By: Jacoby Goodson
Editor | Politics & The World

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The various negotiations and quarrels between the U.S. and Iran have resulted in relatively large disputes concerning the production of heavy ballistic missile and nuclear matters. The two belligerent nations are now left scrambling to find a path that benefits both nations’ economies and their mutual diplomatic relationship.

For Iran to escape their bounds of economic sanctions, there must be a shift in not only policy but also national outlook on exceeding the limitations of global enterprise and utilizing their younger population to expand into new industries. The Biden administration has been making it extremely difficult for Iran to cooperate because of the various production limitation requests that go beyond nuclear into their oil-dependent economy.

Iran’s Volatile Relationship with Crude Oil

Statistically, crude oil production and exportation only accounts for around 14% of Iran’s entire GDP. However, it serves as more than just a percentage of the entire revenue made each year. Although the energy sector is not a primary contributor to the development of GDP, developing the industrial economy and infrastructure within Iran depends heavily on the future availability of natural gas.

Prior to the most restrictive sanctions imposed on Iran following Trump’s withdrawal from the nuclear agreement, Iran’s economic development saw a 13.4% increase in GDP at the end of the Iranian year in March 2019, and a 3.4% increase the year after. Following this significant “expansion of the petroleum sector”, led by the Joint Comprehensive Plan of Action (JCPOA), the country saw a 6% decrease in GDP at the end of 2019.

Given the obvious role that crude oil plays in revenue and infrastructural development as well as the negative impacts U.S. sanctions have, Iran now faces an economic dilemma. They must prioritize oil less and utilize the educated youth more to develop emerging and modern sectors.

The Opportunity to Expand into Modern Sectors

With this new-found opportunity to expand, Iran must look to actively participate in globally scaled investment partnerships in the technology, sustainability, and health-care sectors. By engaging in these communities, Iran will be able to incorporate Iranian educated entrepreneurs, doctors, or inventors into larger markets, dragging them up and out of their economic dependency on oil.

Amidst this diplomatic stalemate and the increased sanctions placed on Iranian oil, the newly elected leadership must devise a plan to arise from the economic rut they have been slowly riding out. The depreciation of oil prices in the new wave of sustainable and eco-conscious industries only exacerbates this predicament.

The wave of global green energy is increasing in size as new ways to synthesize sustainable energy are coming into the light. Emerging pocket industries such as wind, solar, hydraulic, or even nuclear power are becoming the new normal as these pocket industries have been creating jobs and bringing down the popularity of other oil and gas companies.

A green energy production firm located in the English Channel called the North Sea Green Energy could begin to overtake the production and price of crude oil and gas. One research team based out of Robert Gordon University in Scotland found that the U.K.’s coastline green jobs are likely to climb from 20% of the country’s offshore energy sector to around 65%. At the same time, the number of jobs in the North Sea oil and gas industry are expected to fall by around 40%. This shows that as we begin to experiment with new ways to facilitate the production of green energy, more and more jobs will be produced.

According to data found in a trial run by the Energy Industries Council (EIC), 49% out of 40 energy investing companies picked diversification as their main strategy for portfolio growth. These figures were far smaller in previous years, standing at 36% in 2019 and 27% in 2017. Within these same corporate interviews, 90% of the companies stated that they were still invested in oil and gas. However, 26% have stated that they intend to shift their diversification strategy into the green-energy industry. “Oil and gas continue to be highly volatile and under pressure from future energy transition,” argued Stuart Broadley, EIC’s CEO.

A Deteriorating Dependency on Crude Oil

In late 2020, the Organization of Petroleum Exporting Countries (OPEC+) saw a 7% decrease of the price of Brent crude oil from $70.89 to $65.78 per barrel after an agreement within the organization to limit production out of Kuwait, Iraq, Saudi Arabia, and the UAE.

According to the International Monetary Fund (IMF), global trade with Iran has been on a drastic downward trend since Donald Trump imposed heavy sanctions on the exportation and production of Iranian oil. The IMF claims that Iran suffered a trade deficit of around $3.45 billion in 2020 which left them with barrels of unsold oil, and very little patience. This unprecedented fall in price in conjunction with the heavy sanctions imposed by the U.S. on Iranian oil is a clear indication of a need to remodel economic strategy.

