Does The Trillion-Dollar Cost of Sanctions Matter for Iranian Economic Development?

This paper estimates the economic cost of sanctions on Iran (both aggregate and per capita) and their effect on economic development. Using a synthetic control method (SCM), we find that sanctions cost approximately $1.2 trillion for the period 2011-2022, which is even more than the cost of the Iran-Iraq war (1981-1988) for Iran. Sanctions cost around $150, $450, and $600 billion for the agriculture, industry, and services sectors, respectively. On average, Iran has lost around 23 percent of its economic capacity due to sanctions. Moreover, the cost of sanctions during the Obama, Trump, and Biden presidencies is about $500, $450, and $250 billion, respectively, while the annual GDP per capita loss during the Obama, Trump, and Biden presidencies is, on average, $1,050, $1,316, and $1,428, respectively. Sanctions have changed the production structure in Iran, making Iranian economic development move backwards and resulting in lost years (2011-2022). Defining three alternative scenarios and comparing them with the SCM results, confirm our findings. Finally, by studying the average growth rate of both GDP and GDP per capita for Iran, Saudi Arabia, Turkiye, and the United Arab Emirates (UAE), we find that sanctions are the dominant factor for Iran’s accelerating economic divergence from the other three countries