The fate of the economy if the trigger mechanism is activated
The fate of the economy if the trigger mechanism is activated, according to Iran Gate, coincides with the escalating tensions between the Islamic Republic of Iran and the West following the news of Iran’s 84% uranium enrichment by Tehran. Rafael Grossi has once again traveled to Iran. Some analysts believe that this trip is an attempt to stop Tehran’s nuclear activities and prevent further attempts to activate the trigger mechanism. Now there is concern about what will happen to Iran’s economy if the trigger mechanism is activated.
The evidence of Tehran’s atomic activities indicates an increased risk of transferring Iran’s nuclear file to the Security Council. In this case, naturally, the UN sanctions will be reinstated and Iran’s economy will face even more serious crises.
However, some believe that the visit of the Director-General of the International Atomic Energy Agency to Tehran is an effort to reduce tensions and prevent the transfer of Iran’s file to the UN Security Council.
However, many believe that if these efforts are unsuccessful, we should expect an increase in threats against Tehran, including the return of all UN sanctions against Iran. This could have extensive consequences on the country’s economy, affecting everything from the foreign exchange market to household livelihoods and exacerbating unemployment, making the economic situation even more challenging for the people.
Foreign Exchange Market
Some believe that these pressures have somewhat contributed to the recent currency exchange rate fluctuations. However, if these pressures intensify and the trigger mechanism is activated, experts predict a further and broader increase in the dollar exchange rate. They anticipate that if the trigger mechanism is activated in the remaining days of 1401 (Iranian calendar year), we can expect the dollar to be traded in the range of 70,000 to 75,000 tomans in spring 1402.
Exports and Imports
It is natural that in the event of intensified sanctions, the engine of international trade will come to a halt. The engine that has been struggling and persevering until the year 1400, but evidence suggests its halt in the current year. If the crankshaft mechanism is activated, it must also account for the small amount currently in circulation. In this case, and with the cessation of exports, the country’s foreign exchange income will decrease unprecedentedly.
If such an executable scenario is implemented, the country’s imports will undoubtedly be affected as well, as the necessary currency for imports is currently being supplied from the semi-marketplace of currency, a market in which the suppliers are exporters who have drawn a wrong policy in the field of international relations during the period of sanctions.
The first impact of this event will also be seen in the people’s table and the prices of essential goods. In the absence of the necessary currency for importing food and medicine, and with a decrease in the supply of these items in the market, even if we do not face scarcity or famine, we will witness an unprecedented surge in the prices of these goods.
Inflation
The government has always resorted to borrowing to cover budget deficits caused by declining revenues. President Ebrahim Raisi has also stated that he has no intention of avoiding this practice. However, if the intensification of sanctions and subsequent reduction in foreign exchange revenues occur again, the monthly cash growth rate will initially increase from 3% to 5%, and in some pessimistic scenarios, it may even reach 6%.
If such events occur in the country, it should be expected that the current inflation rate of 45% to 50% will jump to the range of 70% to 75% in 2023. This jump naturally signifies an increase in the cost of living due to the devaluation of the rial and will put pressure on the people.
Economic growth
The thirteenth government claimed to achieve economic growth at the beginning, and some even spoke of achieving 8% economic growth without the need for the JCPOA. However, things have progressed in such a way that despite the 50% inflation, the country’s economic growth has still been at its highest level of 3%. But if we witness the return of UN sanctions in the event of activating the snapback mechanism, even this false and inflation-driven economic growth will not be repeated. Instead, we should expect negative growth or at best, zero percent growth for the Iranian economy.
Capital flight
The series of disasters that have occurred in the Iranian economy have led to the outflow of capital from the country reaching over $12 billion per year in the current government. It is estimated that if international pressures intensify due to the activation of the snapback mechanism, the capital flight from Iran could become even more severe than it is now.
If the inflation rate continues to rise at its current rate and the production market remains deprived as it is now, it should be expected that the capital formation rate will reach approximately twice its current level. In other words, if currently more than $12 billion of capital is leaving the country, with the return of UN sanctions and the realization of the mentioned scenario, we should expect an outflow of more than $20 billion from the country. This outflow will also involve the flight of human and cultural capital from the country and cannot be limited to just a $20 billion damage over the course of a year.
