middle East that prioritizes regional trade, and Iranian goods have become very attractive in the regional markets because of the cheap prices offered. Batmanghelidj emphasized that the manufacturing sector in Iran is the main driver of growth. However, “manufacturing depends on European and Chinese imports, and trade deficits pose a challenge.”

The Covid-19 pandemic has impacted Iran’s manufacturing sector negatively, Batmanghelidj said, leading to a contraction in the sector, as Iran has not been able to get the machinery and raw materials it needs to continue producing. The lockdown has also led to a reduction in consumption. Although manufacturing growth has slightly increased because of an opening up of the economy after lockdown, Covid-19 continues to pose a significant challenge to Iranian policymakers seeking to strike a balance between economic sustainability and public health needs. Batmanghelidj observed that “the fundamental vulnerability of the Iranian economy is not that it is more isolated; it is that the country is still trading with the world and therefore it is vulnerable to foreign exchange shocks.” Thus, an important question is whether Iran can keep its currency at a steady value so that the economic stability seen in 2019 can be sustained beyond the pandemic.

Batmanghelidj concluded his talk by discussing the post-sanctions period and what may be next in terms of upcoming developments, such as US elections and the possibility of a new deal with the United States. He opined that “the trend from 2000 until today, towards non-oil export development, will continue,” and that what will matter most to Iran, in a post sanction scenario, is global capital. Therefore, “export-oriented industrialization, not import-substitution industrialization, is the best option for Iranian policymakers as they seek economic growth.”

To access the talk presentation slides, click here.