Iran, Islamic Republic of

Sanctions and the Collapse of Oil Exports

Iran's oil exports fell from roughly 2.5 million barrels per day in 2011 to under 0.5 million by 2020, a direct consequence of renewed US sanctions after the 2018 withdrawal from the Joint Comprehensive Plan of Action.

The impact on GDP was severe. GDP in 2019 stood at USD 300.1 billion, a decline of 44.7 per cent from the 2010 level of USD 542.8 billion.

Per capita GDP fell from USD 7,181 in 2010 to USD 3,516 in 2019, a drop of 51.0 per cent over the decade.

The Parallel FX Market as a Price-Setting Mechanism

With formal channels for foreign exchange restricted by sanctions, a parallel market emerged as the primary price-setting mechanism for the rial.

The official exchange rate became increasingly disconnected from reality. By 2020, the GDP deflator stood at 30.93, reflecting high inflation that the official rate could not capture.

The parallel rate effectively priced sanctions risk and capital flight into the currency, creating a wide spread between the official and market rates.

GDP per capita fell by 51.0 per cent from 2010 to 2019.

GDP and Inflation Dynamics Under Sanctions and the Path to Recovery

The 2010s decade saw the worst GDP performance of any period in the dataset. The decade's mean GDP was USD 488.4 billion, but growth averaged only 1.3 per cent per year.

The last year of the decade, 2019, recorded a contraction of -2.4 per cent. Inflation, as measured by the GDP deflator, rose from 15.9 in 2010 to 30.9 in 2019, an increase of 94.8 per cent.

This inflation eroded real incomes and made the parallel market essential for businesses needing hard currency.

The 2020s have seen a partial recovery, with GDP rising from USD 245.2 billion in 2020 to USD 446.0 billion in 2024, growth of 81.9 per cent over four years.

Per capita GDP recovered from USD 2,848 to USD 5,000 over the same period, a gain of 75.6 per cent.

Inflation Trajectory from the 1980s to the 2020s

The GDP deflator, a broad measure of price changes, fluctuated dramatically across Iran's decades.

In the 1980s, the deflator fell by 51.3 per cent from 35.2 in 1980 to 17.2 in 1989, reflecting volatile conditions after the revolution.

The 1990s saw a reversal, with the deflator rising 39.1 per cent from 22.8 in 1990 to 31.7 in 1999, as post-war reconstruction fuelled price pressures.

By the 2000s, the deflator dropped sharply by 81.6 per cent from 24.9 in 2000 to 4.6 in 2009, a period of relative price stability before renewed inflation.

The Credit-Fuelled Construction Boom and Sanctions

The 2010s brought a new inflationary surge. The GDP deflator rose from 15.9 in 2010 to 30.9 in 2019, a gain of 94.7 per cent over the decade.

International sanctions, particularly those reimposed after 2018, contributed to rising import costs and currency weakness.

The mean deflator for the 2010s was 21.4, up from 18.8 in the 2000s. By 2020, the average annual inflation rate reached 46.6 per cent, according to World Bank data, as the economy contracted under sanctions and the pandemic.

Inflation rate reached 46.6 per cent in 2020.

Rial Depreciation and Economic Consequences

In the 2020s, inflation persisted at elevated levels. The GDP deflator stood at 28.4 in 2024, having risen from 25.2 in 2020, a gain of 12.7 per cent over the first five years of the decade.

The mean deflator for the 2020s thus far is 27.4, the highest of any decade since the 1980s. Consumer price inflation remained above 40 per cent annually in 2023 and 2024, eroding household purchasing power and savings.

The Central Bank of Iran struggled to contain price pressures through monetary tightening.

The rial's depreciation accelerated sharply after the 2018 reimposition of US sanctions. By 2020, the official exchange rate was set at 42,000 IRR/USD, but the parallel market rate exceeded 250,000 IRR/USD.

The gap between official and market rates widened as foreign currency revenues from oil exports declined. Iran's GDP in PPP terms grew 37.3 per cent from 2020 to 2024, reaching $1.82 trillion, but nominal GDP in current dollars rose only 81.9 per cent over the same period, reflecting the rial's weakness.

By 2024, the parallel market rate surpassed 600,000 IRR/USD, according to market reports. This represented a depreciation of more than 90 per cent from the official rate of 42,000 IRR/USD.

The GDP per capita in current dollars was $5,000 in 2024, up from $2,848 in 2020, but still well below the $7,181 level of 2010. The rial's collapse eroded real incomes and made imports prohibitively expensive for many businesses and households.

High inflation and currency depreciation reshaped Iran's economic landscape. The GDP deflator averaged 27.4 in the 2020s, up from 21.4 in the 2010s and 18.8 in the 2000s.

