While the statistics reported by the Iranian government paint a rosy picture, Barry says the reality is quite different. Iran’s real per capita growth rate was 3.5 percent per annum from 2002-2009, but this period of growth coincided with a period of a steady rise in oil prices, suggesting the “government has not been very successful in achieving diversification of the economy.”
Inflation is also on the rise, reaching 11.6 percent in February. Though that’s much lower than the annual rate of almost 30 percent reached two years ago, the current government has consistently struggled to contain rising inflation. Furthermore, Barry says, actual inflation may be much higher. Looking at prices in downtown Tehran, the real number might be hovering around 20 percent.
Beyond those basic statistics, Iran continues to struggle with pronounced inequality. Virginia Tech Economist Djavad Salehi-Isfahani notes that between 2005 and 2007, at a time when Iran was experiencing respectable economic growth, “the income of the top 20 percent rose more than four times as fast as that of the bottom quintile.”
Here again, rising oil prices appear to have had a negative effect. “The influx of oil revenues, which trickle down Iran’s unequal structure of access to power and position, always seems to worsen the distribution of income,” writes Salehi-Isfahani.
Many in the West like to put the blame for the economic woes (or the credit) on sanctions. But Barry and others say that leaves out the role that Iran’s own leadership has played in hobbling the country’s economy. Estimates are that the Iranian regime is involved, either directly or indirectly, in 70 percent of the country’s economy.
Former minister of commerce, minister of finance, and ambassador-at-large in Iran, Jahangir Amuzegar, slams the Ahmadi-nejad Administration for having “established a dysfunctional economic environment” and for “worsening the business climate.”
Some may say Iran’s oil and natural gas wealth ensure the regime’s survival, even if the government’s leadership does fundamental damage to the Iranian economy.
However, PFC Energy Partner and Gulf energy analyst Fareed Mohamedi says the picture of the country’s energy sector is quite mixed. Iran’s oil supply is steadily diminishing. Its ability to influence world oil markets may be hemmed in by growing production by non-OPEC countries, particularly Iraq.
In Iran’s vaunted natural gas industry, the picture also remains unclear. Mohamedi says worldwide natural gas production, exploration and technological innovation will likely increase in the years ahead, possibly reducing Iran’s clout in that area as well.
The new sanctions that Congress passed last year were designed to place an economic stranglehold on Iran by exploiting what was thought to be an Iranian dependence on imported refined petroleum. But the effectiveness of such sanctions doesn’t quite match the hype.
Gal Luft has cautioned that Iran’s petroleum dependence is not what it appears. Thanks to combination of investments in domestic refinery infrastructure, pursuit of energy alternatives and effective rationing schemes, Iran is projected to be gasoline self-sufficient by 2012. In fact, it is probably already gasoline self-sufficient.
The overall picture, Barry says, is one of an Iranian economy that is heavily straight jacketed. The current government, he argues, is largely to blame. Based on the regime’s track record of incompetence and the consequences of that incompetence for the Iranian economy, he feels the US would be wise to take a step back, allowing Iran to continue on its present course.
“As its position grows weaker, the US position would grow stronger,” Barry writes, “shoring up American diplomatic leverage or at least making Iran easier to contain or deter. The U.S. would also sidestep accusations that its policies had contributed further hardship to the Iranian people. Congress is searching for the most effective means to weaken the Iranian economy; the best approach may be for it to do nothing at all.”