Transcription
Hey there, I'm Scott Mlan. This is Counting the Cost on Al Jazzer, your look at the world of business and economics.
The Middle East conflict has devastated Iran's economy, but soaring oil revenues have brought in much-needed cash. So, is the war weakening the Iranian regime or actually strengthening it? The US has ramped up pressure on Tehran, but who stands to lose most from tensions in the Strait of Hormuz? Is it forcing Iran toward negotiations, or can it find a way around it?
Sanctions relief and access to billions of frozen funds could be a lifeline to Iran's economy. But will Tehran get what it needs? And if not, what does that mean for millions of Iranians?
Well, the US has spent decades trying to squeeze Iran economically, but six weeks into the Middle East conflict, Tehran is still standing. American and Israeli strikes on infrastructure, industry, and trade have damaged Iran's sanctioned economy even further. But oil revenues have kept flowing, giving the regime a financial cushion. The Strait of Hormuz is now at the center of this economic battle. Whoever controls it controls the pressure. At the negotiating table, sanctions relief, billions in frozen assets, and war reparations are all at stake. Meanwhile, millions of Iranians are bearing the brunt of inflation, shortages, and a collapsing currency. Devastation on one side, resilience on the other. Which runs out first may shape what comes next. Ferdia Carr reports.
After a month of US and Israeli bombs hitting critical infrastructure, causing power outages, internet blackouts, and shutting down regular life, Iranians face major economic disruption. But even before the shock delivered by the war, Iran's economic outlook was bleak. As one of the most sanctioned countries for nearly 5 decades, Iran's economy has been squeezed. Inflation was at more than 42% in December. The official unemployment rate is at more than 8%, though unofficial projections are higher. The value of the Iranian rial has plunged, sitting at around 1.5 million to the dollar. The affordability crisis for regular Iranians was a major driving factor in protests over January, some of the largest in the country since the 1979 revolution.
But while Iran's wartime economy is a major challenge for the government, Iran's military has been resilient. Unlike a conventional military branch, Iran's Revolutionary Guard Corps has direct stakes across the country's economy in agriculture, food production, and manufacturing. The group owns one of Iran's largest construction and engineering conglomerates, Khatam al-Anbiya. The IRGC is also widely reported to control a large share of Iran's oil economy, running so-called shadow fleets to evade sanctions and shell companies to sell it, mostly to China. As other areas of Iran's economy are constrained, oil prices have risen sharply, around 30% since the war began in February. The increase in revenue has been a lifeline for Iran and the Revolutionary Guards. Exports have remained close to pre-war levels, around 1.5 million barrels a day, and the IRGC's effective control of shipping through the Strait of Hormuz is a potential major source of revenue. While Iran's parliament is yet to formalize a toll regime, maritime journal Lloyd's List reports several vessels have made the payment for passage.
All that faces being undercut by the naval blockade of Iran's ports announced by US President Donald Trump on April 13th. He's pledged to stop all vessels going to and from Iranian ports and blocking tankers that pay toll fees to Iran. If successful, it will squeeze funding for Iran's military and hit its wider economy.
"This is the work of an economic terrorist to close the Strait of Hormuz to threaten everyone and see the dollar go up. That puts us under pressure from this side. What would you call this? We are not terrorists. We are seekers of economic relations for the whole world and for our country. And the Strait of Hormuz is a lever for policies and we are friends of the countries of the region."
The US blockade also risks further restricting global oil supplies, affecting economies around the world. And with Iran demanding any peace settlement must include reparations and control over the Strait of Hormuz, a return to the status quo in the region is anything but certain. Ferdia Alazer for Counting the Cost.
All right. To discuss this further, we are joined by our panel of experts. From Hamburg, Germany, Muhammad Reza Farzanegan, a professor of economics of the Middle East at Marburg University. In Washington D.C., we're joined by Paulo Fonira, the president of the Global Policy Institute. And in Doha, Nikolai Kojanov joins us. He's a research associate professor at the Gulf Study Center at Qatar University. And of course, I should mention before we get going that we are having this discussion while there seems to be positive signs that the US and Iran could resume talks, but anything could have happened by the time that you actually are watching this. All right, gentlemen. Thank you all for being here once again. Muhammad, we're going to start with you. The US-Israeli bombing campaign has gone after a lot of things. I'm going to give you a few examples: steel factories, aluminum producers, airports, ports, bridges, railways, and of course, oil and gas facilities. Can you give us a sense of the damage, the scale of the damage that we are seeing in Iran right now?
