BBC Persian interviews Mehrdad Emadi- Sanctions and the Iranian EconomyMay 19, 2010
Host: In order to analyze the possible sanctions against Iran, I had a talk with Mehrdad Emadi, a European Union economic advisor. I asked him about the effects of the possible sanctions on the Iranian economy.
Mehrdad Emadi: These sanctions will have two major effects. First, the cost of doing business with Iran will dramatically increase. One of the proposals is that all commercial and naval ships headed to or originating from Iranian ports must be stopped and inspected. This will increase the insurance rates for commerce with Iran. A Swiss insurance company has already increased its rates for Iranian merchants shipping their goods through the waterways. The second effect of the sanctions is that companies that used to do business with Iran will now be more hesitant to trade with Iran. This is because under the pretense of the sanctions, Abu Dhabi has asked Dubai to dramatically reduce its trade with Iran. They do not want all of the UAE (United Arab Emirates) to go under the microscope of the sanctions regime. Iran’s official trade value with Dubai is approximately $12 billion USD and unofficially it is approximately $19 billion USD. This means that Iran will lose around one third of its import capacity supplied from that region.
These two reasons will cause both a drop in the amount of trade with Iran and also a dramatic rate increase for Iranian merchants doing business with the outside world.
Host: Mr. Emadi, if we were to designate a model for this situation with Iran, do you think North Korea could be used as a fitting model? How can the two countries be compared? North Korea has been under sanctions for many years. This has caused many difficulties in the lives of people. How do the situations in Iran and North Korea compare?
Mehrdad Emadi: What we will see is that since Iran’s economy is still very open, so we will not turn into a North Korea over night. But we are following in the footsteps of Libya. After two years of sanctions, the cost of doing business by Libyan merchants and the loss of profits caused up to a thirty percent increase in bankruptcy rates in the private sector of the Libyan economy. What we are going to see is that in short order, Iranian merchants who ship through waterways and especially those who do trade with Dubai are going to incur great losses in business. This will dramatically increase inflation rates inside Iran. There will be a reduction of three percent to five percent in consumer products. This is not felt yet. At the moment, the prices are high but the goods are there. We will see that industrial goods will become a rare commodity in Iran.
Host: If we point to sanctions that are currently in place versus those that are possibly going to be implemented, which part of the sanctions will have the most effect on the Iranian economy?
Mehrdad Emadi: That will be the sanction on Iranian banks. Our banks and companies that provide credit for foreign trade, due to a combination of current and upcoming sanctions, will be affected where trade and investment will be reduced by almost fifty percent. In reality, merchants who up until last week used to open commercial credits anywhere from tens of millions of Euros to hundreds of millions of Euros, will get to a point where they will only be able to trade from 10,000 to 100,000 Euros cash under the table. This will gravely affect our merchants in a negative way.