Dependence on extractives revenues in Iran

Background
Despite a fairly diverse economy, Iran is largely dependent on oil revenues, which accounts for around 65% of government revenue. Despite being an influential member of OPEC, Iran finds itself vulnerable to fluctuations in the price of oil in a volatile market.

In the aftermath of the 1979 Islamic Revolution, the US cut diplomatic relations with Iran and implemented unilateral sanctions against the revolutionary regime. However, despite various international sanctions, Iran maintained a viable economy due to revenue from the sale of crude at remunerative prices, with demand from China in particular.

Tightening Sanctions in 2012
However, as demands to reign in Iran’s nuclear capability amplified, in 2011 the international community passed a new round of sanctions. With a ban on importing oil or insuring the tankers that carry oil from Iran- implemented by the EU as of 1 July 2012- increased pressure was brought to bear on Iran’s export-dependent economy. As of August 2012, the price of living in Iran has soared; the price of domestic goods such as vegetables, meats and fruits have increased manifold. Moreover, the dependence on extractive revenues together with the enveloping sanctions resulted in higher inflation and unemployment domestically. Iran’s deputy parliamentary speaker said, in June 2012, that inflation is reaching a ‘boiling point which is seriously worrisome’.

In July 2012, the Supreme Leader Ayatollah Khamenei advised weaning Iran away from its traditional reliance on exporting oil. He advocated instead the development of a knowledge-based industry, although with no particular strategy outlined as to how this would be done. Recorded by Press TV while addressing researchers, specialists and innovators on 29 July 2012, the Ayatollah said ‘the resistant economy is not a slogan but a reality that should be realised’.

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