This persistent inflation reduced the real value of wages and pensions. The GDP per capita in PPP terms, a measure of living standards, was approximately $21,000 in 2024, but the current dollar figure of $5,000 highlighted the gap between domestic purchasing power and international benchmarks.

The rial's depreciation also affected trade balances. Iran's oil exports, which account for a large share of foreign currency earnings, faced sanctions-related constraints.

The GDP growth rate of 3.7 per cent in 2024 was modest compared to the 5.3 per cent recorded in 2021. The combination of inflation and currency weakness discouraged foreign investment and complicated efforts to diversify the economy away from hydrocarbons.

Households bore the brunt of these trends. The average inflation rate of 46.6 per cent in 2020 meant that prices nearly doubled every two years.

By 2024, the parallel market rate of 600,000 IRR/USD made imported goods, including food and medicine, significantly more expensive.

The GDP per capita in 2024 was $5,000, compared to $7,181 in 2010, a decline of 30.4 per cent in current dollar terms over 14 years, underscoring the erosion of living standards.

The Credit-Fuelled Construction Boom and Its Impact

The 'Resistance Economy' was formally introduced in 2014 as a strategic response to intensified international sanctions.

The framework aimed to reduce the economy's vulnerability to external shocks by cutting import dependence and boosting domestic production.

GDP per capita had fallen from $7,181 in 2010 to $3,516 by 2019, a decline of 51.0% over the decade.

This contraction underscored the urgency of the policy shift.

Import Substitution and the Role of Non-Oil Sectors

By 2024, GDP per capita had recovered to $5,000, a 75.6% increase from the 2020 trough of $2,848.

The policy's emphasis on self-sufficiency was reflected in the growth of non-oil sectors, though oil revenues remained central to the fiscal balance.

The GDP deflator, a measure of price levels, rose from 0.20 in 2010 to 30.93 in 2019, indicating severe inflationary pressure that complicated the import substitution agenda.

GDP per capita increased by 75.6% from 2020 to 2024.

The Resistance Economy sought to replace foreign goods with locally manufactured alternatives, particularly in agriculture, pharmaceuticals, and basic manufacturing.

Challenges to Diversification and Export Growth

Between 2010 and 2019, GDP growth averaged just 1.28% per year, well below the 4.69% average of the 2000s.

This weak expansion limited the capacity of domestic firms to scale production and compete with imports in quality and cost.

By 2024, GDP had reached $445.96 billion, an 81.9% increase from $245.22 billion in 2020.

Much of this recovery was driven by domestic demand and state-led investment.

However, the GDP deflator in 2024 stood at 28.37, still elevated, reflecting persistent inflation that eroded real purchasing power and constrained the domestic market for locally produced goods.

Non-oil exports, including petrochemicals, steel, and agricultural products, became a focal point of the Resistance Economy.

In the 2000s, GDP growth averaged 4.69% per year, and by 2009, GDP had reached $461.58 billion, a 65.6% increase from 2000.

This earlier expansion provided a base for industrial capacity that later supported non-oil exports.

By the 2010s, growth had slowed sharply, with GDP contracting 2.36% in 2019.

Despite policy efforts, non-oil export volumes remained volatile.

The GDP deflator fell from 15.88 in 2010 to 0.20 in 2011, indicating a period of deflation that made exports more competitive, but this was short-lived.

By 2024, the deflator had risen to 28.37, suggesting renewed inflationary pressures that could erode export competitiveness.

The Resistance Economy achieved partial success in diversifying the economy away from oil.

In the 1990s, GDP per capita fell 53.1% from $7,575 to $3,555, reflecting the collapse of state-led industrialisation after the Iran-Iraq war.

The 2000s saw a recovery, with GDP per capita rising 42.2% to $6,185 by 2009, driven by higher oil prices and investment.

By 2024, GDP per capita was $5,000, still below the 2010 peak of $7,181.

Non-oil exports grew in nominal terms but remained a small share of total exports.

The GDP deflator's volatility, from 4.60 in 2009 to 30.93 in 2019, illustrates the difficulty of maintaining stable incentives for domestic producers.

The policy framework has not yet delivered sustained, broad-based export growth.

High inflation has been a persistent obstacle to the Resistance Economy's goals.

The GDP deflator averaged 28.50 in the 1990s, then fell to 18.76 in the 2000s before rising again to 23.80 in the 2010s.

This instability undermines long-term investment in domestic production capacity and makes import substitution more costly.

By 2024, the deflator was 28.37, near its 1990s average.

Real GDP growth in the 2020s averaged 4.38% per year, but this was from a low base in 2020.

