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Tuesday, November 5, 2024

They pay as much as 580,000 rials per dollar and have a frustratingly low GDP. Economic gap between enemies

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Oil prices rose on Wednesday (October 2) morning after Iran's missile attacks on Israel. Prices of North Sea Brent crude oil and American WTI crude oil rose by more than 1.5 percent each on Wednesday morning – to $74.74 and $71.04. per barrel (159 l). Already on Tuesday, prices jumped by about 2.5 percent.

Israeli Prime Minister Benjamin Netanyahu has already announced retaliation against Iran, but did not provide details. Israel's targets may include oil installations in Iran and other strategic locations, reports the American news website Axios, citing sources in the Israeli authorities.

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“Iran supplies markets with about 4 percent of global oil supplies. What matters now is whether Saudi Arabia will increase its production if Iranian supplies are interrupted,” wrote experts from the Capital Economics analytical center.

Iran: oil exports despite sanctions

Oil exports are an important source of income for Iran. Even though the United States has reimposed and expanded sanctions on the country's oil industry, Iran still manages to sell oil abroad, especially to China.

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In 2023, Iran exported oil worth over $35 billion, Oil Minister Javad Owji announced in March.

According to energy sector analysts, in the period from January to May 2024, sales of Iranian oil increased to an average of 1.56 million barrels per day. “The increase in exports was possible thanks to increased oil production, greater demand from China and the expansion of the spectrum fleet,” we read in the Vortexa report from the end of June 2024.

The ghost fleet consists of tankers that smuggle oil, thus avoiding sanctions. According to the US non-profit United Against Nuclear Iran (UANI), Iran's ghost fleet consists of at least 383 ships.

Iran sells its oil at a 20 percent discount compared to world market prices, estimates the London-based Iran International station. However, buyers risk getting into trouble due to US sanctions. “Chinese refineries are the main recipients of illegal oil from Iran, which is then mixed by intermediaries with goods from other countries and then marketed in China as imports from Singapore or other countries,” the broadcaster reports.

Ayatollah Ali Khamenei Ayatollah Ali Khamenei/Photo. REUTERS/Office Of The Iranian Supreme Leader/wana

Weak currency and high inflation

Sanctions on Iran apply not only to the oil industry, but also to international payment transactions. This caused a sharp decline in the value of Iran's rial currency. Today, Iranians have to pay 580,000 on the black market. rials for one US dollar. After the agreement to halt the Iranian nuclear program was signed in 2015, one dollar was worth only 32,000. rials.

Sanctions and a poor exchange rate are making everyday goods increasingly expensive in Iran – also because the country is not completely independent when it comes to food supplies. The inflation rate is currently around 40 percent.

GDP per capita: the gap between enemies

Although oil export revenues have stabilized in recent years, Iran is not an economic powerhouse. Its population of approximately 88 million is almost ten times larger than that of its archenemy Israel (9 million). However, economic output in 2023, amounting to $403 billion, was much lower than in Israel, where it amounted to $509 billion.

The differences become even more pronounced when you compare the total value of goods and services produced in a year, i.e. GDP, with population. According to data from the International Monetary Fund, Iran's GDP per capita last year was $4,663, and Israel's was $52,219.

Over the past two decades, the economic situation of the middle class in Iran has significantly deteriorated. “Because of the sanctions, the standard of living has returned to the level of 20 years ago,” said Djavad Salehi-Isfahani, professor of economics at the American university Virginia Tech, in an interview with DW.

There is corruption and lack of transparency in Iran

A lot of money is leaking into the opaque structures of the Shiite authorities in Tehran. In Transparency International's corruption index, Iran ranks 149th out of 180 countries. Israel is in 33rd place, the USA is in 24th place and Germany is in ninth place.

The activities of the Revolutionary Guard (para-army) and religious foundations that control central parts of the economy are particularly murky. They don't pay taxesdo not have to publish balance sheets and reports, and, above all, they report to the political and religious leader of the Islamic Republic, Ayatollah Ali Khamenei.

The dissatisfaction of the population is already growing

In Iran president they are elected directly by citizens, most recently in July 2024, but the country is not a democracy. Of the 80 candidates, the ultra-conservative Guardian Council allowed only six to run in the elections.

The regime is trying to buy social peace through subsidies, including: for food and gasoline. Despite all repression, he seems to be afraid of social dissatisfaction. Protests against the authorities, triggered by rising prices or the requirement for women to wear headscarves, are recurring.

A war with Israel would be a serious economic burden for Iran. It could result in the government having to save elsewhere, further increasing dissatisfaction in the country.

The article comes from the website Deutsche Welle



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