By Tony Liu, Research Associate

The Iranian defense industry is quite unique, having been shaped by a history of ostracization from the international community, wide-ranging sanctions on the import and export of weapons, and a strategic need to counter military behemoths such as the United States, Israel, and the Arab states. These factors have led to the formation of a defense industry in Iran that is stunningly obsolete in many respects, but is still able to execute many of Iran’s strategic objectives. Still, despite the government’s boastful rhetoric towards its military capabilities, many of the actual details surrounding the modernity and effectiveness of Iranian armaments remain unclear.

This AIC Industry Spotlight therefore seeks to examine the importance of the defense industry to the Iranian economy and provide details on Iranian arms manufacturing, weapons capability, and the future potential of Iranian arms imports and exports in light of sanctions relief.

By Dorna Maryam Movasseghi, Research Fellow

"The bazaar and the mosque are the two lungs of public life in Iran."

Mottahedeh’s judicious metaphor aptly captures the vital essence of one of Iran's oldest and most expansive life forces -- the bazaar. Much like the lungs, bazaars have been responsible for oxygenating more than just the social spheres of Iran; these microcosmic cities have also been fundamental in shaping the economic and political trajectories of the country for millennia.

A siege upon the senses, bazaars are a cornucopia of the most delectable sights, smells, textures, and sounds that trace back to 3000 B.C. in ancient Iranian towns and cities. Now, under a maze of arches and narrow corridors, bazaars and their merchants, bazaaris, continue to trade goods, currency, news, and gossip.

By Lauren Elmore, Research Associate

Iran’s healthcare system, along with the general health of the nation, has developed considerably during the last few decades. Overall, life expectancy in Iran has increased at an annual rate of 0.85% (average life expectancy in 2000 was 69.91 years; average life expectancy in 2021 is 76.94 years). Though economic strife, a result of sanctions and the COVID-19 pandemic, has hampered progress, medical technologies, including vaccines and medicines, along with a novel home health care system, have made the healthcare industry within Iran a growing bright spot of both innovation and economic success.

Progress and Development

Iran’s healthcare system has developed into an affordable, versatile, and innovative industry, rendering it attractive to citizens of many countries.

By Connor Bulgrin, Research Associate

In 2019, Iran exported an estimated $27 billion of goods to its trading partners. The majority of these exports were oil and other mineral-based fuels, but they also included plastics, organic chemicals, mineral ore, and fruit. Because Iran’s mountainous terrain is difficult to traverse, over 90% of Iranian exports are delivered by sea. As a result, Iran’s shipping industry is vitally important to its economy.

The Strait of Hormuz gives Iran its comparative advantage in shipping. Connecting the Persian Gulf and the Gulf of Oman, the strait provides Iran access to international waters and dominance over one of the busiest channels in global shipping. While Iran has threatened to close the strait on occasion, it has never done so. Instead, Iran has focused on using its advantageous geographic position to become a significant player in global shipping.

By Connor Bulgrin, Research Associate

In 1979, the fledgling Islamic Republic nationalized the banking sector. In that same year, the United States began enforcing economic sanctions against the new Iranian government in response to the hostage crisis; these were just the first in a long line of U.S. and international sanctions to be imposed on Iran over the next few decades. Though this hardly seems a promising environment for a strong financial market to emerge, the Iranian banking sector has been surprisingly resilient over the years. Although international banking restrictions have prevented Iranian banks from amassing large currency reserves, Iran has still managed to become a hub of Islamic banking in the Middle East.

By Connor Bulgrin, Research Associate

U.S. sanctions and banking restrictions against Iran have had a devastating impact on the Iranian economy. Since 2018, Iran has averaged a negative growth rate and in 2020 alone the Iranian rial lost 57% of its value against the U.S. dollar. Individuals have seen their savings dwindle and purchasing capacity drastically reduced. With its foreign reserves diminishing, the Islamic Republic as a whole has struggled to import foreign currencies and goods.

It comes as no surprise then that individuals and the Iranian government alike have looked at Bitcoin as an opportunity to allay some of their problems. Bitcoin’s appeal lies, in part, in its untraceable nature. It allows individuals to exchange goods and services outside the purview of regulators and other monetary authorities. Although Bitcoin wallets are identifiable through their static electronic addresses, discovering the exact owner of a particular Bitcoin wallet is an incredibly challenging task. As a result, Bitcoin has been viewed by some as a potential method to skirt U.S. sanctions.

By Andrew Lumsden, Research Fellow

When AIC last reported on Iran’s oil and gas sector in February 2018, there was a great deal of optimism surrounding its future among Iranian officials and many international investors. The sector had been boosted by the 2015 Joint Comprehensive Plan of Action (JCPOA), which relieved some U.S., UN and EU restrictions on Iran’s access to foreign investment and export markets.

Much however, has changed since May 2018, when the Trump Administration announced its intention to withdraw from the JCPOA. Despite the country being home to the world’s fourth largest reserves of crude oil and second largest reserves of natural gas, the future health of Iran’s fossil fuels sector is now shrouded in uncertainty.  

By Andrew Lumsden, Research Fellow

Although Iran’s 1979 revolution is known primarily for having transformed the country into a conservative Islamic theocracy, it also led to significant, progressive reforms on the country’s approach towards healthcare. The Islamic Republic’s constitution declares access to medical care a right for all citizens, and over the past three decades, Tehran has made notable investments in expanding health coverage nationwide, to good effect.  

