Effect of Oil Sanctions on the Macroeconomic and Household Welfare in Iran: New Evidence from a CGE Model

We examine the macroeconomic and household welfare consequences of oil sanctions in Iran. We use social accounting matrix (SAM) and develop a computable general equilibrium (CGE) model to simulate selected scenarios in which the exportation of oil from Iran to the rest of the world is banned. Our main results show that higher income households are losing more significantly under oil sanctions. Total imports, exports, private consumption, and GDP fall in response to oil sanctions. Interesting is the increase of net indirect taxes at the time of oil revenues fall. Real exchange rate appreciates in the oil sanction crisis. In addition, labor income increases while the capital income falls in response to oil sanctions in Iran. These simulations are in line with reality of the Iranian economy in post-oil sanction period.