Report: Normalization of Economic Relations: Consequences for Iran’s Economy and the United States

Normalization of Economic Relations: Consequences for Iran’s Economy and the United States Report prepared for the National Foreign Trade Council, By Dean A. DeRosa & Gary Clyde Hufbauer. November 21, 2008.

  • “In the medium-term, lifting US sanctions and liberalizing Iran’s economic regime would increase Iran’s total trade annually by as much as $61 billion (at the 2005 world oil price of $50/bbl), adding 32 percent to Iran’s GDP. In the oil-and-gas sector, output and exports would expand by 25-to-50 percent (adding 3 percent to world crude oil production). Our gravity model and alternative estimates find Iran’s non-oil trade would expand by between $17 billion and $35 billion. Finally, we project that Iran would enjoy new service imports from the United States and the European Union of about $1 billion, followed by substantial foreign investment in Iran’s service sector once economic policies are liberalized. The United States would also gain appreciably from normalization. Provided no offsets to production occur elsewhere in the OPEC area, increased oil production by Iran could reduce the world price of crude petroleum by 10 percent, saving the United States annually between $38 billion (at the 2005 world oil price of $50/bbl) and $76 billion (at the proximate 2008 world oil price of $100/bbl). Opening Iran’s market place to foreign investment could also be a boon to competitive US multinational firms operating in a variety of manufacturing and service sectors.”
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