1. There is a tendency to assume that sanctions must be causing exceptional economic hardship in Iran. But the irony is that the global financial crisis led to 5-10% contractions in a bunch of countries back in 2009 while Iran was left on the sidelines. ft.com/content/706bfc…
2. Had Iran's economy been as integrated with the global financial system as some of its frontier/emerging market peers, it may have still have experienced a contraction around the year 2009 of the same magnitude as it experienced in 2012 (7.5%) due to sanctions.
3. The same thing may be happening again. We can look at the 9% contraction predicted for 2019 and think that it's a devastating blow to Iran's economy. But it isn't exceptional when considering that the coming financial crisis will cause similar contractions in many countries.
4. Iran's current contraction may reflect the same readjustment that the economy went through in 2012 at the peak of the multilateral sanctions campaign. The following year Iran rebounded to zero growth. The question is whether the fundamentals today suggest history will repeat.
5. This context matters when evaluating the claim that Iran's government will either A) capitulate to US demands or B) collapse altogether because of the max pressure campaign. The claim is postulating an extraordinary political outcome on the basis of ordinary economic malaise.
6. The average GDP growth of upper middle income countries from 2006 to 2016 was 5.4%. Under sanctions, Iran averaged 2.9% growth in that decade. The real story is that Iran is falling behind among its peers (relative decline), not that it's headed to collapse (absolute decline).
• • •
Missing some Tweet in this thread? You can try to
force a refresh
1. @Brad_Setser's new NYT op-ed argues that China presents a "danger the world economy" because of its enormous trade surplus in manufactured goods.
I think he is identifying an important issue about imbalances.
But his argument and this chart ⬇may exaggerate the problem.
2. At first glance, the chart substantiates the claim that China is exporting a disproportionate volume of manufactured goods to the world, even compared to other big industrial exporters like Germany and Japan.
But the chart presents surpluses as a share of *global* GDP.
3. This is a peculiar choice. If we want to contextualize China's growing exports of manufactured goods, we need to think about China's growing economy.
Setser rightly points out that the total value of Chinese manufactured exports have surged, especially since the pandemic.
1. So Netanyahu came to Washington and what he got is a memo on Iran, not an EO with new sanctions designations.
Trump said he is "unhappy" to sign to memo, and that he hopes it "will hardly have to be used," while also stating he wants a deal with Iran.
Huge shift from 2018.
2. If Trump was really aiming to resume maximum pressure, he would have signed a new EO to widen sanctions on Iran's oil sector, and Treasury would have designated Chinese ports and refiners pursuant to the EO in order to reduce volumes of Iranian crude flowing to China.
3. These ports and refiners are known targets and the Biden administration had almost certainly prepared the designations that are ready on the shelves of OFAC.
Biden didn't enact these sanctions because of concerns of blowback for global oil markets and US-China relations.
1. If there’s any geopolitical logic in the Trump tariffs, this is it:
To sustain the fleeting unipolar order and keep “America first,” the US doesn’t need to confront adversaries. It needs to coerce allies.
Trump is testing how economic coercion can make *allies* obey.
2. US political and business elites increasingly believe that the rules-based order and globalization has served to reduce the hard power gap between the US and its rivals, especially China. This threatens unipolarity.
Biden’s braintrust helped usher in this new consensus!
3. @adam_tooze has written extensively on the striking coherence between the outlooks of the two administrations.
Trump, like Biden, wants to move away from the current international economic order, to put “America first.” lrb.co.uk/the-paper/v46/…
1. Iran is in the midst of a slow-moving energy crisis.
Sanctions are partly to blame. They have prevented investment and access to technology.
But regulation is a bigger challenge. More than 60% energy generation in Iran is undertaken by quasi-private companies.
2. This is a legacy of Iran's long and tortured push for market liberalization, which gained momentum in the early 2000s only to a hit wall when sanctions began to isolate the economy.
Officials knew that liberalization could lead to greater competitiveness and efficiency.
3. But by the time the privatization plan was ready in 2013, financial sanctions had put Iran into a recession. The private sector was on the back foot.
A total of 22 power plants were transferred, mainly to quasi-state companies that had been opportunistically created.
1. The new sanctions targeting key Russian banks have caused a sharp devaluation of the ruble. Russia's central bank isn't going to be able to keep devaluation and inflation in check as FX revenues are interrupted.
Does this mean sanctions are finally working?
Probably not...
2. To know if sanctions are working, we need to be precise about the goals.
The primary goal of sanctions is to create enough economic pain to convince Putin to change his behavior and cease the war in Ukraine. This is the coercive aim.
3. However, if Putin cannot be coerced, then the secondary goal is that the sanctions deprive him of the resources he needs to pursue his war aims.
It is highly unlikely that either goal will be achieved, even if Russia now enters a period of "stagflation."
1. Sanctions are meant to crush industrial output. But sometimes the opposite occurs.
In Iran, the white goods industry has a problem: sanctions-induced overcapacity.
For @phenomenalworld, @BarzinJafartash and I explore how sanctions and industrial policy can collide.
2. As an oil exporter, Iran has long struggled to develop its manufacturing base.
In the early 2000s, it suffered from a classic case of "Dutch disease." An oil boom led to appreciating currency, more purchasing power, and rising imports at the expense of domestic producers.
3. But then the sanctions hit.
For the most part, sanctions have been a drag for Iranian industrial firms. Output in the automotive sector has fallen significantly, as Iranian automakers are cut-off from global supply chains and starved of investment.