Thread by @AliVaez

We @FPI_SAIS are releasing a series of reports on Iran Under Sanctions. Iran’s economy has been sanctioned in one form or another since the 1979 revolution. Yet little systematic knowledge exists on the short- and medium-term impacts of sanctions [Thread].
rethinkingiran.com/iranundersanct…

2| The focus has often been on a few metrics that flare up with sanctions tightening: currency depreciation, inflation, and recession, followed by increases in unemployment & poverty. But the more comprehensive picture is lost in political cacophony around the policy's merits.

3| This is the gap that @FPI_SAIS is filling with its Iran Under Sanctions project, which is a 360 degree in-depth view on the implications of sanctions for Iran. This 1st-of-its-kind research provides for an instructive case study on the use of sanctions as a tool of statecraft.

4| The first report, authored by @AdnanMazarei, is on Inflation Targeting (IT) in the time of sanctions and pandemic. rethinkingiran.com/iranundersanct…

5| Of course, high inflation is a growing socio-economic problem in Iran under sanctions, which contributes to a decline in living standards & increased income inequality while hindering economic growth.

6| Iran lacks an effective anchor for inflation expectations. The Central Bank of Iran is muddling through in pursuit of a number of objectives like lowering inflation, financing the public sector, and allocating forex for import of essential goods.

7| The CBI recently announced that it will alter its monetary policy framework to inflation targeting (IT). The increased emphasis on lowering inflation is welcome, but a key question looms: is IT the most suitable framework for lowering inflation in the near term?

8| Very likely, the budget will remain the government’s main tool for combating the recession. Fiscal considerations are thus very likely to dominate monetary policy and undercut the CBI’s goal of lowering inflation.

9| CBI faces an almost impossible task given its limited independence, legally and practically, its inadequate credit and interest rate policies, difficult economic conditions and social and distributional pressures from various stakeholders.

10| Important changes in the overall policymaking framework must be implemented, together with some easing of sanctions, before inflation can be lowered substantially. Adopting IT now could both be ineffective and lead to a further loss in CBI credibility.

11| For now, lowering inflation would require an agile/adaptive combination of fiscal policy, reduced focus on the exchange rate & more active use of interest rates, along with targeting of monetary aggregates.

12| Current econ crisis offers an opportunity to prepare for IT by improving statistics quality/timely dissemination, upgrading the govt securities market's functioning, securitizing the govt/public enterprises arrears to the CBI/banks, & containing expansion in balance sheets.

13| The second report on the impact of sanctions on Iran’s energy sector is authored by @SVakhshouri who looks at the challenges that the sector has been facing and what has kept it resilient despite the immense pressure. rethinkingiran.com/iranundersanct…

14| Sanctions have been extremely effective in cutting Iran’s oil production and export. Since Apr 2019, when the restrictions fully took effect, oil sales, the main govt revenue, have been fluctuating around 500,000 bpd, %80 lower than Iran’s 2.5 m bpd export pre-max pressure.

15| Compared to Obama-era sanctions, this round cut deeper into Iran’s oil exports due to: an oversupplied market, more aggressive sanctions enforcement, massive financial restrictions, blocking transportation insurance, other exporters filling the gap... bbc.com/news/business-…

16| However, Iran’s natural gas and condensate production and refinery capacity has increased over the past few years although the current U.S. sanctions, unlike the ones b/w 2012-2015, include condensate export.
financialtribune.com/articles/energ…

17| Iran lost almost all its condensate market share in South Korea and Japan. However, Tehran was able to mitigate the risk of sanctions by consuming more condensate domestically, which both made it self-sufficient and created a new gasoline export capacity.

18| Still, Iran produces more condensate than its domestic needs. It prefers to store unsold condensate in Iran/China or tries to find creative ways to use condensate (eg: experimenting a new feedstock for its oil refineries, petrochem factories, or, potentially, power plants).

19| Iran’s natural gas production hasn’t been impacted by sanctions that much, as well. However, if sanctions were to continue and/or Iran cannot access international capital and technology, production levels may even start to decline.

20| To bypass the sanctions, Iran's adopted different strategies, although none were perfect: offering discounts on delivery, turning off the tankers’ geolocators, pre-selling oil in return for a line of credit, goods or services, pre-selling oil in the stock market, etc.

21| Iran has the capacity to go back to 2.5 m bpd oil and condensate export if sanctions are lifted. But it’ll be challenging since the market is oversupplied and the global demand is still low due to COVID.

22| One effect that is likely to outlast the sanctions is that Iran would use more of its oil domestically, while exporting other energy products, thus maximizing broader economic benefits. Read @SVakhshouri's full report on @SAISIran webpage:
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