HOW WOULD A POSSIBLE U.N. SANCTION AFFECT THE IRANIAN ECONOMY?

Though Iran’s economy has experienced various types of sanctions post revolution and during the war with Iraq, the latest series of economic sanctions by the U.N. Security Council, based on Resolutions 1737 and 1747, seems to have adversely affected the Iranian economy in a multi-faceted manner. These sanctions have led to higher inflation rate, rationing of gasoline, lower non-oil exports, and less foreign direct investment. A major difference between the current sanctions imposed by the U.N. Security Council and those imposed during the war is that recent series of sanctions are in some ways supported by the international community, which places greater pressure on the Iranian economy, effectively tying the hands of policymakers and encouraging them to react in a more accurate way. However, Iranian authorities believe that since economic sanctions have already been imposed on Iran and the country has weathered these hardships in the past, it is able to minimize the negative outcomes of new actions. For example, they argue that sanctions have increased the country’s self-sufficiency, and have led to reallocation of resources into development projects. Nonetheless, certain opportunity costs are associated with these supposedly positive aspects. Indeed, the sanctions affect the Iranian economy through different transmission mechanism channels. The most important ones that we emphasize in this paper are inflationary expectations, exchange rate volatility, financing surcharges, real estate prices, foreign direct investment, total factor productivity and the economic growth.