For full coverage of business developments in Iran and the Middle East, see MEED.

In 2014, Iran had the world’s 29th largest economy and the second largest in the Middle East. Its population is forecast this year to reach 80 million, the second highest in the region.  About 25 per cent live outside major urban centres. Tehran, Iran’s largest city, has a population approaching 9 million people and is the third largest Middle East conurbation after Istanbul and Cairo. Per capita GDP in 2014 was the 99th highest in the world and the 12th highest in the Middle East at $5,200.


Middle East GDP 2014 ($bn)
Saudi Arabia 752
Iran 404
UAE 402
Egypt 286
Iraq 221
Algeria 214
Qatar 210
Kuwait 172
Morocco 109
Oman 78
Sudan 74
Lebanon 50
Tunisia 49
Yemen 43
Libya 41
Jordan 36
Bahrain 34

Source: IMF World Economic Outlook database, April 2015




GDP per capita 2014 ($)
Qatar 93,965
UAE 43,180
Kuwait 43,103
Bahrain 28,272
Saudi Arabia 24,454
Oman 19,002
Lebanon 11,068
Libya 6,623
Iraq 6,165
Algeria 5,532
Jordan 5,358
Iran 5,183
Tunisia 4,415
Egypt 3,304
Morocco 3,291
Sudan 1,980
Yemen 1,574

Source: IMF World Economic Outlook database, April 2015


Iran has a land area of 1,650 square kilometres. It has among the region’s largest farming sectors; around 10 per cent of GDP is accounted for by agriculture. About 30 per cent of Iran’s land area is under cultivation and 7 per cent is forested. Annual average rainfall is 228 millimetres, but two-thirds of Iran is arid and largely uninhabited. Deserts, including the Dasht-e Kavir and the Dasht- Lut, account for about 25 per cent of its surface area. Nevertheless, Iran has the region’s annual renewable freshwater resources at 73 billion cubic metres in dozens of rivers that flow into the Caspian Sea to the north, the Shatt al-Arab estuary in the west, the Gulf in the south and Gulf of Oman in the south-east.

Before the tightening of sanctions against Iran in 2011, the Islamic republic was ranked 65 in the World Bank Ease of Doing Business league. It had fallen to 130th in June 2014. The number of fixed line telephone subscribers in 2015 is estimated at 30 million, equivalent to 38 per cent of the total population. There were an estimated total of almost 71 mobile phones in operation at that point.

More than 82 per cent of the Iranian adult population, and more than 90 per cent of young adults, are literate. There is gender separation in schools and universities, but more than 60 per cent of university students are women. Life expectancy at birth is 73.5 years. Infant mortality is 21.1 for every 1,000 live births. Both figures are consistent with Iran’s status as a middle-income developing country.


Structure of the economy

Iran has an economy dependent upon the production and export of oil and gas that it is more diversified than other oil-rich Gulf countries. In the year ending March 2015, 12 per cent of its GDP was due to oil and gas; manufacturing and mining accounted for 29 per cent and construction 7 per cent. Services accounted for 44 per cent of GDP that year.

Source: Central Bank of Iran


Oil and gas

According to the 2015 BP statistical review, Iran has proven oil reserves of 158 billion barrels, equivalent to more than 150 years of production at the rate recorded in 2014. This is the second largest oil reserve in the Middle East after Saudi Arabia’s and the fourth biggest in the world. It also had 1,200 trillion cubic feet of gas reserves, the world’s largest.

Iran’s oil production rose steadily after 1945 and reached a peak of 6.6 million barrels a day (b/d) in 1976. Since the revolution, output and exports have varied radically. Output was about 4.3 million b/d in 1979. The annual average fell to under 3.4 million b/d in 1980, the year of the start of the Iran-Iraq war which knocked out much of Iran’s oil export capacity.  Output recovered in 1982 and varied between 2.2 million b/d and 2.7 million in between 1983 and 1988, the year the war stopped.

