July 9, 2015


Who Benefits from Iran Sanctions Relief? : Sanctions relief will mean "more mansions and Ferraris on Tehran's streets." (Alireza Nader, July 2, 2015, National Interest)

So who would benefit from the post-deal sanctions relief? There is no easy answer to this, as all parties concerned--the Rouhani government, the Iranian people, and the Revolutionary Guards in control of Iran's regional policies­--are likely to benefit. Nevertheless, much of the economic boost from sanctions relief is likely to be consumed internally by the Rouhani government, the political-economic elite, and to some extent the Iranian people. Those responsible for Iran's foreign policy, including the Revolutionary Guards, will have more resources, but Iran's regional influence is not as much dependent on money as it is on Tehran's ability to exploit the growing instability around it. And that takes less funding than often assumed.

Upon taking power, the Rouhani government expressed shock at the economic disarray former President Mahmoud Ahmadinejad had left behind. Ahmadinejad had presided over the highest oil prices in Iran's history. Yet much of the nearly $700 billion in oil money earned under him was spent on projects with little benefit for the average Iranian. Quite a bit of it was spent on subsidies meant to gratify Ahmadinejad's lower class constituency. For example, Ahmadinejad sunk billions into the Mehr subsidized housing program, but it has been deemed unsuccessful and wasteful by many in Iran. Many of the houses built are poorly constructed or remain unfinished. The Rouhani government has blamed Mehr for causing much of the inflation faced by the country. Billions of dollars also disappeared due to corruption--several members of Ahmadinejad's government have been charged or are under investigation for corruption, and more cases will likely emerge after a nuclear deal.

In addition, Ahmadinejad provided billions of dollars in loans and no bid contracts to Revolutionary Guards affiliated companies. A substantial amount appears to have been gobbled up by Iran's influential clerics and wealthy foundations (bonyads). During Ahmadinejad's presidency, Tehran's streets were flooded by luxury cars driven by the children of wealthy Guards and clerics. Iran no doubt provided money to Hezbollah and Hamas in addition to a number of other allies. But the amounts provided (estimates range in the hundreds of millions of dollars a year) pale in comparison to the billions spent and squandered on Ahmadinejad's domestic ambitions. It is therefore not surprising that Rouhani, once in office, discovered government coffers to be nearly empty and national debt nearly reaching $100 billion.

Much of the money repatriated to Iran will have to be spent on addressing the government's inherited problems. In addition, Iran needs an estimated $200 billion in investments for its dilapidated energy sector. But perhaps more importantly, at least some of the economic benefit from sanctions relief has to trickle down to the average Iranian. Rouhani was able to win his election because Iranians were desperate for change, especially economic relief.

Posted by at July 9, 2015 7:08 PM

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