Iranian Economy Under Pressure as UN Security Council Rejects US Sanctions Bid

UN Security Council Rejects US Sanctions Push

In August 2020, the United Nations Security Council (UNSC) rejected a significant push by the United States to reimpose international sanctions on the Islamic Republic of Iran. On August 14, 2020, the UNSC voted against a US-drafted resolution aimed at extending an arms embargo on Iran, which was set to expire under the 2015 nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA). Only the United States and the Dominican Republic voted in favor of the resolution, while 11 members abstained and two voted against it.

Following this diplomatic setback, the US formally notified the UNSC on August 20, 2020, of its intention to trigger the 'snapback' mechanism, which would have reimposed all UN sanctions lifted under Resolution 2231. However, on August 25, 2020, the president of the UN Security Council, Indonesia, declared that no further action could be taken on the US request due to a lack of consensus among the 15-nation body. This effectively meant the UNSC did not reimpose the sanctions.

Tehran Stock Exchange Experiences Volatility

Despite the UN Security Council's rejection of further international sanctions, Iran's domestic economy continued to grapple with severe pressures. The Tehran Stock Exchange (TSE), after reaching a record high of over 2 million points on August 2, 2020, subsequently entered a period of significant downturn. This rapid ascent had led some analysts to warn of a potential stock market bubble. The market's trajectory shifted in early August, moving from unprecedented gains to what was described as an 'unprecedented fall' and 'setbacks' that took on the 'hue of a nightmare' for many investors.

Rial's Continued Depreciation Amidst Sanctions

The Iranian currency, the Rial (IRR), also continued its significant depreciation throughout 2020. By mid-December 2020, the Rial had lost 49 percent of its value against the US dollar for the year, reaching its weakest recorded value of 322,000 rials to the dollar in October. This decline was largely attributed to existing US sanctions, which had been unilaterally reimposed by the Trump administration after withdrawing from the JCPOA in 2018, as well as high inflation and low oil prices.

The economic strain led Iranians to seek alternative ways to preserve their savings, such as investing in property, gold, stocks, or foreign exchange, further driving up prices in these sectors. The government's ability to stabilize the currency was hampered by limited reserves and restricted access to export proceeds.

Broader Economic Context

Iran's economy in 2020 faced a 'triple-shock' of US economic sanctions, the COVID-19 pandemic, and a collapse in oil markets. Gross Domestic Product (GDP) contracted for a third consecutive year, with a 6.8 percent contraction in the Iranian calendar year 2019/2020. The non-oil sector, including agriculture and manufacturing, showed some growth due to the price competitiveness of products following currency depreciation, but overall GDP contraction was broad-based. The economic challenges contributed to high inflation, placing additional stress on households.