Iran faces a long and bumpy road ahead after a nearly four-month war with the United States and Israel.
Before the Iran conflict began, the country was already grappling with years of sanctions and international isolation linked to its nuclear program, which had cut oil exports – its main income source – by almost half.
The Iranian economy was in dire straits, with inflation nearing 50% and severe shortages of basic goods. Analysts say the war caused a 10% economic contraction, including damage to infrastructure and reduced oil exports.
The June 17 memorandum of understanding (MOU) provides immediate relief through US sanctions relief, allowing Tehran to accelerate exports of crude oil and refined petroleum products.
The 60-day waiver also covers shipping, insurance and banking transactions, putting the Islamic Republic in a stronger legal and financial position than before the war.
Ali Waze, Iran project director at the International Crisis Group, believes the MOU gives Iran some “immediate economic relief” that it desperately needs.
“Even with the ability to sell oil to China, the Iranian regime was really struggling to keep the lights on before the conflict,” Waze told DW.
Other elements of the deal – including freeing up assets and a proposed $300 billion reconstruction fund – remain conditional and could take months or years to materialize.
There was a sharp rise in oil exports after the exemption
Iran had been exporting oil for years in defiance of those sanctions, relying on shadow fleets of tankers and heavily discounted sales, mostly to China, to generate revenue.
Even after the war began in late February, limited shipments continued despite the Strait of Hormuz being effectively closed. Volumes fell to about 64,000 barrels per day under the US naval blockade, according to tankertrackers maritime tracking data.
With the MOU, the country can now secure better prices for its oil, which until now has mostly been delivered to independent Chinese refiners at well below market rates – up to $15 less than the price of Brent crude.
Iran also struggled to bring home that Chinese income, as most of the revenue was stuck in escrow or clearing accounts. This meant that it could not be used to import vital goods or for government spending.
The new exemption clearly covers banking transactions, which will help free up those funds.
Richard Nephew, a senior research scholar at Columbia University, said wall street journal Iran could generate oil revenues of about $8 billion during the initial concession period.
Iran’s oil exports have already surged sharply, with 36 million barrels leaving Hormuz since June 15, according to TankerTrackers. This is equivalent to more than 5 million barrels per day.
An additional 36 million barrels of oil are lying on tankers awaiting transit.
Next Hurdle: Stuck Money
Under the MOU, Tehran is seeking access to some of Iran’s more than $100 billion of assets held mainly in banks in China, Qatar, India, Iraq and Japan that have been frozen due to sanctions.
While Iran wants a phased release of about $24 billion, the document says funds held up on implementation will be “made fully available”. However, US officials insist that any actual transfer would follow a “pay for performance” approach tied to Iranian compliance.
Even if the full amount is released, analysts have warned that it would provide only limited relief to the regime and little help for ordinary Iranians.
“It’s hard to imagine that $24 billion or any amount in that ballpark will really help Iran recover from this conflict,” Waze said.
$300 billion reconstruction fund – with conditions
Then, there is the much larger reconstruction fund, which comes with fairly stringent conditions, particularly regarding Iran’s nuclear ambitions and the funding of terror by regional groups like Hezbollah and Hamas.
Tehran had initially demanded hundreds of billions of dollars in direct compensation/reparations from Washington for war damages, which was initially rejected by the Trump administration.
This gave rise to the proposal for a $300 billion private reconstruction fund, of which the Gulf countries – Qatar, Saudi Arabia, the United Arab Emirates – are now expected to be the main backers.
“This will not be a fund that Iran can withdraw at will,” the nephew told DW’s The Dip podcast. “It will be linked to some specific projects,” he said, citing new desalination plants or repairing ports.
The proposed fund, which is included in the MoU under phase two, looks very difficult to many analysts at this point due to several outstanding issues.
“If we ever get to the second phase… where reconstruction funding materializes – and that’s a big deal – then I believe Gulf countries are interested in investing in Iran,” Waze told DW.
Having become the target of Iranian attacks, Gulf leaders would likely be motivated if the fund brought long-term stability to the region and gave them some leverage over governance.
But they have also expressed deep reservations about handing out large sums of money without significant behavioral change and restoring trust.
Both the US and Iran see the first phase of the MOU as a crucial test and analysts say it could break down at any time:
“The Iranians want to see if Trump actually grants sanctions relief and reins in Israeli Prime Minister Benjamin Netanyahu,” Waze told DW. “Otherwise, there is no point in negotiating a more comprehensive agreement.”
Edited by: Andreas Becker