Iran's resilient economy takes the costs of Iraqi war in stride
Financially, Iran can afford its war with Iraq.Skip to next paragraph
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A bank economist estimates the war's cost in hard currency at $3 billion to 4 billion a year. Oil revenues run about $1 billion a month. A drop in oil prices -- unless drastic -- would still leave Iran with enough money to continue the war if it chose to. Of course, money spent on the war is unavailable to pay for development projects or other imports.
One reason for the war's relatively low cost is that Western nations have refused to sell Iran the more expensive weapons, such as fighter aircraft and modern tanks.
But in riyals, the local currency, the cost of the war would be much higher than $3 billion to 4 billion.
Iran can apparently manage the loss in casualties, too. Some of the revolutionary mullahs have encouraged marriage at a younger age -- sometimes for women as young as 12 or 13 -- as a way of avoiding ``sin.'' One result has been an increase in the birthrate to above 3 percent. It was around 2.6 percent -- and heading downward -- in the Shah's time.
Iran's war with Iraq has cost it at least 150,000 deaths, it is estimated. But Iran's population of 40 million increases more than 1.2 million a year.
Despite the war, Iran's economy has shown considerable resilience. Amid the war, the turmoil resulting from the six-year-old revolution, and sharp ups and downs in Iran's economically crucial oil sales, the economy plods along, though somewhat erratically.
``The Iranians are acting on a day-to-day basis,'' said an expert with Business International in London, a consulting firm. ``Their main problem is, they don't have enough money and they have a war to run.''
Like others interviewed for this story, the Business International researcher did not want to be identified by name. Most hope to visit Iran in the future and fear that any critical comments would, in the case of foreigners, prevent them from obtaining a visa, or in the case of expatriates, endanger them.
Here are some of their key observations on the Iranian economy:
Since the revolution, Iran has paid off most of its foreign debt. ``They have no credit,'' an American diplomat said. As of a year ago, Iran owed about $2 billion to foreign commercial banks -- a small amount compared with many other developing countries.
From the Iranian standpoint, being relatively debt-free is part of national independence. Foreign influences -- American, British, or Russian -- are no longer dominant.
Iran's international monetary reserves are small. Thus Iran has not much of a cushion against a drop in oil revenues. In such an event, it must quickly cut back imports.
The revolutionary government has not succeeded in its goal of reducing economic dependence on oil revenues. ``Oil sales play an essential role in determining the economic health of the country,'' a bank economist noted.
Oil revenues exceed $1 billion a month normally, although they jump about considerably. For example, in January Iran produced crude at a rate of 1.4 million barrels a day; in February, 2.1 million; in March, 2.3 million, in April, 2.5 million; in May, 2 million. According to Platt's Oilgram News, the figure was ``way down'' in June. Domestic consumption of oil amounts to about 700,000 barrels a day.
That high volume in the spring was obtained by sharp discounting. Intense domestic objections to this price-cutting (to as low as $25 a barrel if barter deals, insurance subsidies, etc., are considered) have resulted in the resignation of an oil minister. Without such discounts, the new oil minister has apparently had trouble selling as much oil.