August 19, 2022 | Insight

Tehran’s $1 Trillion Deal: An Updated Forecast of Iran’s Financial Windfall From a New Nuclear Agreement

August 19, 2022 | Insight

Tehran’s $1 Trillion Deal: An Updated Forecast of Iran’s Financial Windfall From a New Nuclear Agreement

European and American diplomats say negotiations over the fate of the nuclear deal with Iran have reached their final stage. As a series of previous FDD publications have shown, the new nuclear deal would allow Tehran to access up to $275 billion in financial benefits during its first year in effect and $1 trillion by 2030. This essay revisits those forecasts and updates them.

Because of Tehran’s refusal to sign a deal and the emergence of new data over the past few months, some assumptions underlying the previous forecast have changed slightly. However, the calculations show that the deal’s total value remains very close to the previous estimate. The new deal would give the Islamic Republic access to $274 billion in its first year and at least $1 trillion by 2030. Tehran’s revenue in the first year includes full access to $141 billion in currently inaccessible foreign assets, $66.4 billion in oil export revenue, $55 billion in non-oil export revenue, and $12 billion in savings from the lower cost of imports.

The initial forecast assumed the nuclear deal would go into effect in the second half of 2022. Now, though, Iran and world powers most likely will not be able to fully implement a new deal before 2023. As a result of this shift in the implementation date and new developments in the oil market, the projected price of oil in the FDD forecast has slightly dropped. Furthermore, new data published by the Central Bank of Iran (CBI) show that the bank’s gross foreign assets have grown over time.

The latest data published by CBI show that the bank’s gross foreign assets reached $172 billion in July. Separate data from the International Monetary Fund, published in the statistical appendix of its April regional economic outlook for the Middle East and Central Asia, suggest Iran currently has full access to $31 billion of its foreign reserves. The deal would likely release the remaining $141 billion of gross reserves currently not fully available to the bank, $10 billion more than previously estimated by FDD.

In the revised FDD forecast, the price of Iranian oil will be $91 per barrel during the first year of the deal. This is in line with the latest forecast by the Energy Information Agency of $95 per barrel for Brent oil in 2023; Iran’s oil basket is usually a few dollars below the Brent price. The forecast expects the Islamic Republic would be able to sell 2 million barrels per day in the first year of the deal. This estimate is based on Iran’s production capacity, stored oil, and record of increasing its oil exports following the 2015 nuclear deal, formally known as the Joint Comprehensive Plan of Action.

If it exports 2 million barrels per day, Iran would likely generate $66 billion in oil export revenue during the first year of the deal, which will be fully accessible to the regime. The Islamic Republic currently exports its oil at a discount through middlemen, with shipments mainly going to China. Accordingly, Iran’s access to its revenue is limited. Moreover, these middlemen sometimes do not return the money to Iran, even years later. The new deal would allow the Islamic Republic to sell more oil at better prices and would grant Tehran full access to the income.

Likewise, under a new agreement, Iran would generate $55 billion in non-oil exports and save $12 billion thanks to the lower cost of imports. According to Iranian officials, the country currently imports goods at a 20 percent higher cost due to sanctions.

Revised assumptions regarding both the price of oil and Iran’s foreign assets also have minimal impact on the long-term value of a new nuclear deal. The previous forecast that the deal will grant Iran access to at least $1 trillion by 2030 remains unchanged.

The cumulative value of Iran’s oil exports from 2023 until the end of 2029 will depend on the price of oil. The lower-bound estimate, which assumes oil prices will decrease over time, is $494 billion. In the upper-bound case, which assumes the oil price will rise, the Islamic Republic will earn $760 billion.

The lower bound for the cumulative value of Iran’s non-oil exports by 2030 is $357 billion, while the upper bound is $415 billion. Key items in Iran’s non-oil exports, such as petrochemical products, are oil-based, so their prices correlate with the price of oil. Meanwhile, the Islamic Republic will save between $72 billion and $92 billion from 2023 to 2029 thanks to the lower cost of imports.

If one combines the lower-bound values of Iran’s projected oil export revenue, non-oil export revenue, import savings, and accessible foreign assets, the deal would grant Iran full access to at least $1 trillion by 2030 — or, to be more precise, $1.065 trillion. And that is the outcome least favorable to Tehran.

If oil prices rise over time and Tehran manages to modestly increase its non-oil exports and imports, the deal can offer Tehran up to $1.4 trillion. The upper-bound forecast does not assume that Iran will make a radical shift in its foreign policy or implement social and economic reforms that initiate significant economic growth. Such a shift would be unlikely.

Saeed Ghasseminejad is a senior advisor on Iran and financial economics at the Foundation for Defense of Democracies (FDD), where he contributes to FDD’s Iran Program and Center on Economic and Financial Power (CEFP). For more analysis from Saeed, the Iran Program, and CEFP, please subscribe HERE. Follow Saeed on Twitter @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_Iran and @FDD_CEFP. FDD is a Washington, DC-based, non-partisan research institute focusing on national security and foreign policy.


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