Iran's economic state predates latest crisis | Number Theory

Iran’s economy has been paying for the geopolitical strife around the country for decades now and things were pretty bad even before the latest escalation

The US attacked Iran’s nuclear installations early Sunday morning. The military consequences of the attack in terms of Iran’s response and whether this triggers an escalatory cycle remain to be seen. But Iran’s economy has been paying for the geopolitical strife around the country for decades now and things were pretty bad even before the latest escalation. Here are three charts which explain this in detail.

AFP picture

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  Iran’s economy peaked in the mid-1970s

  World Bank data shows that Iran reached the peak of its global GDP share in 1976 when it had a share of 1.12% in the world economy. This was not very different from what China and India had at that moment. Iran’s global GDP share was just 0.55% in 2023, the latest period for which data is available with the World Bank. The economic squeeze has been far more punishing in terms of living standards. Iran’s per capita Gross National Income was $9,486.07 in constant dollar terms in 1976, when it peaked, and fell sharply to $2,623.39 by 1988 and has fallen again after a period of brief recovery. Every conflict or precipitation leading to more sanctions has hurt Iran’s economic prospects even more.
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  Where the sanctions have hurt most is Iran’s petroleum sector

  Iran holds around 24% of the West Asia’s and 12% of the world’s proven oil reserves. This kind of a resource endowment should have made it a prosperous country. But international sanctions have completely derailed this route for Iran. OPEC figures show crude production peaked at 6.02 million barrels per day (mb/d) in 1974 but fell to 2.86 mb/d by 2023, with oil’s share of exports dropping from roughly 92% before 1979 to about 36% in the early 2020s, and Iran’s share of global production tumbling from 10.9% to 3.9%. In December 2024, the country’s Oil Ministry warned that restoring the 400,000 b/d lost since 2018 would cost about $3 billion, and cautioned that output could fall to 2.75 mb/d by 2028 if trends persist. Even before the latest tensions with Israel, official forecasts suggested that by 2026 Iran would face the stark choice of meeting domestic demand for oil or preserving vital export revenues and the foreign exchange reserves that depend on them.
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  The sanctions have scuttled Iran’s ability to utilise its demographic dividend window

  Iran’s total fertility rate has plunged from 6.63 in 1980 to 1.68 in 2024, dipping below the 2.1 replacement rate by 2000. This shift has aged the population, yet 69.3% remains within the 15-64 working-age bracket (a majority which is set to persist for decades). Reaping this demographic dividend calls for sound governance and global reintegration, but Tehran’s protracted geopolitical conflicts have made this impossible. Donya-ye Eghtesad, an Iranian daily newspaper, in May reported that the country’s official inflation rates have remained above 30% for 57 consecutive months, surpassing even wartime inflationary periods. Persistent price rises have crippled purchasing power, with the rial shedding almost 31% of its dollar value over the past decade. Manufacturers now face volatile input costs, banks endure widespread withdrawals and households are increasingly holding on to more reliable currencies and tangible assets such as gold. Youth unemployment in Iran has hovered above 20% since 1998, fuelling widespread discontent. A survey by Stasis Consulting, a public opinion research firm that specialises on Iran, in October 2024 found that 74% of 18-29-year-olds believe their peers want to emigrate, and 77% doubt they will ever enjoy prosperity in Iran.
• To be sure, there is nothing to suggest that the current military escalation against Iran could solve these problems. “The reality is that no Iranian regime — past, present or future — will surrender Iran’s nuclear ambitions. If anything, by attacking Iran’s nuclear sites while Iran was negotiating with the US, Israel has reinforced the incentive for the Islamic republic to rush to acquire a nuclear deterrent,”Roham Alavandi, director of the Iranian History Initiative at LSE, wrote in the Financial Times on June 18.