Conventional Wisdom vs. the Inside Scoop

Conventional Wisdom: International sanctions are taking their toll on Iran, and continuing or increasing them is an effective peaceful method of influence.

View From the Inside: Longtime economic sanctions against the regime may have made some Iranians poorer, but they have also made a great number of them richer. One significant side effect of sanctions is the emergence of a sophisticated black market. “It’s a cash-and-carry economy,” says USIP senior fellow Barbara Slavin, who discovered that about half the goods in Iranian shops are smuggled in.

For expensive items, most merchants are prepared to launder credit transactions through one of their legitimate offices in Dubai. “A lot of the UAE companies were set up as a result of sanctions,” says Iran economy expert Kaveh Ehsani. “I wouldn’t say Iran is inured to sanctions, but it has learned to deal with them.”

Iran has developed a strong culture of doing without. “Iran has a history of mobilizing around crisis situations,” Ehsani notes. “It’s kind of woven into the political culture that you have to make sacrifices and reduce your consumption for the greater good.” Ehsani harks back to the 1980s when rationing got Iran through some very lean years. What also helps is that Iran is a rich country agriculturally, adds Slavin, and produces most of the meat and vegetables it uses.

Growth continues to take place in Iran, particularly in what Slavin calls “the verticalization of Tehran” and other large cities. The speculative real estate market is all the rage, as rich Iranians pour money into high-rise luxury apartments.

Ehsani explains that after the Iran-Iraq war a bankrupt state sector had to find a way to make money, so it auctioned off vertical space in order to fund municipal development. Private, well-connected Iranian foundations bought most of it initially, and they became “energetic forces for shaping urban spaces and bringing about urban renewal.” These activities also helped turn the foundations into a de facto oligarchy.

Corruption and mismanagement at the state level—“the big elephant no one talks about in the Iranian economy,” as Ehsani puts it—still controls about two-thirds of the economic pie and has been most responsible for keeping Iran in the doldrums. Privatization is limping along because of its perceived threat to the regime; only a select few are allowed to make inroads. “Because the economy remains highly state-centered, the vibrancy of the labor market is not there,” he says.

---

Return to the Iran 360˚ Final Report homepage

Return to the Iran 360˚ Conference homepage.