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Easing of Iran sanctions will do little to lift crippled economy, experts say

An Iranian woman window-shops at a cosmetics store in Tehran in November.
An Iranian woman window-shops at a cosmetics store in Tehran in November.Abedin Taherkenareh / EPA

The foreign minister of Iran was greeted by cheers when he returned to his country, starved by years of economic sanctions, after a deal with the United States and other world powers to freeze the Iranian nuclear program.

By agreeing to the freeze, Iran won some relief from the sanctions — but precious little, analysts cautioned Monday, and not nearly enough to reverse the damage sustained by the Iranian economy.

Most of Iran’s 78 million people won’t notice the difference.

“The condition is so dire that I don’t believe, without the unfreezing of the entire frozen assets, one can notice any significant development,” said Hamid Dabashi, an Iranian-born professor at Columbia University and expert on the country.

The United States and the West put the high estimate of sanction relief under the deal at $7 billion over six months. By comparison, Iran has about $100 billion in investments frozen around the world, and its government runs a deficit of $35 billion a year.

Makeup of the deal

Most of the relief, $4.2 billion, will be revenue from the sale of Iran’s own oil. Iran will get the cash in tightly controlled payments, not all at once, and in exchange for holding up its end of the deal.

“They do not receive $7 billion on the first day and then decide if they want to implement their side of the agreement,” William Hague, the British foreign secretary, told reporters Monday.

Iran gets to import parts and supplies from the United States for its auto industry, a piece of the deal valued by the United States at about $500 million, and the agreement allows Iran to import spare parts to make its airplanes safer.

Whether American companies are willing to do even that limited business is another matter. A spokesman for Ford told Reuters on Monday only that the company would “monitor the situation carefully,” and General Motors and Chrysler declined comment.

Iranian Foreign Minister Mohammad Javad Zarif, center, arrives at the Tehran airport after the deal.Arash Khamooshi / AFP - Getty Images

The United States will allow Iran to trade in gold and other metals, but the White House cautioned that Iran gets no economic benefit from that part of the deal. It has to buy gold with its limited foreign currency holdings, and can’t use the oil money for gold.

And Iran will be allowed to unfreeze $400 million of its investments to help pay tuition and other costs for its students abroad. There are about 8,700 Iranian students enrolled at American colleges, according to the Institute of International Education.

Jamal Abdi, policy director at the National Iranian American Council, said the student aid was a meaningful step because “students have borne a lot of the pain of the sanctions.”

“The U.S. can now reach out to young Iranians and sort of solidify the pro-American feelings that many young Iranians have,” he said.

Long history of sanctions

The United States has had sanctions in place against Iran since the Islamic Revolution of 1979 — penalties designed at first to get Iran to stop supporting terrorism.

The United Nations and the European Union have heaped their own sanctions on since 2006, because of concerns that Iran has designs on a nuclear bomb, and the combination has been almost too much for the Iranian economy to stand.

Oil exports, which pay for about half of what the Iranian government spends every year, have fallen by more than half in the past two years, according to the Congressional Research Service.

That won’t change. Iran will still be held to a limit of about a million barrels of oil per day. It loses about $4 billion a month in oil that it can’t sell. And much of what it does sell will keep piling up in frozen overseas accounts.

The deal does stop, for now, American plans to cut Iranian oil exports even further.

Iran has also been shut out of the world banking system, devastating its currency, the rial. Inflation runs at almost 50 percent, compared with less than 2 percent in the United States. The Iranian economy shrank last year and is expected to shrink again this year, according to the Congressional Research Service. The banking sanctions remain in place.

No short-term payoff, but hope for long run

For Iran, the agreement over the weekend is something of an ice-breaker, Dabashi said, providing far more of a psychological benefit than an economic one. For Iran’s 80 million people, it offers hope that the full sanctions may one day be lifted.

The deal is “a long-term investment by a regime that has historically banked its survival on adroit improvisation,” Suzanne Maloney, an Iran expert at the Brookings Institution, wrote on a Brookings blog.

“The upshot is that Tehran will see little short-term payoff for its nuclear gamble,” she said.

Members of Congress, including Democrats, are already threatening to add sanctions on Iran, perhaps as soon as next month. And Western countries made clear after the deal was announced that they have the power, if they believe Iran is not abiding by terms of the deal, to turn off the spigot on the limited sanction relief it is getting.

“It does buy us time to get the agreement and to get them to realize the price they’ve been paying,” Lawrence Korb, a senior fellow at the Center for American Progress and former defense department official, told CNBC.

“In order to get where you want, you have to start someplace,” he said.

John Schoen of NBC News contributed to this report. Reuters also contributed.

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