The result from this price decline has left multiple Iranian economists worried about the future of their economy. Ed Bell, Director of Commodities Research at Emirates NBD, expressed his concern for the difficulties that Iran might face pushing back into the crude oil market share. “The timeline for a return of freely exportable Iranian crude keeps getting pushed back later into 2021 and as such we don’t see any imminent return that would help to alleviate the tightness currently in the market.” This leaves Iran with the option to look past obvious ball and chains within its economy and rather adapt internally and prioritize the development and freedoms of future innovators within emerging industries like technology or sustainable energy alternatives.

Iran’s Misuse of Educated Communities

Iran’s ability to develop its economy is already supported by an extraordinary education system which produces high quality and highly forward-thinking students. The Iranian government prioritizes the accessibility and quality of their post-graduate education system by spending a fair amount of their GDP on developing universities and schools. Of its total GDP in 2019, Iran spent 3.71% on the development of the education system, of which 27% is spent on post-secondary education, ranking 4th globally. For Iran to take advantage of this, the government should decide to embrace the increase of free enterprise.

Mirroring the accessibility of private industries must be backed with the certainty that it will not overshadow the role of the government subsidizing impactful GDP drivers such as crude oil or industrialization. As mentioned before, the best way for Iran to avoid future GDP declines or stagnant economic development would be to optimize the privatization of business.

In order to allow these private sectors to flourish, Iran must discuss the possibility of reducing government intervention, restructuring the government finances, and empowering other sectors. This is contingent on Iran’s ability to let go of their desire to control the market with religious and ultra-conservative policies such as limiting global partnering and funding.

Disregarding Free Enterprise

The limitation of free enterprise and the privatization of economic growth date back to the late 1970s. During the rise of the ultra-conservative regime, funded and inspired by clerics seeking to emphasize a non-secular state of mind, wealth was accumulated by taking advantage of the oil market and pushing aside the development of future industries.

A diplomatic panel discussion between the Director of International and Public Affairs at Columbia University Richard M. Nephew and Senior Fellow for Middle Eastern Studies Ray Takeyh, covered the development of the Iranian economic policies. Takeyh described the new regime in the 70s as a “clerical tyranny mired in corruption” which brought the limitation of private businesses as well as international funding from hedge funds or VCs worldwide. During the new revolution in the late 1970s, the new government saw a developing cultural chauvinism that was connected to the rise of the Ayatollah, who hoped to “cleanse” the nation with his clergy-driven vision fueled by the prioritization of religious antics, complicating matters for citizens and corporations in Iran.

In terms of intellectual capacity, Iran’s post-graduate schooling system has proven to produce some prominent names not only in tech but in other global industries such as healthcare and finance.

The Developing Educated Youth

On the forefront of a budding industry, powerful Iranian women once deemed inferior by Iran’s non-secular driven society with the rise of the Ayatollah’s regime in the late 1970s, now lead the sector in tech start-ups and advancing AI companies.

20-year-old Ghonche Tavoosi is on the verge of launching her group Lendem, a platform that allows users to connect via a social platform and lend each other everyday items such as household appliances, clothes or even cooking utensils. Although successful in her pitch, Tavoosi has come to a crossroads when it comes to acquiring funding for her project. This is primarily due to the various restrictions the Iranian government imposes on free enterprise, as well as her status in Iran as a woman. Educated in Tehran, Tavoosi along with hundreds of other extremely well-educated, young Iranians are having a hard time expanding into new industries as they continue to face political barriers as well as the influence of religion in Iran’s social and economic world.

The Right Call for Future Iranian Development

If the Iranian government wants to end their dependency on oil which will eventually deteriorate exponentially over the next 25-30 years, they need to prioritize rare opportunities to expand into emerging markets.

This requires more political freedom, given by the Iranian government, to obtain the necessary funding and exposure from various venture capitalists and investors. This will even place the Iranian economy in a better position than it was before the first new deal was signed back in 2015; it will allow them to balance on multiple legs of economic output in comparison to just relying on the teetering oil market.

In the face of changing politics and intentions to lift various sanctions placed on the Iranian oil market, the expansion of the Iranian economy also represents an opportunity for investors in the E.U. or Asia. Countries such as the U.A.E. and Saudi Arabia who have already taken the leap into a modern economy, are strong reference points. Iran must understand free enterprise and what is takes for tech start-ups to find local funding, but also brand in a way that is heard on a global scale.