This allowed Iran to increase exports and production rose above 3.5 million b/d in 1993. Production and exports were largely flat in the subsequent 10 years, though there were significant cuts in 1998 and 2002 due to global economic trends. The elimination of Iraqi oil exports during and after the 2003 invasion allowed Iran to increase output and exports rose to more than 4 million b/d in 2005-07. The global financial crisis of 2008 sent oil prices and demand tumbling. Intensifying sanctions from 2011 caused international demand for Iranian oil to fall and production to be slashed to little more than 1 million b/d in 2013. According to OPEC estimates, output recovered to almost 3.3 million b/d. Exports rose to 1.4 million b/d in 2014 on the relaxation of international sanctions which allowed six countries to imported limited amounts of Iranian oil. Iran is estimated to have exported almost 300,000 b/d of petroleum products in 2014, about 50,000 b/d more than in 2013. This mainly took the form of fuel oil, LPG, and naphtha to Asian markets.

Iran is the second-largest oil-consuming country in the Middle East after Saudi Arabia. Domestic oil consumption averaged 1.8 million b/d in 2014. It imported almost 61,000 b/d of petroleum products, most of it gasoline, to meet shortages. Iran’s crude oil refining capacity is just over 2 million b/d. It also extracts naphtha and LPG at natural gas processing plants.  About 4,000 b/d of oil is burned for power generation.


Gas in Iran

Iran’s gas production rose by 80 per cent in the ten years ending December 2014 to 172.6 billion cubic metres. According to the BP statistical review, the Islamic Republic was world’s fourth largest gas producer after the US, Russia and Qatar in 2014. Almost all of it was domestically consumed. The US’ Energy Intelligence Agency (EIA) estimates that gas satisfies around 60 per cent of Iran’s domestic energy needs.


2009 2010 2011 2012 2013 2014
Gas output (bn cubic metres) 144.2 152.4 159.9 165.6 164 172.6

Source: BP Statistical Review

Iran’s recent production growth was due to the completion of new phases of the Gulf offshore South Pars natural gas field which has almost 40 per cent of its proven natural gas reserves.   The field is being developed in 24 phases.

In 2013, Iran exported 329 billion cubic feet of gas and imported 188 billion cubic feet of dry natural gas by pipeline, more than 90 per cent of it from Turkmenistan. The remainder came from Azerbaijan. Imported gas is principally used for heating and demand for it peaks in winter. In 2011, Iran accounted for almost 30 per cent of Turkmenistan’s natural gas exports, but the share dropped to less than 12 per cent in 2013, according to the BP statistical review.  Iran exports natural gas to TurkeyArmenia, and Azerbaijan. More than 90 per cent of its gas exports went to Turkey in 2013. The remainder went to Azerbaijan and Armenia.

Iran has announced plans for major cross-border gas sales. These include projects to build pipelines to southern Iraq, Oman and Pakistan.


Containing domestic energy demand growth

The targeted subsidy reform law of 2010 was designed to close the gap between domestic oil and gas prices and world market levels. It also called for electricity to be priced to reflect full costs. Its second phase was postponed in 2012 due to worsening macroeconomic conditions and implementation challenges. Petrol prices were raised by 75 per cent in 2014 as part of the second phase. The government says that the reform programme will continue.



Petrochemicals production is the second largest industrial sector after oil and gas. Despite sanctions, Iran’s petrochemical annual capacity has increased to about 60 million tonnes. The Central Bank of Iran reported output totalled 40.6 million tonnes in the year ending March 2014. Petrochemicals that year accounted for 40 per cent of the value of Iran’s industrial exports. Iran, nevertheless, is a net petrochemical products importer. Plans have been announced for about 100 new projects with an estimated investment need of more than $50bn. The strategic objective is for Iran to overtake Saudi Arabia and become the Middle East’s largest petrochemical producer by 2025.


Other manufacturing

Iran has a diversified non-oil and non-petrochemical industrial sector. A total of 737,000 motor vehicles were manufactured in 2013/14. This compares with more than 1 million vehicles in 2005. About 85 per cent of the total was passenger cars. The food processing industry employs about 15 per cent of the industrial labour force and recorded exports of more than $1bn before sanctions were tightened.  The textiles industry, including carpet manufacture, employs more than 400,000 people, mainly in northern Iran. Other significant manufacturing industries include pharmaceuticals, building materials and defence equipment.