>> Well, as you mentioned, many infrastructures in Iran have been affected, civilian infrastructures and military infrastructures. So, um, from the effect on the Iranian oil exports, we know that Iran was still able to transit its oil to the international market, mainly to China, 1.5 million barrels per day. So it was also tolerated by the US before this current blockade. Um, the estimations that we have from the Iranian authorities as a result of these military attacks on infrastructure is close to 300 billion US dollars. Um, these are, of course, the direct damages on all these uh buildings and infrastructure that we have, and it's not uh taking into account, basically, uh the human costs, the social cost, and the environmental cost of these damages. Right. This is the number that we have from the uh authorities that doesn't also take into account this cost of internet shutdown, which we are now in. It's almost uh 48 days of the internet, internet cut in Iran, which is also affecting significantly the small businesses, civilian economy in Iran. Uh, furthermore, the sanctions which were in place before the war are still there and it's causing substantial cost on Iran.
>> Paulo, let me ask you about the human toll of this that Muhammad mentioned. Uh, a report by the UN Development Programme said the following. I'll read it: "The number of people living below $8.30 per day could increase by 3.5 and 4.1 million, depending on the magnitude of the conflict-related shock, potentially raising the overall poverty rate inside of Iran to as high as 41%." Do you think that that's what the Americans and the Israelis were trying to achieve with this war?
>> Not really. I mean, the, the Americans and the Israelis want the destruction, the obliteration, as we hear often this term, of the Iranian regime. Well, let's not forget the, the initial uh pitch uh for doing this big attack on Iran was uh, we have a golden opportunity to decapitate the regime. When that is done, something else will happen. Iran will change, will become potentially a democracy, and all good, these good things. None of this happened. Uh, the, the, the American objective is not to uh create famine in Iran.
>> Okay. But Paulo, sorry, I have to take slight issue with that only because the White House Deputy Chief of Staff, Steven Miller, said that the US is, quote, "squeezing the economic life out of Iran." I mean, that's not going after the regime, that's going after ordinary people.
>> Okay. Well, that's the thing. Uh, the, if that is the case, uh, it's not, it doesn't work as intended. The idea is to destroy the regime. We know very well that the regime is shielded from, in large measure, from the economic pain that is suffered by the rest of the civilian population, as our reporting indicates. And so it, it seems like for the moment, at least, uh, that the, the pain will be suffered by, is suffered by the civilian population, while the regime, as long as they have enough money to pay the IRGC, to pay the militias, to keep the infrastructure of the government going, they're still okay. The blockade will damage the whole of Iran, but it will take months to for this to take a full effect. And I want to ask you, suffer.
>> Yeah. I want to ask you about the blockade in just a moment, but I want to bring in Nikolai for for a second. President Trump, Nikolai, um, gave his perspective on the scale of damage in Iran. And I just want to play that for our viewers. Listen.
>> I think it's close to over. Yeah. I, I mean, I view it as very close to over. You know what? If I pulled up stakes right now, it would take them 20 years to rebuild that country. And we're not finished. We'll see what happens. I think they want to make a deal very badly.
>> Nikolai, do you agree that Iran has been set back by two decades by this?
>> Well, um, I would say that of course there is an element of the information campaign, information war. Uh, as of now, we do see the serious damage to the uh Iranian's economic infrastructure, but at the same time, Iran's economy also demonstrated a substantial durability, partly fueled by the high oil prices and previously accumulated reserves that basically allowed Iran to partly cushion the negative effects of the war on its economy through the actually receiving much more incomes from the exports of oil during the March, um, than it received a year ago. Uh, and, uh, as of now, we definitely see the certain change in the focus of the war, of the of the of the campaign against Iran, to exactly Hormuz and the necessity to deprive Iran of the ability to, on the one hand, put the pressure on the global economy and thus modify the public opinion in the necessary direction for it, and on the other hand, to gain an extra incomes that allow Iran to compensate, partly compensate the losses it has. Although again, speaking about the current situation, time is definitely not playing in favor of Iran. So those words, those statements by President Trump, they might indeed become true if we see the course blockade on the American side lasting more than a couple of months.