The combination of high inflation and modest growth suggests that the Resistance Economy has not yet resolved the structural imbalances that keep the economy dependent on oil revenues and vulnerable to sanctions.

The Resistance Economy remains a work in progress.

GDP in 2024 was $445.96 billion, still below the 2011 peak of $675.61 billion.

The 2010s saw a 44.7% contraction in GDP, from $542.82 billion to $300.07 billion, largely due to sanctions.

The policy's success will depend on sustaining the 2020s growth momentum while controlling inflation.

GDP per capita growth of 75.6% from 2020 to 2024 is encouraging but has not returned the figure to its 2010 level.

The GDP deflator's trajectory, from 0.20 in 2011 to 28.37 in 2024, highlights the challenge of maintaining price stability.

Without lower inflation and stronger export diversification, the Resistance Economy's goal of reducing import dependence may remain elusive.

The Credit-Fuelled Construction Boom and State Ownership

State-owned enterprises and bonyads, large quasi-governmental foundations, control an estimated 60 to 70 per cent of Iran's formal economy.

This structure limits private sector access to capital and markets.

The GDP deflator, a measure of price levels, fell from 35.2 in 1980 to 17.2 in 1989, reflecting early post-revolutionary price controls.

By 2024, the deflator stood at 28.4, indicating persistent inflationary pressures from state-led pricing.

51.0 per cent decline in GDP per capita from 2010 to 2019

State-Dominated Sectors and Crowding Out of Private Investment

Bonyads such as the Foundation of the Disinherited and the Imam Khomeini Relief Foundation operate as conglomerates with extensive holdings in manufacturing, banking, and agriculture.

These entities receive preferential access to foreign exchange and subsidised inputs.

The GDP per capita declined from $7,181 in 2010 to $3,516 in 2019, a fall of 51.0 per cent, partly due to inefficiencies in state-dominated sectors that crowd out private investment.

Reduced Competition, Private Sector Development, and Efficiency Losses

The dominance of state and bonyad enterprises suppresses competition.

Private firms face barriers in obtaining licences, credit, and import permits.

GDP growth averaged only 1.3 per cent per year in the 2010s, compared to 4.7 per cent in the 2000s.

This deceleration correlates with the entrenchment of state monopolies after the 2009 election and the tightening of sanctions, which further insulated bonyads from market discipline.

Private sector credit as a share of total bank lending remains below 30 per cent.

Bonyads and state banks control the majority of financial flows.

PPP GDP, a measure of real output adjusted for purchasing power, grew by only 2.8 per cent across the entire 2010s, from $1,247 billion in 2010 to $1,212 billion in 2019.

This stagnation reflects the inability of private firms to expand output in a constrained environment.

State-owned enterprises and bonyads operate with low productivity due to soft budget constraints and political objectives.

The GDP deflator rose from 15.9 in 2010 to 30.9 in 2019, a 94.6 per cent increase, indicating that price distortions from state-controlled sectors became more severe.

This inflation erodes real incomes and reduces the competitiveness of private manufacturers.

Resource misallocation is evident in the energy sector, where state firms sell fuel at heavily subsidised prices.

Iran's GDP per capita in 2024 was $5,000, still below its 2010 level of $7,181.

The economy has not recovered its pre-sanctions per capita output, partly because state enterprises absorb capital that could otherwise fund private ventures.

The 2020s have seen a recovery in nominal GDP, reaching $445.9 billion in 2024, but this is driven by oil revenue and inflation rather than structural reform.

The Credit-Fuelled Construction Boom and Labour Market Mismatch

Iran possesses a young population structure, with a median age of approximately 32 years.

This demographic profile, often termed a 'dividend', could supply a large labour force.

However, the economy has not generated sufficient employment.

The youth unemployment rate has consistently exceeded 25% in recent years, representing a structural mismatch between labour supply and demand.

GDP per capita, at $5,000 in 2024, remains well below the peak of $8,817 recorded in 2018, indicating limited income generation capacity.

Volatility of the Oil-Dependent Economy and Its Impact on Labour Market

The failure to absorb young workers is evident in the GDP growth data.

During the 2010s, average annual GDP growth was only 1.28%, and the decade ended with a contraction of -2.36% in 2019.

Weak growth has constrained job creation.

The 2020s have seen a recovery, with average growth of 4.38% through 2024, but this has not been sufficient to reduce unemployment rates.

GDP in 2024 stood at $446 billion, still below the 2010 level of $543 billion in nominal terms.

Youth unemployment has consistently exceeded 25% in recent years.

High youth unemployment is also linked to the volatility of the oil-dependent economy.

The 1980s saw an average GDP growth rate of -0.82%, with a severe contraction of -21.6% in 1980.

Such instability discourages long-term investment in labour-intensive sectors.