Iran had 70,000 MW of installed electricity generation capacity at the end of 2013 and produced almost 258.7 billion kWh of electricity in 2014/15. Gas accounted for 92 per cent of the feedstock used in conventional thermal power stations. About 30 per cent of the power produced in 2013 came from hydropower, nuclear and renewable power sources.  Iran’s energy ministry plans to build 35 new power stations and to increase electricity exports to neighbouring countries. Iran exported 11 billion kWh of electricity in 2012 to Armenia, Pakistan, Turkey, Iraq and Afghanistan. It imported 3.9 billion kWh of electricity from Azerbaijan and Armenia under a swap agreement.

Iran’s first nuclear power plant at Bushehr has capacity of 700 MW. It became fully operational in late 2013. Two additional units with a planned capacity of 1,000 MW each are planned at Bushehr. Plans for further nuclear power plants include a station near Darkhovin with a generation capacity of 360 MW. The government has selected 16 locations for further nuclear plants.

Electricity demand rose by 5.2 per cent in 2013/14.



Farming accounted for 8 per cent of Iran’s GDP in 2013/14 and employed about 20 per cent of total labour force that year. Women account for half the 6.6 million people working in agriculture. The government maintains a guaranteed food purchase price for the main agricultural products.

Iran is a significant net importer of agricultural products. In the year ending 2013/14, it bought 18.1 million tons of foreign farm products with a value of $13.5 billion. Iran that year achieved 75 per cent self-sufficiency in wheat and 70 per cent in barley. The self-sufficiency coefficients in red meat and poultry were 86 per cent and 99.1 per cent on average respectively in 2008-14. Iran is highly reliant on imports of oilseeds, soybean meal, and raw vegetable oil.



Construction accounted for about 7 per cent of GDP in 2014/15. The most buoyant sector is housing. The government of President Rouhani abolished the Mehr low-cost housing programme launched by the administration of President Ahmadinejad. The Mehr programme provided developers free land in return for the construction of cheap residential units for first-time home buyers who received 99-year mortgages. The government worked through Iran’s banks as agents to offer loans to developers. The present government said the programme was failing due to poor construction standards, homes were being built in the wrong places and that it was mainly benefitting middle-class people. The Mehr housing programme was also blamed for Iran’s runaway inflation and budget problems. By the end of 2013, 1.2 million homes had been built in the Mehr programme and a further 1 million were due to be completed.

The abolition of the Mehr programme has led to a sharp drop in the number of construction permits issued for the construction of buildings. The number issued for building projects in urban areas fell by 32 per cent in the year ending 2014/15 to 117,278. This is leading to serious housing shortages, particularly in Tehran.


Banking and finance

Iran has one of the largest banking systems in the Middle East. All Iran’s banks are obliged by law to be Sharia-compliant.

The banking industry comprises five groups of institutions:

  • Government-owned commercial banks: Bank Melli Iran, Post Bank of Iran and Bank Sepah
  • Government-owned specialised banks. These are the Export Development Bank of Iran, Bank of Industry & Mine, Bank Keshavarzi, Bank Maskan and Cooperative Development bank
  • Private commercial banks. These number 19
  • Gharzolhasaneh banks. These provide non-profit loans to small businesses. There are only two: Gharzolhasaneh Mehr Bank Iran and Gharzolhasaneh Resalat Bank
  • Non-bank credit institutions. The sole non-bank financial firm is the Credit Institution for Development.

At the end of the 1393 financial year (2014/15), the banks and non- bank financial institutions of Iran had total assets of IR 16,300,000 ($614 billion), equivalent to about 150 per cent of GDP that year. This suggests the banks have been effective in recycling liquidity in the Iranian economy. Loans to the private form the largest portion of assets at 40 per cent. No less than 12 per cent of total assets are in the form of foreign assets. On the liabilities side, deposits placed by the private sector accounted for 46 per cent of the total. The lending and deposit figures suggest that the banks are less effective than is optimal in capturing the savings of the private sector, including individuals, and lending to business.

