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MENA Quarterly Economic Brief, July 2015: Economic Implications of Lifting Sanctions on Iran


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This issue of the MENA Quarterly Economic Brief (QEB) traces the economic effects of the latter development—removing sanctions on Iran—on the world oil market, on Iran’s trading partners, and on the Iranian economy.

The most significant change will be Iran’s return to the oil market. The World Bank estimates that the eventual addition of one million barrels a day (mb/d) from Iran, assuming no strategic response from other oil exporters, would lower oil prices by 14 percent or $10 per barrel in 2016.  Oil importers, including the European Union (EU) and United States (US), will gain while oil exporters, especially the Gulf countries, will lose. 

Secondly, once sanctions and restrictions on financial transactions are relaxed, Iran’s trade, which had both declined in absolute terms and shifted away from Europe towards Asia and the Middle East, will expand.  The World Bank estimates that sanctions reduced Iranian exports by $17.1 billion during 2012-14, equivalent to 13.5 percent of total exports in that period and about 4.5 percent of GDP.  Our analysis suggests that the countries that will see the largest post-sanctions increase in trade with Iran include Britain, China, India, Turkey, and Saudi Arabia.

Thirdly, the Iranian economy, which was in recession for two years, will receive a major boost from increased oil revenues—conservatively estimated at about $15 billion in the first year—expansion in trade and lower trade costs.  In addition, there are estimates that Iran holds about $100 billion worth of frozen assets overseas (including investment in oil projects overseas) of which $29 billion in Central Bank’s assets and oil revenues will be released immediately after sanctions removal.

Finally, foreign direct investment (FDI), which had declined by billions of dollars following the tightening of sanctions in 2012, is expected to pick up.  There has already been some interest shown by foreign multinationals since the April 2015 framework agreement, especially in the oil and gas sectors.  The World Bank expects FDI to eventually increase to about $3 - $3.5 billion in a couple of years, double the level in 2015 but still below the peak in 2003.