ANALYSIS: How Iran’s Economy is Faring, Forty Years After the Revolution 

By Natasha Phillips 

FEB 7 – As the Islamic Republic of Iran marks its 40th anniversary, the country finds itself at a crossroads. Four decades of decisions on internal policy and international affairs have led to acute unemployment and deepening poverty. For the first time since its inception, the Islamic Republic has seen sustained nationwide protests over what Iranians believe to be the government’s priority: spending on foreign and defense policy rather than on the country’s own economy. 

It’s a crisis that highlights some of the stark differences between the Iran of today and the Iran of before the revolution.   

Research published in July 2018 by the Vienna Institute for International Economic Studies identifies three key reasons for Iran’s current economic decline — all underlined, it says, by Iran’s economic decisions since 1979 and its pursuit of policies designed to isolate the country from international financial relationships. The country’s oil production since the revolution has failed to reach 1978 levels; a government policy launched by the Supreme Leader of Iran to incentivize having more children has led to a population boom, increasing the size of Iran’s population from 39 million in 1989 to 80 million in 2016; and sanctions, high inflation and a weak currency have all acted to destabilize the country’s economy.

[aesop_image img=”” panorama=”off” align=”center” lightbox=”off” caption=”Iran population 1960-2016″ captionposition=”center” revealfx=”off” overlay_revealfx=”off”]


[aesop_image img=”” panorama=”off” align=”center” lightbox=”off” caption=”Iran GDP Per Capita 1960-2016″ captionposition=”center” revealfx=”off” overlay_revealfx=”off”]

The 2019 Index of Economic Freedom also highlights worrying post-revolutionary trends in areas such as judicial effectiveness, government integrity and business freedom. Iran is currently ranked 155 out of 180 countries for economic freedom and has been placed in the “Mostly Unfree” section, along with several other countries including Afghanistan, Lebanon, Egypt, The Democratic Republic of Congo, Russia, China and Bangladesh. 

While government integrity has risen slowly in Iran since 1996, from 10 percent to 35 percent, Iran remains classified as a repressed country by the Index. On the subject of the rule of law inside Iran, the Index writes:“The judicial system is not independent… Corruption is pervasive, and the government applies criminal penalties for corruption subjectively, often pursuing religious minorities or political opposition. The government long ago abolished independent financial watchdogs.” 

The Index of Economic Freedom has also noted that Iran’s excessive bureaucracy and restrictive regulatory environment has directly impacted private investment and production. 


[aesop_image img=”” panorama=”off” align=”center” lightbox=”off” caption=”2019 Economic Freedom Index, Government integrity in Iran compared to the world average.” captionposition=”center” revealfx=”off” overlay_revealfx=”off”]

While Iran remains the second largest economy in the Middle East and North Africa, in 2017 it ranked 27th globally. Prior to 1979, Iran was the 18th largest economy in the world (1977). In an article published on February 1, the Atlantic Council reported that Iran’s per capita income had grown at a much slower rate since the revolution. The article went on to say that 30 years prior to the Islamic Republic’s establishment, Iran’s per capita income had more than tripled, while it had only doubled over the last forty years. 

The suppression of women inside Iran has exasperated the country’s economic situation, cutting off a vast resource capable of buoying the economy. Iran’s women make up 60 percent of the country’s university graduates but account for only 17 percent of the labor force. In 2008, the Majlis Research Centre published the results of a survey which confirmed a rise in the number of women enrolling at universities. A positive development in its own right, the government responded to the survey’s findings with alarm, viewing the uptake as a drain on spaces for male candidates. Prior to the revolution, a focus on reforms around women and a desire to modernize the country gave women the opportunity to contribute to the economy.

[aesop_image img=”” panorama=”off” align=”center” lightbox=”off” caption=”Overall Score On The 2019 Economic Freedom Index” captionposition=”center” revealfx=”off” overlay_revealfx=”off”]

Waning support for the Supreme Leader of Iran over the last few months suggests many Iranians inside the country feel the government is largely to blame for the country’s economic decline. A tweet posted on 4 February by Alireza Nader shows video footage of an Iranian wearing a security forces uniform writing, “Death to Khamenei” on a wall in Iran. Several more videos similar to this one have surfaced on the social media platform since, which include Iranians writing, “Death to Khamenei” on walls across the country, as well as tweets with the hash tag #DownWithKhamenei.

Last month President Hassan Rouhani said that Iran was facing its biggest economic crisis since the Islamic Revolution of 1979. Defending his leadership, Rouhani blamed the U.S. for Iran’s instability after it pulled out of the nuclear deal and reimposed financial sanctions, saying that the problems the country faced today were not because of mismanagement by his government. 

Iran had hoped that Europe would offer a solution that would act as a buffer against U.S. sanctions and reduced annual budgets which led to the Minister of Health resigning over cuts to the latest budget in January. However, the EU’s attempts at resuscitating the nuclear deal through the creation of a Special Purpose Vehicle (SPV) to bypass dollar trades frustrated Iranian officials this week, who are calling the setup unacceptable. The reaction was sparked by the EU’s proposal that the SPV should be used only for business relating to food and medicine. Sadeq Amoli-Larijani, Iran’s most senior judge and head of the judiciary said Iran would never accept the “humiliating conditions” attached to the SPV by the bloc. Diplomats in Europe have also suggested that the mechanism would be unlikely to bolster Iran’s economy to the point that it could counter the effect of the sanctions, adding more fuel to the idea that the EU’s efforts are at best a symbolic gesture

Hezbollah, the Shi’ite terrorist group backed by Iran, may also be experiencing financial turmoil. According to a report by Sky News Arabia, the organization postponed several payments, affecting some Hezbollah members. The Middle Eastern media outlet said that employees within Hezbollah’s military, medical, education and media departments had made complaints about pay cuts, with some members only receiving 60 percent of their wages in January. Sky News Arabia’s sources told the newspaper that Hezbollah was worried about the U.S. sanctions and the EU’s increased efforts at trying to oppose the group.