Iran’s population is almost ten times that of Israel’s, yet the Islamic Republic’s gross domestic product is significantly smaller. Can Iran even afford to go to war?
The US and EU are imposing new sanctions on Tehran, while Iran reports that the country has exported more oil than it has in six years. Iran’s oil minister, Javad Ouji, announced in March that oil had brought the Islamic Republic more than $35 billion.
These revenues are extremely important for Iran, including for maintaining social peace. A large part of the population is suffering from the consequences of international sanctions, which have led to the depreciation of the local currency and a huge increase in inflation, which has reached nearly 40 percent.
In recent weeks, as the conflict with Israel was expected to escalate, the rial lost a quarter of its value against the US dollar. “This devaluation of the local currency immediately affects prices, as Iran imports a lot of goods,” economist Javad Salehi-Isfahani told DV. He adds that for many of the goods that are produced in the country, imported components are used, which will probably lead to even higher inflation.
The standard of living is at the level of 2005
Since Iran cannot meet its own food needs, food prices are rising even more due to currency depreciation and inflation. “It affects the poor the most – they spend up to half of their income on food,” says Salehi-Isfahani.
The middle class has also suffered. “Because of the sanctions, the standard of living has fallen to the level of 20 years ago,” the economic expert points out. “While the economy is at the same level or even slightly higher.”
Statistics show that in 2022, agriculture accounted for 12.5 percent of the gross domestic product, industry for about 40 percent, and the service sector for 47 percent.
The economic situation depends on the export of oil
The country is highly dependent on crude oil exports. Since 90 percent of it is exported to China, Western sanctions are rather ineffective. But the rulers in Tehran are increasingly concerned that the important oil sector could become the target of a possible retaliation by Israel.
“I’m sure they’re worried because a war that would damage the oil sector would be a heavy blow to the economy,” Isfahani said. He points out that as a result of increased oil exports, Iran’s economy has definitely developed.
However, this has not led to an increase in the living standard of the population, emphasizes Isfahani. As many financial resources have flowed into the expansion of the army and other measures of the regime.
Israel is a much richer country than Iran
Many funds anyway flow into the opaque structures of the Shia rulers in Tehran. Transparency International’s index, which measures corruption, ranks Iran 149th out of 180 countries.
Particularly opaque is the role of the Revolutionary Guards and the religious foundations that control central parts of the economy. They do not pay taxes, do not have to submit reports and are subordinated primarily to the country’s political and religious leader, Ayatollah Ali Khamenei.
While oil revenues have stabilized in recent years, Iran’s economy is anything but strong. The population of 88 million people is almost ten times that of Israel, while the gross domestic product in 2022 is significantly lower than that of Israel – 413 billion against 525 billion. The same is the case with GDP per capita – in Iran it is 4,043 dollars, and in Israel – 54,336. For comparison – in 1990, GDP per capita in Iran was 10,660 dollars.
Is Iran ready for war with Israel?
In the first three months of this year, Tehran managed to sell an average of 1.56 million barrels of crude oil per day. “The Iranians have mastered the art of circumventing sanctions,” wrote energy expert Fernando Ferreira in the Financial Times on this occasion. So his recommendation is – if the Biden administration really wants to achieve something, it should focus on China, which receives almost all of Iran’s oil exports.
But whether or not sanctions are tightened, is the Iranian economy currently prepared for a possible military escalation with Israel?
Javad Salehi-Isfahani’s answer is unequivocal: “In general, it is not ready for a prolonged military conflict. That is why the rulers in Tehran are careful not to interfere in the war in Gaza. And the attack on Israel was more symbolic than intended to inflict damage.”
