Until the past few days, Iranian government officials continued to deny any coronavirus infections in the country. However, they were unable to maintain this blatant lie after several senior officials and clerics were infected with the virus or died from it. The real situation has now been exposed, with the government admitting, albeit reluctantly, that dozens of people have died, and hundreds have tested positive.
It is probable that the Iranian leadership feared the coronavirus’s possible economic consequences if the outbreak was announced during an early stage. Iran’s economy is already in dire straits with the country suffering from a severe recession since last year due to US sanctions. The country has been recently placed by the Financial Action Task Force (FATF) on its blacklist. The worsening domestic coronavirus epidemic has inflicted additional damage on vital sectors of the Iranian economy which the government depends on to mitigate the impact of US sanctions.
It seems that the worst fears of the Iranian leadership have occurred all at once, with Iran’s future prospects being even gloomier if the outbreak of the virus is not curbed.
There are several potentially perilous consequences for the already deteriorating Iranian economy if the coronavirus outbreak worsens, which may explain the Iranian government’s reluctance to disclose the real severity of the virus.
Firstly, the country’s religious and medical tourism sectors are among the most severely hit by the coronavirus. Last year, around 9 million tourists visited Iran to see religious and historical landmarks, undergo cheap cosmetic surgery operations for which the country is well-known, or solely for a holiday. A large percentage of tourists came from neighboring countries such as Iraq and some Arabian Gulf states. All these countries recently announced the presence of coronavirus cases among people arriving from Iran.
Tourism in Iran took a decline due to the spread of the coronavirus whose victims include clerics in Qom: a city highly revered amongst Shiites. The decision made by many nations to prevent tourists from traveling to Iran in light of the increasing numbers of deaths and infections from the coronavirus means massive economic losses. Tourists in Iran have been an important source of hard currency worth billions of dollars. This setback suffered by Iran’s travel and tourism industry also means large-scale job losses for workers inside Iran as well as for those facilitating travel between Iran and neighboring countries such as Iraq and the UAE.
A related affected sector is domestic tourism, which is effectively suspended at present as an increasing number of Iranians self-isolate at home in fear of being infected. The usually busy run-up to the Iranian spring festival of Nowruz (the Persian New Year), which will fall on March 20, 2020, is expected to be a total non-event, with little or none of the usual expenditure on travel, socializing, partying and spending on food, clothes, and entertainment.
There are also fears that the coronavirus epidemic, coupled with further economic hardship, could unfavorably affect domestic trade. The possible impact of the coronavirus on domestic trade includes commercial depression if the retail sector is effectively paralyzed by the outbreak of the virus leading to more people staying home and self-isolating whether voluntarily or by force. This, in turn, would intensify the economic recession, leading to declining trade, sales and purchases and to more job losses. There is also the possibility of the coronavirus leading to panic-buying as people stockpile edibles and other essential goods as a precautionary step due to the virus’s outbreak; that eventuality would have grave consequences on prices. This has been seen in affected areas in China and South Korea. It could further impact Iran’s food safety levels if the coronavirus impedes global trade or affects global production or food supply chains, with Iran already needing to import many food items such as wheat, corn, rice, soy, oils, and sugar.
Iran’s foreign trade could also be significantly affected due to similar problems facing its major trading partners: China, Iraq, and the UAE.
In the case of China, by far the Iranian government’s largest trading partner, Iran’s foreign trade could be seriously affected by a slowdown in growth due to the coronavirus epidemic there. Beijing has been the biggest buyer of Iranian oil and petrochemical exports whose prices have already declined globally over concerns about the Chinese economy slowing and declining demand there.
It is inevitable that commercial exchanges between the two countries, along with trade deals, will decline to some degree as a result of the virus. China is also Iran’s biggest supplier of industrial production and manufacturing equipment and spare parts. With the coronavirus epidemic hitting Wuhan city, the main hub of the Chinese economy, global concern is already mounting about the impact of the virus on China’s industrial production and exports. Iranian industry is likely to be hurt by any slowdown in Chinese productive capacity.
As for Iraq, meanwhile, it has been a prominent location for Iranian trade since the imposition of US sanctions on Iran. Iraq is the number one destination for Iranian non-oil exports and Iranian products account for a quarter of the goods in the Iraqi market.
The closure of the Iran-Iraq border and restrictions on movement between the two countries will certainly cause a severe downturn in Iranian exports, depriving Iran of a vital and sorely-needed source of hard currency which Tehran relies on to maintain a decent exchange rate. The UAE is another of Iran’s largest commercial customers and an important trading partner for Iran, whether in terms of re-exporting Iranian goods or importing goods for Iran from abroad. While many ports and trade routes on the Arabian Gulf link the two states, these shared interests are also threatened, with the UAE announcing the suspension of air and maritime shipping to and from Iran and planning to repatriate Iranian nationals currently in the UAE, most of whom are traders, over the coronavirus outbreak.
These moves are in addition to the announcement by some neighboring countries such as Pakistan, Afghanistan, and Turkey of their intention to close land borders with Iran, which has used border crossings with these countries as outlets for selling its goods.
Hard currency and security markets are reflecting the prevalent and growing concerns. Since the announcement of deaths from coronavirus infections, Iran’s stock exchange, like others, has suffered a series of falls and fluctuations.
The exchange rate, meanwhile, has also continued to deteriorate, with the dollar reaching 16,000 tomans, meaning that the local currency has lost another 7 percent of its value against foreign currencies.
As worries and concerns over all these issues escalate, investors and savers are opting for traditional safe assets like gold and foreign currencies, hiking the price of these assets and therefore triggering a new wave of inflation in the country.
Meanwhile, the economic impact of other aspects of the coronavirus epidemic, including the cost of healthcare and quarantine, remains unclear so far.
The virus is also impacting other aspects of everyday life, with the government closing universities, and schools, as well as a downturn, experienced by manufacturers, businesses, traders and daily service provides. The aforementioned have aggravated the economic depression that Iran has been going through which began even before the outbreak of the coronavirus, with the economy expected to shrink by 9.5 percent according to the International Monetary Fund, the biggest recession in the country in three decades.
The Iranian government’s policy of secrecy and evasion concerning coronavirus deaths and infections has come at a high price, including the increased spread of infections, resulting in more deaths, material losses and a further erosion of public confidence. This is in addition to the absence of transparency and lack of trust between the people and the government on the one hand, and the business community and decision-makers in Iran on the other.
The timing of the coronavirus epidemic hitting Iran has been devastating for the country, already gripped by severe financial and economic crises over the past year. These crises at present, and in the near future, may worsen in case a cure is not found and the spread of the virus is not contained both at home and beyond Iran’s borders.
