October 2, 2013 | Press Release

New Report on the Impact of Sanctions on Iran’s Foreign Exchange Reserves

FDD Press Release


Washington, DC — As Congress considers action on a next round of Iran sanctions and with the next round of P5+1 talks with Iran just two week away, the Foundation for Defense of Democracies and Roubini Global Economics have released a new report entitled When Will Iran Run Out of Money? The Impact of Sanctions on Iran’s Foreign Exchange Reserves and Balance of Payments. The report, co-authored by FDD Executive Director Mark Dubowitz and Roubini Global Economics’ Director of Emerging Markets Rachel Ziemba, is the first public report assessing Iran’s assets, a key factor in Iran’s calculus to negotiate a deal on its nuclear program.  

According to the report, Iran is less than a year from reaching critical nuclear capability, despite international sanctions designed to prevent this outcome. While its accessible FX reserves have fallen sharply, it has sufficient reserves, and “off-books” assets to painfully muddle through for at least 12 months, if not longer.

Yet, according to Dubowitz and Ziemba, Iran’s political timeline may be considerably shorter given the domestic political pressure on Iranian president Hassan Rouhani to deliver on his commitment to lift sanctions and stabilize the economy. The Iranian government may fear that, without a short-term nuclear deal, further sanctions pressure could tip the economy into an unmanageable economic and political crisis.

Legislation passed in the House of Representatives and expected in the Senate closes a number of sanctions loopholes, targets Iranian oil revenue, adds additional sector-based sanctions, and further squeezes Iran’s FX reserves.  

The report outlines nine steps the U.S. and its allies could take that would accelerate a balance of payments crisis and put pressure on Iran’s FX reserves, aimed at helping to sway Iran’s decision-makers when it comes to their nuclear program: 

1) Sanctioning any financial institution that provides Iran access to, or use of, its foreign reserves

2) Dramatically reducing permissible imports of Iranian crude products

3) Requiring countries buying Iranian crude to dramatically reduce their exports of non-humanitarian commercial goods to Iran

4) Requiring a specified percentage of Iran’s escrow funds be spent only on humanitarian goods

5) Blacklisting additional sectors of the Iranian economy owned or controlled by the government of Iran and/or the IRGC, including the mining, engineering and construction sectors

6) Vigorously enforcing gold sanctions to deny Iran access to gold to replenish its FX reserves

7) Imposing tighter sanctions on non-oil Iranian commercial exports

8) Expanding the definition of crude oil sanctions to include all oil products

9) Imposing additional sanctions against the holdings of Iran’s bonyads and investment funds, and entities owned and or controlled by the IRGC, the Quds Force, the Supreme Leader and other entities

Mark Dubowitz said, “Rouhani may recognize that Iran’s foreign exchange reserves are in worse shape than he expected and may be more anxious to cut a deal. Western negotiators however should be wary of any sanctions relief before Iran takes verifiable and irreversible steps. The Obama administration and Congress must remain vigilant to ensure that sanctions aren't relieved prematurely and in a way that makes it difficult to reconstitute them if, or when, Iran doesn't satisfy its nuclear commitments. Despite the economic pain, and without additional sanctions pressure, Iran likely has sufficient accessible foreign exchange reserves to reach the point of critical nuclear capability. Additional sanctions are the most effective tool to help Rouhani persuade Supreme Leader Ali Khamenei that he will face economic collapse if he doesn't abandon Iran's nuclear weapons program.” 

Rachel Ziemba added, “While Iran could buy more time by shifting its imports to its trading partners in Asia, but doing so would take time and could further undermine Iranian resilience. RGE’s systematic Country Insights model shows that Iran’s economy has become more rigid, as its reserves are depleting and its banks forced to lend to the government. This weakness suggests Iran would struggle to cope with a new shock, such as new sanctions currently under consideration.”

The study has been cited by the New York Times and its findings reported in the Wall Street Journal.

Download the full report here (PDF).

For more information or press inquiries, contact Madeleine Levey Lambert at 202-403-2941 or [email protected]

About the Foundation for Defense of Democracies

The Foundation for Defense of Democracies (FDD) is a non-profit, non-partisan policy institute working to defend free nations against their enemies. FDD was founded shortly after 9/11 by a group of visionary philanthropists and policymakers who understood the threat facing America, Israel and the West.

About Roubini Global Economics

Roubini Global Economics (RGE) is an independent, global macroeconomic strategy research firm founded in 2004 by renowned economist Nouriel Roubini. RGE research translates global economic signals into practical macro-strategy insight for a wide range of financial and policy professionals. Our approach broadens our clients' understanding of global economies and markets by illustrating vulnerabilities and risks, giving them constructive frameworks for clarity and helping them to make more informed decisions. RGE is headquartered in New York with an office in London.