1.

5 Irans Economy

The choice for a nuclear program is evident for Iran and as this has some positivity,
it also comprises of a lot of negative elements that could disturb Irans Economy. It
is also implied that at both macro and micro economic levels the potential direction
has crumbled under the burden of this decision. It is also evident that Iran has given
a lot of attention in this domain and has weighed all its choices well before deciding
the fact of their current stance. These decision makers in Iran might have
overlooked the international market and might be just focused on self-sustenance.
This approach has given the country and its citizens a steady degree of nationalism,
extremism and radicalism. It can further be seen that they previously had been
denied with the indulgence in international markets, Foreign investment,
Information Technology and other such variants which predominantly give rise to
potential economic sabotage.

There have been extreme international sanctions that have been placed on Iran on
the basis of its nuclear policy. This in turn has worsened the domestic and fiscal
deficit and reduced trade to mere ashes in Iran. The elections of 2009 signified the
presence of two groups in the country. One, who disagree with the sanctions and
argue it with their European counterparts, the second group however is of the point
of view that want Iran to change its policies in order to make their lives easier. It
also highlights the second group to be more powerful of the two. It is potential
stance of military and political pressure that mounts the position in a manner that
violates all the terms but accepts the consequences. The Former President,
Ahmadinejad is known for this policy and is ill-reputed for his policies on the matter.