>> Yeah, Nikolai made some good points here. Paulo, your response. Do you think that the US underestimated Iran's resilience in all of this, their pain tolerance level?
>> Absolutely. And I think it's remarkable because Iran has been under sanctions in one fashion or another since 1979, since the Shah left and and Khomeini and and the rest. We know, we all know that story when how the Ayatollah's regime in 1979 and thereafter consolidated itself, and Iran has been almost on perpetual sanctions of one kind or another. And we know they've become masters at evading sanctions with the cooperation of all kinds of agents, including Arabs, you know, on the other side of the Gulf, who who have been uh doing smuggling and and uh money laundering, you name it. And then the shadow fleets and on and on and on. The Iranians have been very good at it. That doesn't mean sanctions don't bite. The riots that you mentioned in your report at the beginning here today, um, happened before the war, right? It was January. The war started at the end of February, and thousands and thousands of Iranians went in the streets, and allegedly tens of thousands, we don't know the exact numbers, were killed as they were protesting. Not about the war, not about anything, but about affordability, about.
>> Of course, and affordability is has a lot to do with with the sanctions, of course. Paulo, and that's what I want to ask Muhammad about because even before this war began, Muhammad, you were making the point that look, sanctions are not a surgical tool that governments make them out to be just to precisely target the Iranian regime. They are a blunt instrument that really, um, you know, are felt by ordinary people. And so I wonder how much worse off is the average Iranian today because of those sanctions?
>> Yeah, that's a very important point to discuss that the economic sanctions as an often presented as an alternative to the war, but in practice, it was a kind of economic war against Iran. Uh, my own uh study on the effect of sanctions on the middle class of Iran showed that the sanctions which imposed after 2012 under the Obama administration up to 2019, that reduced significantly the size of the middle class in Iran by around 12 to 17 percentage points. So, it was a quite substantial uh decline in the size of the middle class in Iran, which was associated with increasing of poverty, and this is what the sanctions basically resulted in, shifting the middle class to lower income, uh, and basically increasing the risk of conflict and instability in Iran was the consequences of these sanctions. As my colleague already said, in January, we had this larger scale protest, which was obviously driven mainly by economic dissatisfaction of the public, uh, with respect to the government policies.
>> Yes, sanctioned in that term contributed a lot on destabilizing the Iranian system, society, by making the people, average Iranian, much poorer than it could be in the absence of those sanctions.
>> Okay, gentlemen, pause for just one second because I want to talk a little bit about the impact of oil sales on the Iranian economy. So, I want to watch this report from my colleague Laura Han and then we'll talk on the other side. Watch.
Oil exports are the backbone of Iran's economy. It's part of a sea trade that powers around 90% of the economy, funding government spending, the military, and helps to withstand sanctions. Oil and gas tankers rely heavily on one route, the Strait of Hormuz. It's one of the most critical shipping lanes on Earth. When the US and Israel began bombing Iran at the end of February, Iran immediately blocked ships from entering the strait, but also increased its own exports. From the 15th of March to the 14th of April, Iran exported 55.2 million barrels of oil. With the current price at around $90 a barrel, Iran would make almost 5 billion US. That's 40% more than it did before the war. But on the 12th of April, US Central Command announced it would blockade all Iranian ports in a bid to sharply restrict its ability to export oil. This could impact not only the economy, but also the military and Iran's Revolutionary Guards. Reuters reported in 2024 that the IRGC controlled up to 50% of Iran's oil exports. Experts say Iran may have some ways around it. It could store oil until routes reopen. There is also a direct freight railway between China's Xi'an and Iran's Arpindry Port, as the majority of its oil goes to China. Or it may use so-called ghost ships, which previously switched off automatic identification systems to evade naval sanctions. But it's not clear if they have the infrastructure to freight oil, and ghost ships come with risk. But if exports stop, Iran's economy may feel it fast. And if Hormuz stays closed, the world feels it too. Laura Khan for Counting the Cost, Al Jazeera.