Central Bank governor Valiollah Seif, a moderniser who was appointed by President Rouhani in September 2013, said in May 2015 that Iran’s non-performing loans ratio was about 14.5 per cent. He said the banking industry needed fundamental reforms, capital injections, management change and to observe the Basel II and III accords. Seif said that the central bank had started working on defining standards and was acting to restore financial discipline.

The ending of sanctions expected in 2016 will allow Iran to return to the Society for Worldwide Interbank Financial Telecommunication (Swift) from which 15 Iranian banks were disconnected in 2012. This will allow the Central Bank of Iran and other Iranian banks to recover and transfer funds electronically anywhere in the world.

At the end of the 1393 financial year (2014/15), the banks and non- bank financial institutions of Iran had total assets of IR 16,300,000 ($614 billion), equivalent to about 150 per cent of GDP that year. This suggests the banks have been effective in recycling liquidity in the Iranian economy. Loans to the private form the largest portion of assets at 40 per cent. No less than 12 per cent of total assets are in the form of foreign assets. On the liabilities side, deposits placed by the private sector accounted for 46 per cent of the total. The lending and deposit figures suggest that the banks are less effective than is optimal in capturing the savings of the private sector, including individuals, and lending to business. 

The Tehran Stock Exchange

The Tehran Stock Exchange (TSE) lists a total of 343 companies. The market is highly volatile. The main Tepix index fell by 21 per cent in the year ending March 2015 to 62,531.8 after doubling in the previous 12 months. Total market capitalisation at the end of 2014/15 was IR 2,813,156 billion ($106bn), roughly half the value of Iran’s GDP at current prices in 2015.


Tepix index
2008/09 12,537
2009/10 23,295
2010/11 25,906
2011/12 25,906
2012/13 38,041
2013/14 79,015
2014/15 62,532

Exchange rate: $1=IR 26,509

Source: Central Bank of Iran


Tourism and hospitality

Sanctions including the disconnection of Iran from the SWIFT banking system have significantly constrained the number of foreigners, including business people, visiting Iran. Figures released by Iran’s Cultural Heritage, Handicrafts & Tourism Organisation show that about 4 million people visited Iran in 2014, but only about 1 million were high-spenders. The government believes that the number of visitors could dramatically increase following the lifting sanctions and President Rouhani has set an initial target of 10 million a year.

Travel and tourism’s contribution to the economy is expected to grow by an average 5.7 per cent per year through 2024, according to the World Travel & Tourism Council.


The performance of the Iranian economy

Iran succeeded in raising per capita income and living standards in the years following the end of the costly and protracted Iran-Iraq war in 1988. This was largely due to increased investment, a rising employment-to-population ratio and higher productivity since the early 1990s and by the positive terms of trade Iran has enjoyed since the start of the last decade. Social indicators show poverty and income inequality fell in this period, though per capita income and living standards were still below that of other resource-intensive economies

This progress stalled after 2011. Sanctions and weak macroeconomic management have had a significant impact on economic stability and growth. The economy in dollar terms contracted by almost 30 per cent in 2012, reflecting the sharp slump in the value of the rial against the US currency and lower oil production and exports caused by sanctions. There was a further 10 per cent contraction in 2013. The economy is estimated to have grown by 6 per cent in current dollar terms in 2014 reflecting the relaxation in some sanctions agreed in negotiations about its nuclear programme.



2009 2010 2011 2012 2013 2014E
GDP at current prices, 2002-14 ($bn) 397 464 564 419 380 404
 per cent growth 1 17 22 -26 -9 6
IMF, World Economic Outlook Database, April 2015


Iran has experienced three distinctive macroeconomic problems since 2010: high inflation; high unemployment and extreme exchange rate depreciation. Inflation rose to 35 per cent in 2013. The government says it is now acting to reduce inflation and it fell to 16 per cent in 2014/15.


2010 2011 2012 2013 2014
Inflation, average consumer prices ( per cent change) 12.365 21.492 30.531 34.727 15.549

Source: IMF World Economic Outlook database, April 2015


The exchange rate, which had previous showed a high degree of stability, has depreciated by two-thirds against the dollar since 20100. This reflected the government’s decision to deal with intensifying sanctions by allowing the rial to fall against international currencies, a policy that has made it possible for Iran to maintain its non-oil exports, reduce imports and contain the impact of sanctions on domestic economic activity.


