Iranian experience of sanctions: to look for secret friends and secret methods of payment

Victoria Pavlova

The government has no extra money - oil is sold at a discount of $30 per barrel, the ruble is still not cheap enough, half of international reserves are frozen. But the need for them will only grow. In the previous material, Novye Izvestia learned how the private sector will survive in Russia using the example of the most experienced country in terms of sanctions - Iran. So it will be hard to survive. It's time to find out if the state will be able to provide support to the population.

Can you put out the fire with money?

Sanctions lead to at least very high business costs. And that means low salaries of the population and very high inflation. In 2019-2021, inflation in Iran reached 50% - Russia still has something to strive for. The average salary, according to the Iranian Statistical Center, at the beginning of 2022 is only 18,970,900 rials ($455). And according to the Numbeo portal, after taxes, on average, about $ 315 a month remains on hand. Official unemployment in Iran is a very serious 11.8% - we can see such figures in Russia if Western companies finally close their business here and lay off their employees .

You can’t get away with such a salary, so the state has to subsidize many areas. Thanks to state support, a liter of gasoline, even if it does not meet modern environmental requirements, costs 10-15 rubles. In Russia, oilmen are also not left to fend for themselves: last year, state subsidies to refineries, including a damper, a reverse excise tax, and an investment surcharge to it, amounted to 1.25 trillion rubles. However, Adlan Margoev , a researcher at the Center for Middle East Studies, warns that it is dangerous to get involved in subsidies under sanctions:

- The Iranian authorities took a populist measure, subsidizing the prices of basic goods and food, and not for the poorest families, but for the entire population of the country. This creates a big burden on the budget. When Iran falls under tougher sanctions, and the public sector's ability to earn the same money through oil sales weakens, a large budget deficit arises and subsidies for some of these goods have to be cut. In 2019, when gasoline subsidies had to be revised and the cost for the entire population had to be doubled, large-scale protests began. The authorities had to turn off the Internet for a whole week in order to suppress them by force, without wide media coverage and the influence of external forces.

Medicine: it will only get worse

The Iranian government, in comparison with the Russian government, is generally quite generous in providing the social sphere. According to the WHO, Iran ranks 41st in the world in terms of health care spending - 8.7% of all budget expenditures. Russia, on the other hand, occupies 121st place with 5.3%. Money alone cannot solve the problem if, due to sanctions, it is not possible to provide the entire country with modern equipment. This causes distortion. Iran in the Middle East is famous for the possibilities of plastic surgery and especially rhinoplasty, but the beauty of noses is not enough to maintain people's health. As a result, in the ranking of countries in terms of the level of medical care from Numbeo, Iran scored 52.25 points and was in 75th place, and Russia - in 58th place with 58.44 points.

Adlan Margoev explains that Russia is now experiencing a shock due to sanctions that Iran did not have. This means that the drop in the quality of medicine can be very painful:

- In Iran, despite the relatively developed pharmaceutical industry and scientific base, there are still certain medicines and especially advanced medical equipment that need to be purchased. This is logical: it is cheaper to buy equipment and medicines where their production is put on stream than to conduct basic research and try to produce all this at home. That is why Iran has become dependent on imports. And despite the fact that US sanctions did not prohibit the supply of medicines and medical equipment to Iran, the manufacturers themselves refrained from any transactions with Iran in order to reduce their risks - this created additional difficulties in the fight against the pandemic.

If now Russia is higher than Iran in the ranking of countries in terms of the level of medical care, then soon we can very quickly go down to its level or even lower. Today, medicine in our country exists by inertia due to the accumulated technological baggage, but soon it will be necessary to replace outdated equipment. Only what? The share of domestic medical equipment accounts for less than 22% of purchases. Elite paid clinics will certainly find a way to bring the necessary equipment, but state-owned clinics that exist as part of public procurement, unfortunately, do not have such an opportunity.

Is there life after SWIFT?

After the disconnection of the seven largest Russian banks (mostly state-owned) from the SWIFT international system of interbank transfers, the question arose of what would happen if Russia was completely isolated, because it is impossible to replenish the budget for social support without international transactions. Nothing good. Only 39 foreign banks are connected to SPFS - the Russian analogue of SWIFT. Moreover, 20 of them are Belarusian, in China only 1 bank is connected to SPFS. Such an unpopular system cannot be a full-fledged replacement for Swift. Iran, on the other hand, has been doing without the SWIFT system since 2018, when Donald Trump canceled all agreements on the “nuclear deal”. Until now, even a strong connection between Iranian and Russian banks through the SPFS has not been established.