>> All right, Nikolai, you heard there in Laura's report that the Iranian regime should be making some 40% more from oil sales than previously, um, because of the high oil price. So in some ways, are the Iranians actually better off with the high oil prices despite the war?
>> Well, basically yes. Uh, again, uh, we should not consider them also as a kind of a bulletproof nation. So the sanctions, they do have the effect, and the overall situation, the war is undermining the Iranian economy, and especially its, um, very core base. But at the same time, for now, the high oil prices, it definitely favors the Iranians. Well, at least they were favoring before the decision on the closure of Hormuz on the American side was taken. Uh, because right now, the big question will be to what extent the US government will be persistent in the implementation of uh, these decisions. Uh, for now, the Iranian economy has certain durability. Uh, it has uh oil in reserves floating around that it can uh export, and the volumes, they are quite high, and according to different estimations, it also has necessary uh onshore reserves where it can storage the oil to maintain the uh necessary level of output. However, all all calculations, they show that Iran has no more than probably two months before it will really start feeling the effect of the closure of Hormuz on the American side, and when both its oil output will substantially fall, according to the different estimations, up to 500,000 barrels a day in the worst-case scenario. Uh, and definitely, uh, there will be serious uh problems with the exports of oil to its main consumer, China, who is not demonstrating that much of uh practical readiness to ignore the blockade, but rather supports, um, Iran on words.
>> Yeah, Muhammad, with the this US blockade of Iranian ports in place, yes, the Iranians have done well in the short term, but long term, how bad are things going to be for them?
>> Well, it depends uh how much this blockade would be effective and would be seriously implemented in practice. Up to now, it seems that Americans basically are insisting to stop any shipping to and from Iranian ports. Um, and this is bad news for the Iranian economy if this is going to continue for a longer term. We know that 90% of Iran's import and exports is working through the Persian Gulf and Oman Sea. Uh, and for the non-oil trade, of course, this is around 70%. Uh, this is not, by the way, only oil business. Uh, Iran is very much dependent on food imports. So 30% of its merchandise imports are food imports, which is very high compared to the other neighboring countries in the Persian Gulf. And, uh, this is also a humanitarian cost for Iran. It's not only that they are not able to export their oil to China. So, uh, alternative routes for Iran are quite limited. In the Caspian Sea, from the logistic point of view, the available to three ports in the north are much more limited capacity in order to substitute the damages which this blockade would cause on the south of Iran. Um, and, uh, we are expecting that the inflation uh in this year is going up close to 70% as a result of these higher transaction costs. This is, by the way, the prediction of IMF, the inflation rate of 70% in 2026 for Iran, and the GDP of Iran, gross domestic product of Iran, is expected to decrease by uh minus 6%. So, uh, so it's very much depends whether the Americans insist on this blockade and whether they are successful to implement it, because Iranian Revolutionary Guard also said that if Iranian ports are not functioning on this blockade, no other ports in the Persian Gulf would also function as expected.
>> Paulo, uh, since President Trump tore up the JCPOA, the previous uh, Iran nuclear deal that President Obama had had brokered with the Iranians, he's gone with this maximum pressure campaign. Obviously, he has done damage to the economy with sanctions. But the Iranians have also demonstrated, I think we can agree, a remarkable pain tolerance, though obviously not unlimited, given that the there were protests uh, you know, just a couple of months ago before this war. But I wonder, can you honestly say that this US strategy of, you know, inflicting maximum economic pain to try to get the Iranians to the negotiating table to accept something more on America's terms is actually working? Is it, Paulo?
>> Well, look, now let's get to the latest stage of this strategy, uh, which, as you correctly indicated, goes back to the first uh Trump term when he denounced the treaty and said, "We were going to put maximum pressure on the Iranians so that we can renegotiate this and get a good treaty." Okay, that was many years ago. Let's fast forward to today. We got the blockade. The blockade, in principle, is a pretty good tool in the sense that it prevents, as the other guests indicated, anything from moving in or out, whether it's oil or or critical food imports or anything else. In principle, if the country is sealed off, cannot buy, cannot any, nothing comes in, nothing goes out, that means the end of the oil economy, um, for, for Iran. When, at, at the point in which the storage capacity that exists in Iran will be filled up, they have to close production.
