Normalization of Economic Relations
November 25th, 2008
USA*Engage commissioned a study released on Friday November 21, 2008 “Normalization of Economic Relations: Consequences for Iran’s Economy and the United States” written by Dean DeRosa, principal economist at ADR International Ltd., and Gary Hufbauer, a senior fellow at Peterson Institute for International Economics. The study illustrates the economic impact that sanctions have on the world economy. It is intended as a helpful datapoint at a time when a new Administration is taking office and has promised a fresh look at U.S.—Iran relations. USA*Engage members believe, as the study noted, that “the efficacy of the sanctions in forcing political change is controversial. In economic terms, however, both sides lose from the geopolitical standoff.”
The study determined that if United States were to lift its sanctions against Iran, and Iran were to liberalize its economy, the world price of oil could fall by 10 percent (based on average world price for crude oil of about $50 a barrel) and Iran’s gross domestic product (GDP) could increase by 23 percent annually.
It said that a 10 percent reduction in the price of oil would save the United States $38 billion to $76 billion a year, and that liberalizing the Iranian economy could result in an increase in Iran’s total trade of up to $61 billion and boost U.S. non-oil trade and trade in services with Iran by about $46 billion.
As William Reinsch, co-chair of USA*Engage and President of the NFTC has noted, the prospect of the United States moving quickly to lift its sanctions against Iran and of the Iranian regime liberalizing the country’s economy any time soon are remote but “the new administration…will provide the opportunity for rethinking policy on a variety of fronts; we would like them to be informed with some analysis and facts.”
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