Vahid Shaghaghi-Shahri, an economist, provides a comprehensive analysis of Iran's economic situation and its dependency on oil. This dependency, which has influenced the country's economic structure for years, is now facing new challenges. With a decrease in oil exports due to sanctions and maritime insecurity, the main question is whether Iran will be able to govern economically without oil?
History of Economic Dependency on Oil
Shaghaghi-Shahri refers to the history of Iran's economic dependency on oil and states: the modern government in Iran has turned into a "rentier import-driven state" instead of relying on citizens' taxes. This structure has tied the distribution of the current budget and infrastructure to oil revenues.
Read more: AP Moller-Maersk Shares Drop Due to Lower-Than-Expected Predictions
He explains that this situation has led to structural inflation and the Dutch disease, pushing the economy towards dependency on oil exports. Shaghaghi-Shahri emphasizes that with every surge in oil prices, governments tend to grow larger and become less reliant on tax collection, and during times of intensified sanctions, the country approaches the brink of bankruptcy.
Requirements for Economic Governance Without Oil
This economist proposes four parallel approaches for implementing oil-independent economic governance. The first approach is a shift from an oil-centric budget to a program-based budget and encouraging smart taxation. The second approach is to sever the chain of aggregate demand dependency on oil dollars.
Shaghaghi-Shahri also identifies the reform of the banking system and energy pricing as the third and fourth necessary approaches. He mentions stopping the printing of money to cover budget deficits and realigning energy carrier prices.
Mohammad Vahidi-Rad, a senior international trade analyst, has also addressed this issue, stating that an oil-free economy is more of a transformation in economic governance style than a financial project. He refers to the 1405 budget bill and adds that in assessing this bill, the actual share of oil and gas from total government resources is estimated at 34 percent.
Vahidi-Rad concludes that if oil exports are halted, the country will face two simultaneous challenges: losing government resources and a shortage of foreign currency for imports. These two issues are interdependent, but they do not have a single common solution.
Ultimately, Vahidi-Rad believes that the government should shift from a structure that spends most of its energy on resource distribution to an institution whose duty is to create stability, healthy competition, and ensure investment security. He emphasizes that taxes should be the result of economic growth, not a substitute for the production of wealth that has yet to be realized.
Read more: The Government Should Address Real Energy Issues Instead of Controversial Matters · Sanctioning of the Oil Tanker Shipment 'April' on October 17, 2023