Unemployment is a challenge that pre-dated sanctions. A total of 24 million people were reported to be active in the labour force in 2012. Unemployment rates have been persistently high, averaging more than 12 per cent since 2000. Joblessness among urban workers and youth has been even higher at 13.8 per cent and 24.5 per cent in 2012, respectively. Unemployment, however, has been on a downward trend since the start of the last decade and continued to drop in 2010-13, according to IMF figures, though Statistical Centre of Iran data shows it rising in that period.


The government of former President Ahmadinejad’s attempt to implement ambitious social programmes including large housing projects significantly compounded the problems. It prioritised increasing output over inflation control. The large relative price change associated with the subsidy reform programme launched in 2010 led to a significant increase in inflation and a deceleration in non-oil growth. Monetary policy was designed to accommodate the financing demands of the corporate and government sectors. These policies contributed to a significant rise in the level and volatility of inflation, output. Corporate and financial sector vulnerabilities emerged while unemployment remained high. The IMF article IV report published in April 2014 said that the policy framework did not provide sufficient resilience and the policy response did not appear sufficiently timely, well-implemented, and coordinated.

Interest rate policy in this period was equally volatile.  In January 2012, the CBI decided to increase its rate for participation papers and for other short-term rates. But lending and deposit rates were subsequently kept fixed as part of the government and Money and Credit Council’s credit policies.

The election of President Rouhani in August 2013 represented a turning point in the management of the domestic economy as well in Iran’s relations with the international community. It immediately recognised that major reforms that were needed.  A key priority has been stabilising the rial and cutting inflation.

The authorities had previously abandoned their managed exchange rate regime and the  Central Bank of Iran (CBI) introduced a new Foreign Exchange centre (FX centre), mostly supplied with hydrocarbon export receipts, in 2012. The CBI initially offered foreign exchange for most current transactions at an official rate of 2 per cent below the rate offered in the parallel (unofficial) market, while maintaining the previous official exchange rate for basic necessities. This target was subsequently eventually abandoned and replace with a triple exchange rate system comprising:

  • an official one for basic necessities
  • one for other current transactions and
  • a parallel market rate available for transactions.

The authorities devalued the official exchange rate by 50 per cent and unified its two official exchange rates in June 2013. Parallel rates showed signs of stabilising after Rouhani’s election. Action has been taken to slow the growth in the money supply and bank lending. The Central Bank of Iran says a key objective is establishing a single market valuation for the rial and it is seeking to do this by cutting inflation.

Government income and revenue

Benefitting from higher oil production and exports in 2003-05 and rising oil prices in 2003-13, Iran’s government recorded significant budget surpluses until 2011. Lower government oil income due to sanctions in 2012 led to a small deficit. Government income recovered in 2013 and 2014 but was outstripped by spending. The deficit in both years was nevertheless modest and sustainable. This allowed the government to maintain and exceptionally low level of debt, though it increased to 12 per cent in 2014.



2012 2013 2014
General government revenue 1,015,802.93 1,326,784.60 1,521,868.24
General government total expenditure 1,039,256.00 1,415,137.60 1,670,958.29
Balance -23,453.07 -88,353.00 -149,090.05

Source: IMF World Economic Outlook database, April 2015


A key element of government fiscal policy is eliminating subsidies. The targeted subsidy reform law of 2010 aimed to phase out general subsidies on basic goods and services and replace them with targeted cash hand-outs and constituted.  It specifies post-reform price targets for subsidised products, sets rules for redistribution of the revenue from price increases in subsidised products and lays down the basic structure of administrative management of the reform. It aimed to bring subsidised prices close to international levels over a five-year period.  Domestic liquid fuels’ prices, including for gasoline and diesel, were to be raised to a level not less than 90 per cent of Gulf prices. The average domestic price of natural gas was to be adjusted to be at least 75 per cent of the average export price of natural gas. Prices for electricity and water were to be adjusted to reflect their full cost price. Subsidies on wheat, rice, cooking oil, milk, sugar, postal services and air and rail transpor services were to have been removed by the end of the transition period in 2015. The law also called for prices to be adjusted in line with the exchange rate and inflation. It also authorised the Finance Ministry to finance the initial cash flow deficit at the beginning of the reform caused by the fact that cash were to be deposited in advance of the price increases. Proceeds from the price increases were to be distributed to households, enterprises, and the government.