The 1979 Islamic Revolution changed the Irans economic

structure and its history too. Khomeini changed the whole
outlook of Iran and transformed it into an Islamic state
with a public-sector-dominated economy. After the
revolution, the eight years exhaustive Iran-Iraq (1980-
1988), put a hard blow to the economy of Iran. In terms of
GDP, Iran, more than U.S. $ 482.45 billion, is the second
largest economy in the Middle East after Saudi Arabia. In
terms of population, at about 73 million, it is also the
second largest nations of the Middle East. Iran's economy
is dependent on a large hydrocarbon sector. Small-scale
private agriculture and services, manufacturing and
state-controlled financial organizations are important
sectors of Irans economy.
The natural resources of a state are considered valuable
and quantifiable, so they tend to rank high in everyone's
power inventory. A naturally occurred substance is called
a natural resource, which are useful for the people. Those
needs, however, change with time. Natural resources
include soil, water, forests, metallic and non-metallic
minerals and many other elements of the physical
environment that are difficult to evaluate. Iran has
suffered many earthquakes because it is located in a
major seismic belt. Iran is blessed with natural resources,
including petroleum and natural gas. Copper is one of the
most important minerals in Iran. Two of the country's
largest copper mines are Mirduk and Sarcheshmeh, both
in the province of Kermanshah. Iran's desert has plentiful
supplies ofsalt. Other minerals found in Iran include
asbestos. Chromium, gold, iron ore, lead, manganese,
sulphur, tungsten, turquoise, uranium, and zinc. Rising
around 914 to 1,524 meters above sea level, the Iranian
plateau dominates much of the country's interior. The
Iranian plateau is almost surrounded by mountain ranges
to the west lays the Zagros Mountains, Iran's longest
range, while to the north lays the Elburz Mountains,
including the highest peak in the country.
In the Iranian fiscal year 2010/211 (March 21, 2010-March
20, 2011), the service sector (including government), at
about 50 percent, contributed the largest percentage to
Irans GDP. The hydrocarbon sector is the second largest
contributor to the countrys GDP at about 25 percent.
Furthermore, agriculture contribution is about 10 percent.
In terms of its natural gas resources, Iran ranks second in
the world and third in oil reserves. According to the latest
estimates and reports, it is the second largest OPEC oil
producer with output that is more than 441,000 million
barrels per day in 2012. The major source of income of
the country is the exports of its petroleum products and
natural gas. Therefore, its economy depends upon the
international prices set for these commodities. Irans
domestic oil consumption is about 1,774,000 barrels per
day (b/d) which affected its exports. Iran's average crude
oil production, in adherence to the production quotas set
by the OPEC, was 4.3 (millions barrels per day) in 2009
and 4.9 (millions barrels per day) in 2010. Irans Oil
exports in 2009/2010 were 2,165 (thousand barrels per
day) reduced by a little margin to 2,102 (millions barrels
per day) in 2010/2011.
Macroeconomic imbalances and inefficient public
administration has stifled the Irans economic growth,
particularly private business. High inflation is one of the
key Irans macroeconomic problems. Inflations have
consistently remained at double-digit levels, despite
major efforts of the Central Bank of Iran. Furthermore,
balance of the Oil Stabilization Fund was reduced, due to
the high oil prices. This boom and bust cycles in Irans
economic performance and condition further impeding
the private sectors investment and reduced the job
creation in the country. Because of lower international
commodity prices, a sharp fall in inflation occurred in
2009/10 because of lower international commodity
prices. The rates of the commodity prices have been
falling from 25 percent in 2008 to about 10 percent- the
lowest in the last three years.
Irans economy is under pressure due to international
sanctions relating to its nuclear program. Since the turn
of the new century, Iran had experienced positive rates of
the real economic growth. According to the International
Monetary Fund (IMF) reports, the annual change in GDP of
Iran registered at 5.8 percent for 2006, 6.5 percent for
2007, 3.5 percent for 2008, 2.6 percent for 2009, and 2.6
for 2010 too. Iran stands at the position of 94, as
compared to the world in terms of real economic growth.
Analysts argue that Irans economy will face growth, and
this economic growth will be just because of the rising
international prices of the petroleum products. In
addition, the growth of the Irans economy also has been
associated with the weather-related agricultural recovery
and the reforms under the current Iranian President
Mahmoud Ahmadinejad. They are monetary and fiscal
policy reforms and weather-related agricultural recovery.
The oil-related economic growth of the country has been
modest partly due to the Organization of the Petroleum
Exporting Countries (OPEC) oil production capacity
constraints on Iran.
Other macroeconomic indicator includes inflation.
According to the reports, inflation levels have been
increasing in Iran due to international sanctions and it is
consistently having been in the double-digits. The anti-
inflationary policies Iranian government have reduced
inflation considerably from the average rate of 23 percent
in the 1977 98 periods. The official rates of inflation for
fiscal year 2010/2011, was 10.2 percent. Irans currency,
the Riyal, has been devaluing in real terms against the
U.S. dollar because of inflation and many other
international sanctions are playing their role as well.
In Iran, the basic commodities prices have been on the
rise due to the inflation. The Iranians have been
struggling hard to adjust their budgets with the rising
cost of the basic commodities, like foods, such as rice,
chicken, and eggs, and the housing prices. The oil and
gas sectors are under the total control of the Iranian
government. The National Iranian Oil Company (NIOC),
which is totally state-owned organization, has the total
monopoly over the oil and gas production and exploration
in Iran. Iran accounts for almost10 percent of the worlds
proven oil reserves, which are approximately 137 billion
barrels. Most of the countrys crude oil deposits are in the
south-western region. It is also a fact that Iran is the
worlds second largest gasoline (Petrol) importer after the
U.S. Iran imports gasoline from India, Turkmenistan, the
Netherlands, Azerbaijan, France, Singapore, and the
UnitedArab Emirates (UAE).
Agriculture sector of Iran is substantial. Caviar and
pistachio nuts constitute significant portion of Irans non-
oil exports. In fact, the climate change issue would
definitely affect Irans agriculture sector. Drought period
from 1988-2001 was highly damaging. Iran, as result of
that drought period, became major importer of wheat.
Iran used its oil export revenues to pay the agricultural
imports to meet its domestic needs. However, Irans
economy is under pressure due to the rising international
food commodity prices combined with the population
increase. According to the official reports released by the
Iranian government, total farming and horticultural crops
were increase compared.
In 2009/10, 175.2 thousand tons of agricultural goods,
valued at Riyals. Furthermore, Riyals 484.8 billion traded
on Iran Mercantile Exchange., indicating one percent
increase and 24.7 percent decrease respectively, in terms
of weight and value, compared with the year before.
Corn, barley, soybean meal, tea, poultry, wheat, and
wheat bran traded as major Iranian agricultural exports,
on the Agricultural Commodity Exchange. In that year
(2009/2010), based on preliminary data released by the
Customs, 3.1 million tons of various agricultural goods,
worth U.S. $4.3 billion were exported indicating 8.6
percent decrease in terms of weight and 23 percent
increase in terms of value. Meanwhile, 18.4 million tons of
various agricultural products, valued at U.S. $ 8.5 billion
were imported, showing 1.7 percent increase and 6.6
percent decrease, respectively. The trade balance of the
agriculture sector ran a deficit of US $ 4.2 billion in
2009/10, down from $5.6 billion in the year before.
According to the statistics issued by the Central Bank of
Iran, in 2009/2010, government general revenues totalled
Riyals 460,737.1 billion, representing an increase of 21.5
percent compared with the preceding year. Share of the
tax revenues in total revenues increased in 2009/2010.
The share of government tax revenues reached the Riyals
300,035.5 billion in 2009/10, indicating 25.1 percent
growth. In fact, the highest share in tax revenues, 69.7
percent, belonged to direct taxes. Therefore, the Iranian
government reliance on tax revenues to finance expenses
is a matter of great concern.
Expansion and enhancement of foreign trade, particularly
export of any state is the maininterest. This is the major
cause of economic growth, and ultimately raises the
competitive capabilities of any country in the world. The
council of Public Culture declared the October 21 as the
National Day of Export in the Islamic Republic of Iran, in
1997. This decision indicates the existence of Iranian
governments will to promote exports and consequently
to promote economic growth of the country. Japan, China,
Turkey, Italy, United Arab Emirates (UAE), and South
Korea are major trading partners of Iran. A prominent
Iranian economist, SadighehAtrkar Roshan, argues that a
basic issue in applied economics is the role of exports in
the process of growth. From a demand-side perspective,
the continuous demand growth cannot maintain in small
domestic markets like Iran, which is bound to be
exhausted quickly. He further argues that export markets
are almost limitless. Hence, they do not involve growth
restrictions on the demand side.