Even during the relatively strong 2000s, when GDP grew by 65.6% over the decade, youth joblessness remained elevated.

Demographic Structure and Brain Drain

Iran has experienced a sustained outflow of skilled workers, with over 150,000 emigrants leaving annually in recent years.

This brain drain is a direct consequence of poor domestic labour market conditions and limited economic opportunity.

The GDP per capita contracted by 51.0% over the 2010s, falling from $7,181 in 2010 to $3,516 in 2019.

Such a steep decline in average incomes erodes the incentive for highly educated professionals to remain in the country.

The scale of emigration is amplified by the demographic structure.

With a median age of 32, a large cohort of university graduates enters the labour market each year.

The GDP deflator, which measures price changes, rose to 30.9 in 2019 from 15.9 in 2010, indicating significant inflation that eroded real incomes.

High inflation, combined with stagnant or falling nominal GDP per capita, creates a powerful push factor for emigration among the young and skilled.

The economy's reliance on oil revenues has limited the development of a diversified private sector capable of absorbing young workers.

GDP in purchasing power parity (PPP) terms grew by only 37.3% in the 2020s, a recovery from the near-stagnation of the 2010s, when PPP GDP grew by just -2.8%.

This lack of sustained expansion in real economic activity restricts the number of formal jobs.

The youth unemployment rate remains a structural problem, not merely a cyclical one.

International sanctions have compounded these difficulties.

The 2010s saw the GDP deflator swing from 15.9 in 2010 to 0.2 in 2013 and back to 30.9 in 2019, reflecting extreme price volatility.

Such instability deters foreign direct investment and the establishment of new enterprises.

Without a stable macroeconomic environment, the private sector cannot generate the millions of jobs required to employ the young population.

The result is a persistent gap between labour supply and demand.

The combination of high youth unemployment and brain drain reduces Iran's potential growth rate.

Emigrants are often the most educated and productive workers, representing a loss of human capital investment.

GDP per capita in 2024 was $5,000, still below the 1990 level of $7,575 when adjusted for inflation.

This long-term stagnation in average incomes reflects the failure to utilise the demographic dividend effectively.

Without absorbing young workers into productive employment, the demographic structure becomes a liability rather than an asset.

The 2020s have shown some improvement, with GDP per capita growing by 75.6% from the 2020 low of $2,848 to $5,000 in 2024.

However, this recovery has not reversed the emigration trend.

The annual outflow of over 150,000 people represents a persistent drain on the nation's skills base, limiting the potential for future productivity gains and economic diversification.

The credit-fuelled construction boom

Iran's GDP in 2024 stood at $446 billion, still below the 2011 peak of $676 billion.

The 2010s recorded a mean GDP growth of just 1.3%, with the decade ending in a contraction of -2.4% in 2019.

This long stagnation reflects the compounding effects of sanctions and domestic mismanagement.

GDP per capita in 2024 was $5,000, barely above the $5,416 level of 1989 after adjusting for inflation.

The economy has spent decades cycling through boom and bust without establishing a durable growth trajectory.

Sanctions and the Energy Sector

Oil exports remain the primary source of foreign currency, yet the GDP deflator fell from 30.9 in 2019 to 28.4 in 2024, indicating persistent disinflationary pressure from suppressed demand.

The 2020s have seen GDP grow at an average of 4.4% per year, but this recovery is fragile.

Iran's crude oil production capacity has eroded due to underinvestment; the country produced roughly 3.2 million barrels per day in 2024, down from a pre-sanctions peak of 4.0 million.

GDP per capita in 2024 was $5,000.

Without a nuclear deal to lift sanctions, export volumes are capped by informal buyers and ship-to-ship transfers.

Demographic and Labour Market Pressures and Institutional Constraints

Iran's population has grown to over 88 million, but GDP per capita in 2024 was $5,000, a 75.6% increase from the 2020 trough of $2,848.

This recovery still leaves the average Iranian poorer than in 2010, when per capita income was $7,181.

Youth unemployment exceeds 20%, and the labour force participation rate for women is below 15%.

The economy must generate roughly 800,000 new jobs each year to absorb new entrants.

Without sustained growth above 5%, the demographic dividend becomes a liability.

The rial has lost more than 90% of its value against the dollar since 2018, driving inflation to an average of 40% per year.

The GDP deflator, a broad price measure, swung from 4.6 in 2009 to 30.9 in 2019, reflecting the instability of monetary policy.

The Central Bank has limited independence, and the budget relies heavily on oil revenues.

Subsidies for fuel and basic goods consume over 10% of GDP, crowding out investment in infrastructure and education.

Reform attempts, such as the 2018 subsidy overhaul, were reversed after protests.