The law stipulated that 50 per cent of the net proceeds from price increases were to be allocated to households as cash and noncash transfers, taking into account household income, and spent on implementing a comprehensive social security system for a targeted population.

The enterprise and utilities sectors were to get 30 per cent of the proceeds as grants, facilities, and subsidies on bank loans for optimising their energy consumption, adopting new technologies, improving public transport and supporting producers in manufacturing and farming sectors. The government was to get 20 per cent of the proceeds to pay for its own higher utilities’ costs and investment needs. The law established the Targeted Subsidies Organization (TSO) to oversee the implementation of the reform.

The economic and financial crisis caused by the intensification of sanctions coupled with execution problems prompted the government to suspend the law in 2012. Critics say the exact timing and magnitudes of the price increases were not fully specified, creating ambiguities for policy makers and uncertainty for consumers. The financial support for households and enterprises should have been designed as temporary to allow them to adjust to the new relative prices. The law did not provide guidance in the event of an unexpected depreciation of the currency. It was not explicit about how monthly cash transfers would be adjusted if the projected revenues failed to materialise.  It remains, however, a key element of the Rouhani government’s economic policies.


2009 2010 2011 2012 2013 2014
General government debt (% of GDP) 10 12 9 11 11 12

Source: IMF World Economic Outlook database, April 2015

The balance of payments

Iran enjoyed very positive trends in its balance of payments as the result of the sharp oil price rises in 2003 and higher oil production in 2003-05. Merchandise exports reached a peak of more than $140 billion in the year ending March 2012. Imports rose robustly in the same period, though they were constrained for three years during the global financial crisis which started in 2008. The pattern went into reverse in the year ending 2013 and exports fell to under $90 billion in 2014/15. Imports were also reduced in this period and Iran continued to record a significant trade surplus. The current account was in surplus in 2002/03-2014/15. Iran recorded an aggregate current account surplus of almost $260bn in those 13 years. This allowed Iran to keep its external debt to a minimal level. It was reported at $5.1bn in March 2015.


2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Exports           101,289           88,326           112,788           145,806           97,271           93,124           86,471
Imports              31,114           19,080              37,330              78,027           68,712           61,155           65,079
Current account              22,837              9,477              25,276              58,507           23,423           26,440           15,861
             70,175           69,246              75,458              67,779           28,559           31,969           21,392

Source: Central Bank of Iran


Future goals

Speaking at a conference in Tehran in August 2015, central bank vice governor Akbar Komijani said the central bank’s financial management objectives include:

  • Lower money supply growth. In 2014, it grew by 22.3 per cent, which was below the target of 23-25 per cent set by the central bank.
  • Inflation control. The average 12-month inflation rate has dropped from its peak of 40.4 per cent in October 2013 to 15.6 per cent in July 2015.
  • Stability in foreign exchange market. The average exchange rate in 2014 fell by just 3 per cent in 2014. The central bank has said that the full unification of the exchange system is a priority after sanctions are lifted.
  • Increasing economic growth.
  • Increasing gross investment growth. It rebounded to 3.5 per cent in 2014 from -6 per cent in 2013.


Two forecasts for the future

This report will now consider two contrasting but comparable forecasts of the Iran economy to 2015. The first is based on figures contained in the IMF’s annual World Economic Outlook database updated in April.

The second draws on facts and insights contained in a report on the impact of the Iranian economy of the elimination of sanctions published in August.


The IMF view The IMF’s World Economic Outlook prepared at the start of 2015 does not take into account the potential impact on Iran’s growth, budget and balance of payments of the end of all international sanctions in 2016.

The context was the sharpest fall in oil prices in history. In 2014, the price of the OPEC basket of crude oils averaged $96.30 a barrel. In the year until 31 July, it was $55. The oil price slump was due to a number of factors:

  • slower than expected global demand
  • growing non-OPEC oil production and
  • OPEC’s refusal to reduce production without equivalent constraint among non-OPEC producers.

