A former adviser to Iran’s central bank has pushed back against US President Donald Trump’s claims that the country is on the brink of economic collapse, but warned that Iran’s economic contraction this year could deepen to around 5% due to the United Arab Emirates’ decision to sever trade ties.
Mehrdad Sepavand, a former economic advisor at Iran’s central bank, told CNBC’s Dan Murphy on Thursday’s “Access Middle East” show that “we should be a little cautious about the idea that Iran’s economy is simply on the verge of collapse.”
His comments came hours after President Trump vowed “economic war and isolation on an unprecedented scale” against Iran and declared his administration “one thread behind” after ceasefire talks broke down.
The announcement is an extension of a pressure campaign the Trump administration has been conducting since April under the banner of “Operation Economic Fury” aimed at cutting off what it calls global terrorist financing and revenue sources.
Iran’s gross domestic product (GDP) is estimated to have shrunk by 2.7% in the year that ended in March, due to economic turmoil caused by widespread protests and escalation of hostilities in the region last year, according to the World Bank.
According to the World Bank, inflation rose to 62.2% in February, with food price inflation reaching a historic high of 99%. According to the New York Times, Iranian officials estimate that 1 million jobs have been lost as a result of the war.
Still, Sepavand, now a director at Darrick Investment Group, said that while Iran’s economy has certainly suffered under the weight of growing sanctions, it is far from over. “Stores are still full of food and daily necessities and there are no signs of panic buying,” he said.
He added: “Despite serious imbalances in the banking system and even more serious cyber-attacks, public confidence in the banking system has not collapsed and we have not seen any large-scale runs on banks.” “Hope is clearly weakening, but it has not completely disappeared. Therefore, the situation around us is not as bad as we imagine.”
An even tougher test may come from the United Arab Emirates. The UAE, Iran’s biggest importer before the war, announced on Wednesday that it would suspend all trade and financial ties with Iran, claiming that Iran had launched two ballistic missiles toward the Gulf state.
“The UAE is one of Iran’s main financial gateways,” Sepavand said. He said the rupture would weigh on the exchange rate over the next two quarters, raising trade costs and spurring inflation. “Our estimate is currently around -5%, and the situation could get even worse (with UAE sanctions),” he said.
Earlier Thursday, President Trump warned that any country that provides an economic “lifeline” to Iran would face what he called severe economic consequences.
He cited oil smuggling, currency swap lines, cash transfers, currency exchanges, ship registries and front companies as channels he wants to shut down immediately, and stressed that Iran will never be allowed to acquire nuclear weapons.
But economic and political pressures are strengthening the systems Washington wants to weaken, narrowing prospects for a deal, Sepavand said. “Hardliners in the state are actually taking advantage of this situation, which makes it more difficult to (reach) an agreement with the United States.”
Meanwhile, the burden falls on low-income Iranians and young people, who face rising prices and disappearing jobs, he said.
— CNBC’s Emma Graham contributed to this article.
