This week, finance ministers and central bank governors from over 190 countries will gather in Washington, DC, for the International Monetary Fund (IMF) and World Bank Annual Meetings. But there is another major economic event happening on the opposite side of the world. Leaders of the BRICS group are meeting in the Russian city of Kazan for their annual summit, with Iran’s new president, Masoud Pezeshkian, in attendance for the first time after his country officially joined the BRICS earlier this year.
Uncertainty continues to loom over Iran as Israeli officials pledge to retaliate against Tehran’s ballistic missile attack on Israel earlier this month. However, while most analysis focuses on Iran’s geopolitical objectives in the region, there has been less discussion about the severe economic constraints facing the regime. These challenges will be at the center of Iran’s priorities during its first BRICS summit.
Iran’s economy is underperforming—and of its fellow BRICS members, it has one of the weakest economies. The chart below shows the difference in gross domestic product (GDP) growth rates amongst BRICS countries from 2023 to 2024, with Iran’s rate declining the most. The country’s economy is expected to continue to struggle, with growth rates remaining around 2 percent and inflation hovering around 34 percent. According to local media reports, bread prices have surged by 200 percent within the last year, while other basic necessities, such as water and housing, have also seen steep price hikes.
Sanctions are a part of the story. Since initial US economic sanctions, Iran’s GDP growth has consistently remained below its 2011 high. IMF forecasts suggest that the country’s GDP will continue to lag behind that peak through 2029. But there is more to the situation than just sanctions. Iran’s gas and energy plants are rusted and outdated, operating at only 70 percent capacity. The country’s inability to modernize is a direct result of western firms pulling out of the country over the past decade. Iran’s lack of energy has already sparked significant public outrage, as frequent blackouts disrupt daily life, halt industrial operations, and force the government to partially shut down offices during periods of peak demand. This is on top of ongoing concerns of corruption and mismanagement.
While these issues have created serious domestic challenges, the energy crisis has also taken a significant toll on Iran’s exports, particularly steel production (one of Iran’s largest non-oil exports), which declined by 50 percent last month. Ironically, despite facing persistent energy shortages and a 17,000 megawatt power deficit, Iran is also exporting electricity. Domestic energy prices are so tightly controlled that even the state-owned energy company, Tavanir, is forced to sell electricity abroad at higher rates to stay afloat. Without this export revenue, Iran would face even deeper economic losses and worsen its debt.
The story doesn’t look much better on the international side. Trade between Iran and its largest trading partners—China, the United Arab Emirates, Iraq, Russia, India, and Turkey—declined in 2023. Iran saw a 26 percent drop in trade with India, a 17 percent decline with Russia, and a staggering 33 percent falloff with Turkey. To make matters worse, China, the main customer of Iranian oil, significantly reduced its purchases this year. Since sanctions were reimposed on Iran in 2018, independent Chinese refiners, or “teapots,” have been key buyers of Iranian crude, taking advantage of discounts from sanctioned countries such as Iran, Russia, and Venezuela. Many of these oil transactions were conducted in Chinese currency and payment systems, allowing Iran to circumvent sanctions. Last year, oil exports to China accounted for about 5 percent of Iran’s total economic output. However, China’s weakening economy and declining domestic demand for oil are now creating ripple effects for Tehran’s sales. Chinese refiners also report that Iranian sellers are attempting to raise prices by offering smaller discounts as tensions escalate in the Middle East.
Iran will likely use the BRICS summit as an opportunity to pursue more trade and financial partnerships with its allies, as a part of the country’s “Look to the East” policy. Pezeshkian’s goal will be to attract domestic investment and secure technology transfers to address Iran’s energy shortages and boost production in key sectors like steel. Iran’s central bank governor, Mohammad-Reza Farzin, has already announced plans to seek membership in the BRICS-led New Development Bank. With this membership, Iran hopes to advance its development goals independently of the World Bank and other Western financial institutions—an agenda that, according to Farzin, will be a key focus at the summit.
While conflict in the Middle East continues to dominate headlines, Iran’s economic and energy crises also poses a significant threat to the regime’s long-term stability. Even as the country’s leadership navigates international isolation, internal corruption and mismanagement, and rising domestic frustration, resolving these internal economic challenges will be just as crucial. The reality is that Pezeshkian will show up to the BRICS leaders meeting and look for support across the BRICS not only in the military domain, but also for his country’s economy.
The bottom line is that between an election, the threat of conflict, and a slowing economy, there is likely to be more volatility in the months ahead. But volatility doesn’t necessarily equate to a downturn—it just means there’s more uncertainty than usual.
Josh Lipsky is the senior director of the Atlantic Council GeoEconomics Center and a former adviser to the International Monetary Fund.
Alisha Chhangani is an assistant director with the Atlantic Council GeoEconomics Center.
This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. If you are interested in getting the newsletter, email SBusch@atlanticcouncil.org
At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.
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Image: Russian President Vladimir Putin listens to Iranian President Masoud Pezeshkian speaking via a video link during the BRICS Business Forum in Moscow, Russia October 18, 2024. Alexander Zemlianichenko/Pool via REUTERS