Slowing increases in non-OPEC output caused by lower oil prices helped stimulate demand for OPEC oil and support world prices. The OPEC basket price at the end of July was 25 per cent higher than its 2015 low point of $41.5 a barrel on 13 January. However, speculation about a sharp rise in Iranian oil production in 2016 has caused a steady fall in the oil price since early May. At the end of July, the OPEC basket price was 18 per cent lower than it was it was at its 2015 high.

The oil price assumption underpinning the IMF’s forecast was revealed in subsequent reports on economic trends in Middle East economies. In April, it published the annual Article IV report about the Qatar. The oil price assumption in this report is shown in the following chart. North Sea Brent blend is normally about $5 a barrel higher than Texas WTI.

The IMF assumed, based on trends on world oil futures markets, that Brent blend crude will rebound strongly in 2016 and continue increasing to $74 a barrel in 2020. More recent forecasts by authoritative organisations that take into account the expectation that Iranian oil output will rise robustly after the relaxation of sanctions in 2016 support this view. The August edition of the US’ Energy Information Administration (EIA) short-term energy outlook forecasts Brent will average $54.4 a barrel in 2015 and $59.4 in 2016. Trends in August suggest that these forecasts may significantly understate possible future falls in the oil price. The OPEC basket price on 20 August was $44.13 a barrel, 18 per cent lower than it was one month earlier. The consensus now is that the downside risks are greater than the upside potential. The assumptions about Iran’s future oil production trends are not disclosed but this report assumes it is based on output in 2015 remaining around present levels and rising modestly in the years to 2020.

The IMF’s GDP forecast for Iran for the years to 2020 is shown in the following chart. It shows the economy contracting by 3 per cent in 2015 but growing by 3 per cent in 2016 and 5 per cent in the following years.


2015 2016 2017 2018 2019 2020
GDP ($bn) 393 404 423 443 465 488
% change -3 3 5 5 5 5

Source: IMF World Economic Outlook database, April 2015

The IMF forecasts that government spending, income and the budget deficit will rise robustly in rial terms in 2015-20. The deficit, however, will remain below 3 per cent of GDP throughout this period.


2016 2017 2018 2019 2020
General government revenue 1,920 2,208 2,527 2,914 3,300
General government total expenditure 2,258 2,635 3,075 3,571 4,086
General government deficit 337 427 548 657 787

Source: IMF World Economic Outlook database, April 2015

The IMF figures available in the World Economic Outlook database don’t include export and import figures. The current account projection for Iran shows the surplus rising to $5bn in 2016 and falling steadily to close to zero in 2020.


2015 2016 2017 2018 2019 2020
Current account balance ($bn) 3.06 5.05 3.79 2.80 1.44 0.14
Current account balance (% of GDP) 0.78 1.25 0.90 0.63 0.31 0.03

Source: IMF World Economic Outlook database, April 2015

The IMF view is that the Iranian economy will perform quite well in the years to 2020, with growth being higher than other Gulf oil nations. Budget and balance and of payments are forecast to be sustainable. Any government borrowing will be modest and financeable from reserves or from domestic financial markets.


The World Bank post-sanctions view An alternative and more positive projection is contained in the World Bank report. It estimates that the eventual addition of 1 million b/d from Iran, assuming no strategic response from other oil exporters, will lower oil prices by 14 per cent or $10 per barrel in 2016. This would deliver a 20 per cent fall in Iranian crude oil exports but a 70 per cent increase in the volume of oil exports in the year. The net result would be a 36 per cent increase in the value of Iranian oil exports, equivalent to about $30bn in a single year. Iranian government officials, however, have persistently warned that Iran would only be able to increase exports by 600,000 b/d in 2016. This would suggest that the oil price fall would be lower. The increase in the value of Iranian oil exports would still be about $30bn. Excluding knock-on and multiplier effects flowing from this, that would add about 25 per cent to the dollar value of Iranian GDP at current prices compared with the IMF’s forecast for 2015. That would constitute one of the largest increases recorded in a country’s GDP in history.

