What Does the Expected Lifting of American Sanctions Mean for Iran's Economy?

SadaNews - The battlefronts between the United States and Iran have extended into multiple domains, political, cultural, and economic, following the outbreak of the Iranian revolution in 1979. One of the most notable aspects at the economic level was Washington's freezing of huge amounts of Iranian assets as part of the sanctions imposed on Tehran.

The United States began freezing Iranian assets in 1979, following the hostage crisis at the U.S. embassy in Washington, and the freezing decisions continued to escalate with rising tensions between Washington and Tehran over the nuclear file.

The U.S. Institute of Peace estimates the amount of frozen Iranian funds to be around $100 billion.

The institute clarifies that Washington used asset freezes to prevent the Iranian central bank from accessing its foreign currency reserves in various countries, which limits its ability to manage the currency exchange rate of the Iranian rial and finance import costs, and puts pressure on the local economy by depriving it of massive cash assets, especially in times of crises.

U.S. President Donald Trump promised to lift sanctions on Iran if an agreement was reached with Tehran.

So, what does the expected lifting of these sanctions mean for Iran's economy?

The Agreement Under Obama

Iran managed to reach an agreement regarding its nuclear program in 2015 during former President Barack Obama's era, which included limiting its nuclear activities in exchange for a easing of the sanctions imposed on it, opening the door for Tehran to recover its frozen assets, and it was able to obtain $4.2 billion from oil revenues held overseas.

However, President Donald Trump unilaterally withdrew from the nuclear agreement in 2018 during his first term and re-imposed broad American sanctions on Tehran, preventing it from using the frozen funds.

Reuters reported that most countries with a relatively large amount of frozen Iranian money are those that purchase Iranian oil and gas, in addition to payments for arms purchases from Western countries that were not delivered to Tehran after the fall of the Shah's regime.

China, Japan, India, and South Korea are among the main countries with frozen Iranian funds, stemming from revenues from Iranian oil purchases, in addition to Iraq, which relies on Iran for a significant portion of its electricity needs.

Since 2018, Iran has repeatedly tried to convince countries holding frozen Iranian funds to enter into barter deals involving the use of these funds to purchase goods not covered by the American sanctions, but these countries have avoided such deals for fear of facing retaliatory measures from Washington.

Tehran has not ceased its efforts to recover its frozen funds and lift the imposed sanctions due to the significant economic gains it would achieve from the lifting of these sanctions, especially in light of the suffocating economic crisis the country is experiencing.

Widespread Economic Crisis

Iran is facing wide-ranging economic difficulties even before the outbreak of the recent war that began on February 28. Some of the most notable features of Tehran's economic woes include the continued decline of the Iranian rial's exchange rate against the dollar, which has fallen to about 1.77 million rials per dollar at the current official price (about 178,000 tomans).

Inflation levels in Iran have risen to record highs, reaching 73.5% annually, according to the Guardian, while food prices have increased by 115%.

With the continuous rise in prices, the Iranian government announced that it would double the value of the vouchers it provides to citizens for purchasing essential goods.

Rising Unemployment

Iran is suffering from a high unemployment rate, especially among youth. The U.S.-Israeli war on Iran has exacerbated this situation. Iranian Labor Ministry assistant Gholam Hossein Mohammadi stated that the war has "destroyed more than one million jobs so far, in addition to another two million jobs that have evaporated directly and indirectly.".

A correspondent from Al Jazeera in Tehran reported from workers in various sectors, including construction, transportation, and education, that the unemployment level is much higher than the official figures, especially as many lost their internet-related jobs after it ceased to operate.

The minimum wage in Iran is about 170 million rials (around $96), after the Iranian government raised it by 60% last March.

According to estimates by the United Nations Development Program, as reported by the Guardian, about 4 million Iranians may fall into poverty as living standards decline and the prices of basic goods rise.

Economic Benefits

In light of this bleak economic picture in Iran, which has been exacerbated by the pressures of war, the release of frozen funds and the lifting of sanctions are of utmost importance in improving Iran's economic conditions.

Iran's gross domestic product was about $475 billion in 2024, according to World Bank figures, meaning that the frozen funds, amounting to about $100 billion, represent over 20% of Iran's total GDP in a year before the war.

In this context, oil expert Mamdouh Salama stated in an interview with Al Jazeera Net that lifting sanctions on Iran is extremely important for its economy since "the weakness of the Iranian economy does not stem from internal factors, but is a result of American sanctions.".

Salama believes that "if the American sanctions are lifted, Iran can achieve good economic growth rates driven by oil and gas revenues" and can further advance its relationship with China, which holds the largest share of frozen Iranian funds, estimated at about $20 billion.

Lifting the sanctions offers the following benefits to the Iranian economy, as explained by oil expert Mamdouh Salama:

The central bank will be able to manage foreign trade payments better and improve the terms of this trade with different countries, which means lower prices for imported goods, reflecting positively on the pockets of Iranians.

Increasing the supply of dollars in the Iranian market, which will raise the exchange rate of the rial against the dollar.

Curbing inflation rates if the currency exchange rate is improved and import prices are reduced.

Using frozen funds to rebuild what the war has destroyed, thus providing jobs for the workforce, particularly the youth.

Source: Al Jazeera