This year, Iran’s economy has pivoted into a cascading downward spiral that can no longer be brushed aside. It is not merely slowing—it is bleeding from deep structural wounds that compound under pressure. Fifteen years of sanctions have amounted to a kind of economic war, and in that war, Iran’s defences—its fiscal, monetary, and institutional policy arsenal—have remained dangerously weak.
The consequences are staggering. Take working capital as a lens. The turnover of capital in Iran’s production sector has now fallen to below two turns per annum. In the OECD, the benchmark is four to five. Sanctions are the overwhelming cause of this stagnation. Consider the Tehran Stock Exchange (TSE), which acts as a proxy for nearly half of the country’s GDP.
It currently sits at a valuation of $100 billion, with listed companies reporting roughly $10 billion in profit, an earnings yield of 10%. Based on OECD capital efficiency, that figure should be closer to $30 billion. That’s a $20 billion annual loss in forgone profitability—and, scaled to the entire economy, a yearly total opportunity cost of $40 billion. Over 15 years, that represents a cumulative output loss of $600 billion, or roughly 16% of GDP, every year for 15 years. For context, in the OECD, a 2% output gap over two years counts as a recession.
This means we have gotten every year, for 15 years, an economic blow that is 8x higher than the impact of a normal OECD recession. It has been hard on businesses in Iran. Our respects go to those businesses in the private sector who have been able to survive this onslaught.
Sanctions hurt. But the lifting of sanctions, however welcome, is not a strategy—it is a cash infusion. It is a precondition, not a solution. If the same fiscal and monetary architecture remains in place—generalised subsidies, an ineffective bureaucracy, and economic winners defined by political privilege—then no new flow of foreign currency will reverse the structural slide. It will only slow it.
Indeed, if the subsidy policy remains untouched, inequality will accelerate. If fiscal policy continues to favour short-term consumption over long-term production, Iran’s industrial base will continue to consume value rather than create it. Without modern monetary instruments, such as interest rate corridors, market-based liquidity tools, or inflation targeting, price instability will persist.
Foreign direct investors, the most discerning and long-term of capital allocators, will examine our banking system, survey our regulatory landscape, and go elsewhere. They will not be drawn in by consumer demand alone. What they seek is depth, discipline, and clarity. They will not find it where capital controls choke movement and red tape disfigures returns.
All that will remain, in that grim scenario, are those willing to sell into Iran’s consumption—a cycle of imports feeding demand with no productive capacity to match. That is not growth; it is dependency, dressed as recovery.
There is a better way. A unified exchange rate—a necessary condition for monetary credibility—must be introduced, but carefully. It must be sequenced with fiscal support tools to soften the blow. Industries that have relied on cheap imports—electronics assembly, pharmaceuticals, even food packaging—should not be asked to absorb full market prices overnight.
But neither should they be handed more cheap dollars. Instead, offer time-bound tax credits, targeted rebates, and infrastructure offsets. Preserve competitiveness, but without distortion of monetary policies.
All of this depends on better coordination and better institutions. Iran must separate its central bank’s role as a monetary authority from its regulatory burden over the financial sector. An independent banking regulator, akin to FINMA in Switzerland or the Financial Regulatory Authority (FRA) in the UK, must be erected.
That body must audit the banks, separate bad assets, and recapitalise the sector through government-issued equity—golden shares, injected with conditions. The non-performing loans that currently clog balance sheets are largely the result of state-induced demand and politically directed lending. It is time to recognise them as public debt and resolve them accordingly.
Clean up the banking system, and foreign investors may stay. Fail to do so, and they will walk. No vision of economic sovereignty is complete without a foundation of credible capital and transparent oversight.
An independent monetary policy, meanwhile, is central to both macroeconomic stability and investor confidence. When a central bank is free from fiscal interference and guided by a mandate to target inflation or currency stability, it sends a clear signal to markets: that the value of money will not be sacrificed to short-term political demands. For businesses, this translates into predictable borrowing costs, stable pricing environments, and credible long-term planning.
For foreign direct investors, it is the first test of seriousness—a stable currency regime backed by an autonomous central bank is often more influential than tax breaks or trade incentives. Countries like Chile and Poland have shown how inflation-targeting frameworks and independent monetary institutions can anchor credibility and attract sustained capital inflows.
This is not a normal reform agenda. It is economic triage. It is time, at last, to untie the knot—or else remain tangled in cycles of crisis, even with the shackles of sanctions removed.
By the ACL Analysis Team