Iran spends about 7% of its GDP each year on health services and has an estimated 954 hospitals, 3,700 clinics and 6,400 rehabilitation centers. About 60% of Iran’s hospitals are state controlled with the remainder run by private companies or non-governmental organizations, including charities.

By Andrew Lumsden, Research Fellow

Although Iran is primarily thought of as an oil-producing country, it is also one of the Middle East’s largest and most diverse agricultural producers. Due to the country’s expansive geography and extremely varied climate, Iran is able to produce a wide range of agricultural products, including grains such as wheat, barley and rice; fruits such as melons and grapes, as well as teas and medicinal herbs.

According to the United Nations Food and Agriculture Organization, close to 30% of Iran’s territory consists of croplands and livestock pastures. From an economic standpoint, the agricultural sector makes up about 10% of Iran’s GDP and employs about 16% of its labor force. Despite its size and importance to the country’s overall economy however, Iran’s agricultural sector still consists primarily of small, privately owned farms, generally no bigger than 24 acres. (The average family farm in the U.S. state of Texas, by contrast, is about 523 acres)

By Andrew Lumsden, Research Associate

Like many of its Middle Eastern neighbors, the Islamic Republic of Iran sits atop considerable deposits of fossil fuels. It boasts the world’s second largest reserves of natural gas and the fourth largest reserves of crude oil. Iran extracts an estimated 4.1 million barrels per day of crude oil and nearly 200 billion cubic meters annually of natural gas, making it respectively the world's fifth and third largest producer of these fuels. Oil is critical to the Iranian economy with about half of the country’s total revenue coming from its sale. Until recently, however, natural gas in Iran has been almost exclusively for domestic consumption.

Iran's oil and gas sector has been buoyed by the 2015 Joint-Comprehensive Plan of Action (JCPOA) which relieved U.S., U.N and E.U sanctions under which Iran’s ability to export oil and access foreign investment had been curtailed. With the European market again open to it, Iran’s oil exports have been on the rise. In 2017, the Islamic Republic exported nearly 800 million barrels of crude oil, 80% more than in 2016. These sales netted $41 billion in revenue.

By Ariane Gottlieb, Research Associate

A large state replete with natural resources, Iran is among the most mineral-rich countries in the world, holding approximately 7% of the Earth’s supply with 45 to 60 billion metric tons of 68 different types of minerals.  Despite its natural advantages, however, Iran has failed to make the most of its mining sector. Mining employs just 620,000 people in the country and accounts for 0.6% to 1% of GDP.  With 90% of Iran’s potential mines unsurveyed, some estimates put the industry’s potential worth at triple its current value. The deputy minister of Iran’s Ministry of Industry, Mines, and Trade, Mojtaba Khosrowtaj, has indicated that copper, lead, and rare earth elements could ultimately generate more revenue than the crude oil industry.

By Ariane Gottlieb, Research Associate  

Given Iran’s geographic breadth and its sizable population, the task of maintaining and modernizing its public transportation system is immense. Cities in Iran are linked by 199,000 km of roads and 10,000 km of railroad. The country has over 300 airports.  Due to heavy traffic, the metro systems in all major cities are heavily utilized to avoid the congestion above. The Tehran metro, for example, is one of the busiest in the Middle East and estimated to service between two and four million people each day.
 
While impressive in its scope, Iran’s transportation system is in serious need of attention and improvement. The World Economic Forum’s 2015-2016 Global Competitiveness Report ranked Iran 76 out of 140 for overall infrastructure quality (other industrialized countries in the region received much higher ratings, such as Saudi Arabia at 31 and the United Arab Emirates at 2). 

By Elliot Plaut, Research Associate

Like other countries in the region, Iran faces a severe water crisis due to climate change and poor water management. One of the most visible reminders of this ongoing problem is Lake Urmia. Located in the northwestern corner of Iran, Lake Urmia’s watershed serves an agricultural region with a population of 6.4 million people.  Previously one of the largest salt lakes in the world, Lake Urmia was also once a popular tourist destination. However, the last 20 years of environmental conditions and damming of tributary rivers for irrigation have shrunk Lake Urmia’s surface area by 70% and its water volume by 95%.

By Sarah Bryn Witmer, Research Associate

Claiming 21 UNESCO World Heritage sites, Iran’s courtyards and gardens, patterns, textures, and shapes are celebrated and emulated worldwide. In addition to its impressive and historic architecture, however, Iran is also home to a vibrant construction industry with a trend towards modernization. One prime example of a modern gem and model of technological achievement is the Sharifi-ha House in Tehran, designed by Tehran-based firm Nextoffice in 2013: a seven-story home with rooms that rotate and shift at the push of a button. While some Iranians bemoan this kind of change in the architectural landscape, others suggest that modern buildings are more suitable for everyday life and attracting tourists.  Even the modern Sharifi-ha House, however, reflects the staying power of traditional Persian architecture since the concept of rotating rooms was inspired by old Iranian mansions, which had both summer and winter living rooms.

By Ariane Gottlieb, Research Associate  

Iran, with its population of nearly 80 million people and recent relief from sanctions, offers significant opportunities for growth, international investment and modernization in its already strong food and beverage industry. Currently, 90% of food and beverage sales are conducted through traditional small grocery outlets and local bakeries. In 2014, 96% of bakery sales were for staples like bread. But, in a country where 65% of the population is under the age of 35, tastes are changing and companies are modernizing and targeting younger consumers by rebranding or adding new products and flavors.