Iran on the verge of economic collapse

Photo MOSTAFA MERAJI/UNSPLASH

The outbreak of COVID-19 could drive Iran into economic and political chaos. Worldwide export restrictions are now impeding access to urgently needed medical products.

27.04.2020 · Economics, Social Sciences, Spatial Research · Kiel Institute for the World Economy · News · Research result

The outbreak of COVID-19 could drive Iran into economic and political chaos. US sanctions have substantially weakened the country. Export restrictions, as imposed e.g. by the EU, are now impeding access to urgently needed medical products. Diplomatic tensions might rise and jeopardize cooperation, concerning e.g. the nuclear deal, if the EU hesitates to act.

„Iran is one of the hardest hit countries from COVID-19, with more than 80,000 confirmed cases and more than 5,000 fatalities. The country can be regarded as the epicenter for the outbreak in the Middle East. Fearing an economic collapse, Iran now had to ease its lockdown measures. This can initiate a second wave of infections, which combined with an already weakened economy and severely constrained healthcare infrastructure could drive Iran into a collapse,” says Katrin Kamin, trade economist at the Kiel Institute, on the release of the Kiel Policy Brief „A crisis in times of crisis: Combating COVID-19 under sanctions in Iran“, which is joint research with IfW-Researchers Anna-Katharina Jacobs and Sonali Chowdhry.

The US sanctions are imposing bureaucratic obstacles to imports of medical products and intermediates, hindering the country’s medical response to COVID-19. Further, they impede financial transactions with Iran including humanitarian deals. Additionally, 54 governments have introduced trade barriers on medical products related to combating COVID-19 such as breathing masks. This includes the EU, which is Iran's most important trade partner for medical products.

„Not only domestic production of critical products to fight the epidemic is severely constrained in the already weakened economy but also imports of these products are hindered,” says Kamin. “Free trade in medical products plays an important role in supporting the poorest countries in Asia, Latin America, and the Middle East fight COVID-19. With rising protectionist measures, developing countries relying on medical imports are hit even harder.”

As a significant global actor, the EU should work towards strengthening the global COVID-19 response through multilateral institutions. At the IMF, its support for Iran’s request of a loan is critical. More so, the EU should safeguard the global free flow of essential medical products. ”The EU should advocate lifting trade restrictions that are currently in place and should be available as a trading partner for Iran. Otherwise Iran might lose confidence in its bilateral relations with the EU, putting diplomatic solutions such as the nuclear deal at risk,” says Kamin.

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