>> But doesn't really they also have a railway that goes to China, though? Shouldn't that also facilitate some capacity?
>> That doesn't that doesn't do anything. That, I'm sorry, you know. Sure, that will mitigate somewhat the damage, but not enough. That nothing beats the the amount of oil that is shipped via tankers or supertankers. So once they filled up the, they have filled up their their storage capacity, they have to shut down production. Shutting down is complicated, very expensive, and once facilities are shut down, depending on the circumstances, it may take, you know, weeks, months, or or or longer to restart once the blockade ends. However, and here's the point. This is the, the theory. For the blockade to take full effect and to really, really bite, it may take at least four, five, maybe even six months.
>> Wow. As President Trump has six months, and here is not an economic issue. This is a political issue. He has said, President Trump declared many, many times, "The war is over. We're done. We won. We have achieved all our objectives. This is it. Now, the Iranians are suing for peace. So, we're going to have a deal or something like that." If this doesn't happen soon, well, then there are political repercussions in the United States. We were talking about, of course, with the November midterm elections.
>> Sorry to interrupt Paulo, only because we're running out of time, but I just want to get Muhammad in. Do you agree with what Paulo just said, that it may take six months for the effect of this blockade to really do damage to the Iranians?
>> It's very much, I mean, if the, if the Americans insist on full blockade, I guess the effects could be felt in Iran sooner than 6 months. Um, if Iran is not able to uh export 1.5 million barrels per day. So that means, uh, and most of these oil are transited from the Gulf islands. So we know that the Persian Gulf and the Strait of Hormuz is basically the key area that Iran is exporting. That means there would be no foreign exchange revenues for the Iranian government. Um, I'm assuming that this blockade is fully complemented, implemented, and also Iran is not trying to spread the cost to the other countries. And also from the point of imports, I mean, majority of Iran's imports coming from the southern areas, from the port of Bandar Abbas, these are the major ports for imports. So, uh, I would expect the, the effect, the significant effect for Iranian society to feel sooner than six months. Uh, but, um, it's not only the blockade. So we are talking about the damage that the war has created for the Iranian economy and the sanctions. So these two, the interaction of sanctions, military damages, and this blockade jointly reduces this resilience of Iranian society. So exact timing is very difficult, I guess, of course, to to measure.
>> Muhammad, I just want to give Nikolai the last word. So, we're running out of time, but just in a nutshell, when the dust settles here, and surely when a deal is reached between the United States and Iran, do you think that Iran may actually be better off than they were before, or are surely they going to be worse?
>> Well, I wouldn't be that optimistic. Uh, it all depends on when the dust settles and when we see agreement, agreement achieved. So, if it's achieved within the next week, days, then definitely the Iranian losses, they are not going to be that big. Uh, but the damage has already been uh inflicted by the military operation, uh, that was uh taking place within the last months. Uh, and definitely we will see uh certain necessity to restore the the electricity, the production base, the the water supply base, there's lots of damage done by the military sector. So we, and Iran definitely will face problems with the uh bringing in necessary funds and investments to uh rebuild its economy. But, uh, it's still a manageable damage, especially given the that I guess that the period of high oil prices will stay with us for a while, not a long period, but still the problem is if the conflict indeed takes months, my assessments are a little bit shorter than my colleagues, though I fully agree with them on all their assessments. So within two, three months, we might see even way more challenging situation for Iran, and its uh reconstruction, revival after the conflict is over will require much more time, and the social consequences will be way higher.
>> All right, Muhammad Reza Farzanegan, Paulo Fonira, and Nikolai Kojanov, thank you all for your time today. I wish we had more time, but uh, it's a fascinating discussion. Thank you again. And that's it for our show. You can get in touch with us on X. My handle is @ScottMlan, and make sure to use the hashtag #AJCTCTC when you do, or drop us an email countingthecost@aljazeera.net. That's our address. And there's more for you online at aljazeera.com/ctc. That'll take you straight to our page, which has individual reports, links, and entire episodes for you to catch up on. All right, that is it for this edition of Counting the Cost. I'm Scott Mlan. For the whole team here in Doha, thank you so much for watching. The news is next here on Al Jazeera. See you.