Engaged in a two-front economic war, Iran continues contending with both Covid-19 and a simultaneous “maximum pressure” campaign waged by the United States. The fact that the regime has been able to weather that storm without collapsing demonstrates the importance of Iran’s regional ties. It also, however, demonstrates the limits of those ties as recent events have indicated.
Since the end of the JCPOA and the reinstatement of U.S. sanctions, Iran’s economy has undergone a drastic downturn. Inflation has crippled the population’s purchasing power and Iran’s leading source of revenue, oil exports, experienced a similar catastrophe with output plunging to levels less than a tenth of what they were pre-sanctions. With the onset of the Covid-19 pandemic, Iran’s already beleaguered economy was further hit as unemployment rates increased and overall GDP contracted by 6% in 2020. In short, Iran’s economy has been devastated. Despite that fact, the situation could have been far worse were it not for efforts by Iran to bolster regional economic cooperation.
Necessity being the mother of innovation, an isolated Iran has increasingly sought to normalize its trading relationships with its neighbors in Central Asia, as well as China and Pakistan. The importance of these relationships as a mitigation and shield from U.S. sanctions may be why the regime was so keen to sign a trade and security partnership with China this summer and has recently sought to strengthen its trading relationship with Pakistan. Such trade with regional neighbors is ultimately what has provided the meager respite from sanctions Iran has been able to scrape together. Without it, the situation would be considerably worse, and Iran’s acknowledgement of that fact is what will continue to drive the regime’s efforts to bolster their regional commitments and expand their sphere of influence to counter present and future U.S. action.
In spite of historic regional trade deals and the development of informal trading networks, Iranian economic infrastructure is still too exposed to skirt U.S. sanctions. The government recently admitted that 35% of its population is now living below the poverty line and facing malnutrition. Critically, in 2019-20, mass protests spread across Iran stemming from its economic situation in stark repudiation to the supreme leader’s insistence on progress based on an “economy of resistance”. So, while sanctions have demonstrated that Iran’s long-term security lies in increasing its regional presence, it also demonstrates it still must engage with the United States. The protests in 2019-20 showed that Iran cannot stave off collapse eternally under the present yoke of a U.S. economic blockade. The regime understands this and it is evident in the government’s increasingly escalatory attempts at gaining leverage to ease the economic burden including expanding its enrichment program, testing new missiles, and capturing foreign oil tankers. Necessity may magnify Iran’s commitment to developing relationships resilient to U.S. sanctions, but it also magnifies the fact that Iran’s destiny is still tied to the United States, for better or worse.
The Strategic Tribune 