If President Hasan Rouhani believes that sanctions relief will lead to an improvement in Iran's economy and his easy re-election to a second term as President, he may have been seduced by his own political rhetoric.


There may be a temporary bump in economic statistics once the initial burst of cash flow from sanctions relief materializes. However, there will be little improvement in what the average Iranian family refers to as "egestadi-e-sofree" or "Kitchen Table Economics". Those middle class families who constitute the principal base of Rouhani's support may even be forced to further tighten their belts. This is because oil prices are likely to continue to plummet as much of Iran's export earnings are the result of petroleum sales. Moreover, the buying power of the Iranian worker's salary is also likely to shrink as the steady devaluation of Iran's currency is also likely to continue. Therefore, prospects for improvement in the standard of living for the working class Iranian are poor. While the good will toward Rohani as a result of sanctions relief may help reformers in the upcoming Parliamentary (Majles) Elections, a sustained outpouring of support for the President is highly improbable. The lack of systemic improvements in Iran's economy and presumed subsequent hardliner assaults on Rohani may cost him a second term in 2017.

A major portion of the windfall from sanctions relief will go to recapitalizing Iran's major banks which are dangerously low on reserves. This perilous financial situation is partially a consequence of irresponsible construction loans, The brittle financial picture is also a result of corrupt lending practices to sub-contractors associated with those major enterprises controlled by the Islam Revolution Guard Corp (IRGC). These state-connected companies constitute at least half of Iran's economy. Moreover, another fifth of the economy is part of the huge black market in Iran.

Consequently, the infusion of cash flow as sanctions are gradually lifted will have negligible effect on Iran's systemically failed economy. Iran's economy was headed toward recession even before the United States was able to persuade Europe's principal trading partners with the Islamic Republic to establish a more effective sanctions regime.

In fact, the Rouhani budget for March, 2016 to March, 2017 calls for an increased tax base as well as a 7% increase in taxes in order to better finance the administration's promised programs. Plans for a steep increase in non-energy exports are not likely to materialize as expanded opportunities in Russia and China is less likely as both nations' economies have cooled for different reasons. On the bright side for Tehran, India is likely to import considerably more oil from Iran..

Finally, Iran's Arab neighbors are waging economic war on the Islamic Republic. For instance, Saudi Arabia in an effort to maintain url market share of the petroleum market will continue to produce at a near capacity rate despite the oil glut. Moreover, as Iran rejoins the oil market the downward price per barrel is likely to accelerate.

Iran's poor economic forecast despite the lifting of sanctions should not encourage would be investors. This is particularly the case with foreign investment in Iran's energy sectors. For example, corporations like Shell and Total which have engaged pre-sanctions relief exploratory talks with Iranian officials are likely to be disappointed. If these companies decide to invest heavily in Iran's oil and natural gas reserves, they will realize ultimately that their decision was based on the promises of Iranian officials who had no authority to deliver. Only representatives dispatched by the IRGC can guarantee reliable bilateral contracts.