Iranian businesses have to look for ways around. In the modern world, everyone is accustomed to non-cash payments, but Iran is saved by cash and mutual settlements. Naturally, such difficulties hinder Iran's international trade. But they don't cancel it completely. In 2017, during the easing of sanctions, Iran imported $51.6 billion worth of goods and exported $105.84 billion. But already in 2020, imports fell to $34.9 billion, and exports to $38.8 billion. Sanctions work, and this is not a joke.

Director General of the Center for the Study of Modern Iran Rajab Safarov notes that the options for circumventing financial sanctions turned out to be quite effective - for each specific case, they found their own scheme:

- Iran offered oil buyers, including China, South Korea and other countries, to simply accumulate money in their accounts and pay for imports from this country with goods and equipment that Iran needs. Billions of dollars were accumulated in their accounts as oil was still sold for dollars. With many countries, Iran switched to mutual settlements in the national currency. The third option - with countries where there were counterparties of Iran, numerous companies affiliated with Iran were created, and money for oil exports was transferred to the accounts of these affiliated companies, they did not cross the borders.

Adlan Margoev says that the easiest way to circumvent sanctions is to use intermediaries in friendly countries. This method can mask the true volumes of exports and imports:

- When all Iranian banks were disconnected from SWIFT in 2012 by one decision, and then the Central Bank itself was under sanctions, Iran had to build an alternative financial system. Business began to conduct business through foreign legal entities and accounts - it turned out to be more convenient than transporting large amounts of money from countries that continued to cooperate with Iran. Even if trading in national currencies, there is still a risk of falling under US sanctions, so these transactions have to be carried out through banks in other countries and under a different flag. That is why part of the economic cooperation with Iran is recorded in the statistics, for example, not as Iranian-Chinese cooperation, but as Sino-Emirati or Sino-Turkish. Another way to circumvent sanctions is related to cryptocurrency - according to some reports, about 4.5% of bitcoin mining is in Iran, but this method cannot yet ensure the exchange of goods in industrial volumes.

Rajab Safarov believes that it will be much more difficult to isolate Russia financially than Iran:

- Given the experience of Iran, Russia will more easily endure restrictions, and besides, it has gigantic opportunities for interaction with other countries, after all, Russia's capabilities and potential cannot be compared with Iran, so I think that the feeling of Russia's isolation will not be so dramatic and critical, as the West imagines.

secret oil

Disregard for international norms has become the basis for the stability of the Iranian economy. Despite a complete embargo on Iranian oil, it accounts for about half of exports. Iran's Political Expediency Council estimates that the country exports 1.2 million bpd daily (before the sanctions, Iran exported 2.8 million bpd). All of Russia, without any sanctions, exported only 3.8 times more last year - 4.6 million barrels per day. Often, Iranian oilmen are saved by the unadvertised transfer of oil to tankers of other countries directly into the sea (Iranian ships simply turn off transponders so that they are not tracked), which are already officially selling raw materials to third countries. Another option is that according to the documents, the oil passes not as Iranian, but as Iraqi. The difference is only one letter.

Russia, on the other hand, will be much more difficult to engage in illegal oil exports, since a significant part of the raw materials is delivered by pipeline. It will not be easy to explain how black gold from a distant country ended up in the Druzhba oil pipeline.

Russia and Iran have a lot in common. In the same way, our pharmaceutical industry does not produce the entire range of medicines, it needs the supply of imported equipment, and subsidizes oil refining. But most importantly, according to Adlan Margoev , our country needs to preserve human capital:

- Sanctions against Iran are quite long, some of them have been in effect for almost 43 years, although the toughest ones were introduced just over 10 years ago. Therefore, the Iranian authorities turned out to be morally more prepared for sanctions shocks than the Russian government. However, our countries have a very different backlog: in most areas, even after the collapse of the Soviet Union, developments have been preserved that will allow achieving self-sufficiency in priority sectors of the economy, while in Iran this process takes much longer. The two countries are united by the main thing - the need to preserve human capital capable of developing the economy in harsh sanctions conditions. And this ability depends on two factors: the objective living conditions of the population and the ability of the government to speak convincingly with its population, using different information channels and broadcasting the message in its own way for each target audience.

Western sanctions have not been able to destroy Iran, and they are unlikely to destroy Russia either. But the Iranian experience shows that life will never be the same again. Entrepreneurs will have to look for new ways to import and export, ordinary people will have to put up with low wages and unemployment, and the state will have to inject an unusually large amount of money into the social sphere.