Macroeconomic Implications of US Sanctions on Iran: A Sectoral Financial Balances Analysis

Open access


Iran is facing a severe macroeconomics crisis after the US (re)imposed sanctions on its oil and gas exports in May 2018, followed by additional sanctions on metal exports in 2019. Its exports have collapsed triggering a contraction of the economy along with accelerating inflation and depreciating currency. Using the sectoral financial balances (SFB) model, we study the interrelationship between several macroeconomic parameters maintaining stock-flow consistency across time and sectors of the economy. Fiscal and monetary policy cannot reverse the consequences of the sanctions although fiscal deficits as a percentage of GDP will see a rise to accommodate the domestic private sector’s desire to accumulate financial asset accumulation. The lack of a strong monetary policy mechanism in Iran may, however, be unable to quell the impact of expansionary fiscal policy on inflation and depreciating rial. Given the limited macroeconomic policy options open to Iran in dealing with the crisis Iran, the only option may be political – a return to the negotiating table with the US.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • Amuzegar Jahangir (2005) Iran’s Oil Stabilization Fund: A Misnomer Middle East Economic Survey Vol. XLVIII No 47 available at

  • BBC (2018) What babies’ nappies tell us about Iran’s economic woes September 6 2018 available at

  • BBC (2019) Six charts that show how hard US sanctions have hit Iran May 2 2019 available at

  • Benjamin Medea (2019) Counter Punch: How US sanctions are hurting Iran: A firsthand report March 12 2019 available at

  • Bijan Khajehpour (2018) Al Monitor: Will Iran’s banking sector collapse? April 18 2018 available at

  • Bloomberg (2019) Iranians line up at dawn for a sanctions meal they can afford March 19 2019 available at

  • Cole Juan (2019) Common Dreams: Trump’s economic war on Iran: 88% reduction in oil exports 6% shrinkage of economy July 8 2019 available at

  • Financial Tribune (2019) IMF sees deepening recession in Iran before growth in 2020 April 10 2019 available at

  • Global Economy (nd) Exports and Imports as percentage of GDP available at

  • International Monetary Fund (IMF) (2011) IMF Country Report No. 11/241 available at

  • International Monetary Fund (IMF) (2014) Islamic Republic of Iran Staff Report for the 2014 Article IV Consultation available at

  • Koo Richard (2008) The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession Revised Edition Wiley and Sons (Asia): Singapore.

  • Maziar Motamedi (2019) Al Monitor: will open market operations signal new chapter in Iran’s financial leadership? May 24 2019 available at

  • National Resource Funds (2014) Oil Stabilization Fund and the National Development Fund of Iran February 2014 available at

  • Plaut Steven (2013) Gate Stone Institute: The Collapse of Iran’s Rial February 21 2013 available at

  • Radio Farda (2018) 26 million Iranians suffer absolute poverty says prominent economist

  • Radio Farda (2019) Iran minister claims big increase in tax revenues while economy in recession June 26 2019 available at

  • Reuters (2018a) Exclusive: global traders halt new Iran food deals as U.S. sanctions bite December 21 2018 available at

  • Reuters (2018b) Iran faces banking turmoil after U.S. nuclear deal exit May 9 2018 available at

  • Reuters (2019) Iran’s crude exports slide to 500000 bpd or less May 18 2019 available at

  • Sivramkrishna S. (2016) China’s Macroeconomic Policy Options: A Sectoral Financial Balances Perspective Studies in Business and Economics 11(1) 152-163.

  • Tasnim News Agency (2019) Eurasia review: Iran central bank chief says country has ample forex reserves May 22 2019 available at

  • Tehran Times (2019) U.S. sanctions Iran’s metals; what’s the Impact? May 11 2019 available at

  • The Wire (2019) US imposes new sanctions on Iran targets revenue from metal exports May 9 2019 available at