The novel coronavirus pandemic’s economic impact on Iran is likely to force a substantial reduction in funding terror in the region, far beyond the impact of sanctions to date, an INSS report said.
The report by Institute for National Security Studies Iran expert Raz Zimmt and associate Tomer Fadlon said, “The outbreak of the coronavirus dealt a harsh blow to the Iranian economy, which had already fallen to a record low point in the wake of economic sanctions imposed by the US and the decline of oil prices.
“The economic impact of the pandemic is particularly severe because it harms sectors that were less affected by the sanctions,” said the report, published last week.
The experts said Tehran is trying to gain relief from the sanctions, but in the meantime has been forced to ask the International Monetary Fund for a $5 billion loan.
“Tehran will probably be hard-pressed to finance some of its military activity in the regional arena. Iran has already been compelled by the renewal of American sanctions two years ago to reduce its support for particular organizations in the Arab world, including Hezbollah, which is facing severe economic distress,” they said.
“The damage done to Iran is likely to further restrict its abilities to assist its proxies in the region,” the report continued. According to the report, the COVID-19 crisis impact on oil, international trade, global travel and transportation, tourism and moving goods through its neighbors’ borders – all in a major pilgrimage season – have been devastating.
“A sharp decline in the price of oil made matters worse,” noting that while oil was selling at $60 a barrel at the end of January, it was down to $25 a barrel by the end of March.
“Restrictions on international trade seriously diminished imports of raw materials into Iran and harmed its ability to export non-oil products,” the report said.
“The cessation of flights to and from Iran and the closure of its land borders in the wake of the coronavirus outbreak have also imposed a heavy economic price, particularly the closure of the crossings between Iran and Iraq, which Iran used to export essential goods and apparently to smuggle oil and evade the sanctions regime as well,” added the authors.
Part of what could be so demoralizing for Iran is that its “economy is thus experiencing a particularly critical period after several months when it appeared to be stabilizing, once it adjusted to the regime sanctions.
“The inflation rate dropped over the last few months to about 35%, after increasing dramatically over the past two years, having peaked at around 40%,” the report also said. “At that time the IMF predicted that real growth in Iran was likely to resume at a rate of up to 1%, perhaps due to increased economic activity in market sectors not based on oil.”
For example, over the past year a 20% increase in non-oil exports was recorded, and the rial stabilized “at around 120,000 rials to the US dollar, after it collapsed in 2018 and lost around two-thirds of its value.”
However, due to the pandemic, the recovery has been erased and “in the last few months the rial weakened once again… it is trading at about 160,000 rials to the dollar.”
In addition, the report said the virus “threatens economic sectors that were not significantly affected by sanctions, such as tourism and domestic trade.”
The authors stated that the harm in these fields is intensified by the outbreak occurring in March, just prior to Nowruz, the Iranian New Year, which is a peak period for business and consumer activity.
They wrote that the head of the Iran Chamber of Commerce, Gholam-Hossein Shafe'i, warned shortly after the outbreak that the Islamic Republic was headed for a wave of bankruptcies.
In addition, they said the crisis “caused serious harm to several industries, including the automotive industry, which faces a steep decline in demand for vehicle purchases alongside export restrictions.”
The report concluded that even as “there are no signs of economic collapse,” the new coronavirus crisis-related pressures are likely to hold down Iran’s support for terror in the region.