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Sources: The Library of Congress Country Studies; CIA World Factbook
    << Back to Iran Economy

    Oil revenues in the mid-1970s brought Iran a foreign exchange surplus. But when oil revenues fell sharply in 1978, an economic crisis resulted. Iran went from being a long-term lender in the 1970s to a short-term borrower in the 1980s, with the acquisition of foreign currency a perennial problem. The revolutionary government resorted to barter with several countries in the mid-1980s, but some customers soon insisted on receiving payment from Iran before shipment because of disagreements over the terms of payment. Problems arose when countries wanted to renegotiate barter contracts in 1986, to reflect the lower cost of oil, and Iran insisted on the original terms. Also, barter did not improve the foreign currency situation; to maintain a foreign exchange balance, Iran would have had to earn at least US$1 billion more than the sums received from civilian non-oil exports.

    Another method used by the government to improve its balance of payments was the collection of funds owed to Iran by foreign suppliers and governments. The Iranian government estimated in 1986 that several countries, chiefly Egypt, the United States, and France, owed Iran US$5 to US$6 billion. Clearly, the continued costs of the war coupled with falling oil revenues afforded the economy little elasticity.

    Iran had a US$5.4 billion balance of payments deficit during 1986, largely as a result of low oil prices and the disruption of oil shipments caused by Iraqi bombing. Oil prices fell from US$27 per barrel in November 1985 to US$12 in February 1986. Although prices rose in the fall of 1986, the average price of oil for the year was US$13 per barrel, half that in 1985. The estimated US$10 billion in export earnings in 1986 was the lowest since 1973.

    As a result of its high balance of payments deficit and foreign exchange shortage, Iran reduced its imports and divested itself of foreign financial assets acquired by Mohammad Reza Shah. For example, in 1986 it sold 25.6 percent of its holdings, worth approximately US$150 million, in the West German engineering firm Deutsche Babcock. Iran's efforts to cope with its economic crisis by making barter agreements, repossessing funds, cutting imports, and divesting itself of foreign financial assets were superficial responses to deeper structural problems within the economy, such as the need for land and agricultural reforms and the redistribution of income.

    The country's balance of payments looked bleak for the final years of the 1980s. The continuing war with Iraq, declining oil revenues, high unemployment, reduced consumer imports, severe inflation, a rising foreign debt, and a severe foreign currency shortage tested the economic policies of the revolutionary regime. The economy produced essential products and addressed in some measure the problems facing the national budget, a remarkable feat given the war, but failed to address basic structural issues.

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    Despite the disruptive influences of war on all aspects of the national life, a surprising number of good publications on the Iranian economy were readily available in the late 1980s. The Central Bank (Bank Markazi) of the Islamic Republic publishes reliable annual statistics on the state of the economy, the budget, finances, and balance of payments. A publication from Tehran called Iran Press Digest has a superb weekly update of economic and political events. Iran Monitor, a monthly publication based in Switzerland, provides an up-to-date account of international financial and trade issues. Iran Times, an independent weekly newspaper with sections in English and Persian, details current economic developments and statistics. Two other sources of consistently good coverage of Iran are the Middle East Economic Digest (MEED), published in London, and Middle East Research and Information Project (MERIP) Reports, published in Washington.

    Eric Hooglund provides an understanding of land reform issues in Land and Revolution in Iran, 1960-1980. For concise reports on the economic situation in Iran, the following sources are helpful: Patrick Clawson's "Islamic Iran's Economic Policies and Prospects"; Sohrab Behdad's Foreign Exchange Gap, Structural Constraints and the Political Economy of Exchange Rate Determination in Iran; and Wolfgang Lautenschlager's "The Effects of an Overvalued Exchange Rate on the Iranian Economy, 1979-1984." (For further information and complete citations, see Bibliography.)

    Data as of December 1987

    NOTE: The information regarding Iran on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Iran BALANCE OF PAYMENTS information contained here. All suggestions for corrections of any errors about Iran BALANCE OF PAYMENTS should be addressed to the Library of Congress and the CIA.

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Revised 10-Nov-04
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