Economic Life in Iran

Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught history, and has an MA in Islamic law/finance. He has since founded his own financial advice firm, Newton Analytical.

Imagine a country with a well-educated population, a stable government and ample natural resources. You'd think it would be an economic success story. However, bad government decisions have hampered Iran's economic growth.

Unexploited Potential

Let's pretend that we were to design a perfect economy for a country. First of all, you'd probably want to start with natural resources, especially petroleum and natural gas. Then you'd likely want to add in a population that is constantly looking to expand its economic potential, whether through education or technical research. Finally, to ensure a fair chance for everyone, you'd probably want some form of social safety net to keep an economic downturn from turning into massive economic chaos. In short, you'd want what Iran is capable of doing.

Wait, Iran? Home to US Sanctions, 'death to America' chants and a nuclear program that may or may not be peaceful? Yes, Iran. In reality, Iran, despite these issues, and many more we will discuss in this lesson, is actually a middle-income country that, once the issues of sanctions and its own inefficiencies are removed, could have the potential to be a regional economic powerhouse.

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  • 0:01 Iran: Unexploited Potential
  • 1:02 Petroleum & Natural Gas
  • 1:59 Religious Inputs & the…
  • 3:22 Sanctions: Official &…
  • 4:30 Modern Education &…
  • 5:24 Lesson Summary
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Petroleum and Natural Gas

Like many other countries in the Middle East, drilling for oil and natural gas is a crucial part of the Iranian economy. More than 80% of Iran's exports are in some way, shape or form related to oil or natural gas, and the country has ten percent of the world's known reserves of oil. However, what's more startling is that Iran also has 15% of the world's supply of natural gas. Much of this potential is located in the south and southwest of the country, especially those areas near the Persian Gulf and the Iraqi border.

Petroleum and natural gas have long been central parts of the Iranian economy, and the cause of much of the country's political turmoil throughout the 20th Century. On more than one occasion, foreign powers have overthrown the Iranian government in order to gain greater access to its oil reserves. Since the Islamic Revolution of 1979, such coups have been unsuccessful.

Religious Inputs and the Black Market

Yet, the revolution of 1979 didn't just bring decades of political continuity to Iran, it also brought the impact of religion into the marketplace. For example, Islamic finance has been used in Iran for quite some time, even if the traditional Islamic finance powerhouses, like Dubai, ignore their banks as the Dubai banks are Sunni and Iranian banks follow Shia doctrine. However, the most enduring impact Islam has had on Iran actually predates the revolution. Started as royal 'charities' that actually served only to provide special treatment to insiders, Bonyads are now government-subsidized corporations that are horribly inefficient. Technically, these are supposed to form a sort of social safety net for everyone. However, the fact of the matter is that they are too inefficient to offer much safety except for their managers.

To that end, with much of Iran's economy under the rule of these Bonyads, a number of Iranians have turned to the Black Market, an unofficial network of merchants who can sell goods that are otherwise unavailable. Literally anything that you could think of wanting is available on the Black Market, from bread and cooking oil to tablets and the latest copies of Hollywood's movies. However, since the Black Market doesn't pay any taxes, it is heavily targeted by the authorities.

Sanctions, Official and Otherwise

One of the reasons for the success of the Black Market is that the Iranian government has continued to attract sanctions, or economic limitations, as punishment for its attempts to develop nuclear technology. While the Iranian state has said repeatedly that it only intends to develop nuclear reactors for peaceful purposes, its warlike statements pertaining to the nation of Israel have placed many in the West on alert. As a result, Iran is unable to reach its full export potential, especially with petroleum protects.

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