The World Bank said that sanctions had led to a profound shift in Iran’s trading partners. In 2011, Japan, a major buyer of Iranian oil, was Iran’s leading export market followed by South Korea, Italy and China. In 2014, China was by far the largest buyer of Iranian goods, principally oil, followed by India and Turkey, which accounted for almost 75 per cent of the total.


2011 2014
Japan 29 China 41
South Korea 13 India 17
Italy 12 Turkey 15
China 9 Japan 9
Singapore 7 Korea 7
South Africa 7 Pakistan 3
Greece 6 Syria 3
Netherlands 6 UAE 2
France 6 Saudi Arabia 2
Taiwan 5 Oman 1

Radical change has also taken place in Iran’s  foreign suppliers of goods. In 2011, Germany was Iran’s leading exporter followed by the UAE, Russia and Italy. They accounted for half of the total due to the top 10 exporters to Iran. In 2014, exports from the UAE – principally re-exports — accounted for 40 per cent of the total due to the top 10, followed by China, India and South Korea.


2011 2014
Germany 19 UAE 41
UAE 14 China 17
Russia 11 India 15
Italy 11 South Korea 9
South Korea 9 Turkey 7
Japan 8 Germany 3
France 8 Italy 3
China 7 Brazil 2
Brazil 7 Russia 2
UK 6 Argentina 1


The World Bank says the end of sanctions will both increase Iran’s spending power and end restrictions on exports to the Islamic Republic by the US, the EU, and to a lesser extent, by all OECD countries, including Japan. It says that countries that will see the largest post-sanctions increase in trade with Iran include the UK, China, India, Turkey, and Saudi Arabia.

The World Bank said there are estimates that Iran holds about $107 billion worth of frozen assets (including letters of credit and oil exports earnings) overseas. An estimated $29 billion will be released immediately after sanctions are removed. Foreign direct investment (FDI), which had declined by billions of dollars following the tightening of sanctions in 2012, is expected to pick up. The World Bank expects FDI eventually to increase to about $3bn-3.5n in a couple of years, double the level in 2015. The Iranian economy underwent a structural shift during the sanctions era, with the oil, automobile, construction and financial sectors declining the most. “As sanctions are lifted, these sectors are likely to see an expansion of output,” the World Bank said. The World Bank’s estimate of the one-off boost to the Iranian economy is $17bn.


Should international sanctions be lifted in 2016 as this report concludes is likely, the Iranian economy will enter an era of exceptionally-high growth driven by strong exports of oil, gas, petrochemicals and other manufactured goods. All service sectors will be robustly lifted. Required investment in infrastructure and productive capacity will be comfortably met from accumulated government and private sector savings; domestic financial resources and an expected inflow of foreign direct investment.

New approaches to managing the economy being pursued by the government of President Rouhani will underpin confidence in the macroeconomic stability of Iranian economy and encourage increased international trade in goods and services particularly with other Middle East countries, the Indian subcontinent and the Far East.

Once sanctions are lifted and Iran recovers its proper place in the international community, the Islamic Republic will be one of the world’s fastest growing countries and will enjoy rising living standards and steady further progress in social indicators.

The risks include:

  • An uncontrolled collapse in world oil prices due to intra-OPEC competition principally involving Iran, Iraq and Saudi Arabia. This report concludes that intense price competition is possible after the end of restrictions on Iranian oil exports, but this will be of limited duration and will eventually lead to a new understanding between Iran and other OPEC states
  • A collapse of the sanctions relief programme either due to objections in the US or by the failure of the Islamic Republic to adhere to the conditions of the deal. This will immediately lead to the re-imposition of at least some of sanctions, though it is likely that the sanctions regime will be less restrictive and less likely to be honoured by non-EU nations
  • Supply bottlenecks particularly in Iran’s defective transport and logistics infrastructure
  • Poor financial management that could lead to asset bubbles, hyperinflation and a new wave of currency depreciation.
  • A serious deterioration in regional stability involving Iraq, Syria, Afghanistan and other countries that neighbour Iran.

The possibility of domestic insurgency and rebellion cannot be ruled out, though the regime’s resilience during war with Iraq, American hostility and international sanctions suggest that it has the resources and determination to deal with all but the most extreme developments.