RUTHFULLY YOURS

As you probably know, over the course of several weeks in December Iranian proxies known as the Kataib Hezbollah carried out multiple attacks against military installations in Iraq. On December 27, one of those attacks killed an American contractor, and wounded several other Americans and Iraqis, at the K1 military base near Kurkuk. Then on December 31 the same Iran-backed group stormed the U.S. embassy compound in Baghdad. On January 3, the U.S. military, under orders from President Trump, conducted a retaliatory strike that killed the leader of Iran’s so-called Quds Forces, Qasem Soleimani. Subsequently, Iran has threatened further rounds of retaliation against the U.S., although those have not occurred as of this writing.

Before getting too caught up in the tensions of the current moment, perhaps we should step back and look at how things have been going lately for Iran. The answer is, not very well. This is one of those things that you can figure out if you look around enough, but rarely is the information compiled in one place. So I’ll do it for you. As I have remarked before, the U.S. has been incredibly blessed over the years by the rank incompetence of its geopolitical adversaries. Think Russia, Cuba and North Korea as examples. China too, although I’ll save more detail on that one for a future post.

Iran’s population in 2020 (from worldometers.info) is just under 84 million. That is slightly more than 1% of world population, and makes Iran the second most populous country in the Middle East, after Egypt. And Iran has the seeming blessing of vast oil reserves.

So you would think that Iran would have a relatively large and growing economy. Not so. Iran’s GDP (IMF 2019 estimate) is only $458 billion, or about 0.57% of world GDP, and just over $5000 per capita. (For comparison, the per capita GDP of Mexico and China are around $10,000, Brazil about $9000, and the U.S. over $60,000.).

And the economy of Iran has shrunk drastically for the past decade. Here is a chart from Trading Economics:

Despite some modest recovery in 2016 and 2017, it appears that Iran’s economy was a full 25% smaller in 2017 than at the peak back in 2012. And how about since 2017? The BBC here, citing data from the IMF and the Iran Central Bank, reports that Iran’s economy shrank further by about 4% in 2018, and another 9% estimated for 2019.

How could they be doing so badly? Three factors stand out:

1. Like all good dictatorships everywhere, the Iranian potentates have opted for a mostly centrally-planned economy. Wikipedia here (citing a piece from The Economist that I cannot trace) states that the economy of Iran is 60% centrally planned. From a 2010 World Bank “Country Brief” on Iran: “Iran’s economy is centrally planned, relying heavily on five-year plans.” Of course, central planning is a prescription for stasis, eventually followed by decline.

2. With an economy heavily dependent on the oil and gas sector, Iran has been badly hurt by the decline in energy prices from 2014 onward, driven by the fracking revolution in the U.S.

3. And finally, we have the effects of U.S. sanctions. Those were lifted in January 2016 with the Obama administration’s Iran nuclear deal — leading to those two good years for the Iranian economy in 2016 and 2017. Then, the Trump administration re-imposed sanctions in November 2018, leading to the recent sharp declines in Iran’s GDP.

The effect of the 2018 reimposition of sanctions has been particularly dramatic. Here is another chart from Trading Economics, this one showing Iran’s crude oil production over the past five years:

The units are thousands of barrels per day. As you can see, Iran’s production has fallen about in half during just over the past year. This is a disaster for a country that depends on oil production for most of its export earnings and government budget.

Needless to say, the people are not happy about their collapsing standard of living. It seems to have slipped from the headlines in the past couple of weeks, but as recently as December, Iran was experiencing massive demonstrations, and brutally repressing them. The demonstations specifically called for the overthrow of the regime and the end of the Islamic Republic. On December 1 the New York Times ran a piece headlined “With Brutal Crackdown, Iran Is Convulsed by Worst Unrest in 40 Years.” Excerpt:

Iran is experiencing its deadliest political unrest since the Islamic Revolution 40 years ago, with at least 180 people killed — and possibly hundreds more — as angry protests have been smothered in a government crackdown of unbridled force.  It began two weeks ago with an abrupt increase of at least 50 percent in gasoline prices. Within 72 hours, outraged demonstrators in cities large and small were calling for an end to the Islamic Republic’s government and the downfall of its leaders.

Overall, Iran is not dealing from a position of strength. That doesn’t mean that they can’t carry out some kind of attack here or there. But their options are very limited.