Economic Sanctions in 2015 | 9th January 2015
The reciprocity between geopolitics and the global economy was at the heart of events in 2014; the prime example of which being the use of economic and trade sanctions to deal with political issues. Sanctions have long been used as a foreign policy tool and in my opinion, 2015 will be no different. While North Korea, Venezuela and Syria continue to be affected by these restrictions, Delta Economics predicts that in the coming year, sanctions (or their elimination) will have a profound effect particularly on Cuba, Iran and Russia.
On the one hand, Iran and Cuba can be optimistic about their futures. The Cuban economy, adversely affected by sanctions since 1959, might open up now that the US has promised to normalise bilateral relations. An end to sanctions would reduce the burden on public finance, decrease the reliance on traditional export commodities (cigars, rum and sugar), jumpstart possible membership to the International Monetary Fund (IMF) and the World Trade Organisation (WTO), and allow foreign investment in industries such as tourism. The negotiation process is sure to take a couple of years but once the Cuban economy is open, Delta Economics sees exports growing in 2017 with higher year-on-year increases of 9.8% and 15% in 2018 and 2019 respectively.
Similarly, riding on moderate president Hassan Rouhani’s promises of renewed ties with the West, the Rial has appreciated and oil exports have increased. There has already been some sanction relief in Iran’s major industries – automobile, gold and precious metals and petrochemical. For example, sanctions were imposed on gold and precious metals in 2013 and lifted in early 2014. Since then, total trade in gold and precious metals has risen by 19.72%. Delta Economics forecasts a further increase of 15% from $4.7 billion to $5.4 billion in 2015 (Figure 1). With negotiations on Iran’s nuclear programme commencing in mid-January, the P5+1 (United States, United Kingdom, China, Germany, France, Russia) and Iran could strike a deal that could eliminate sanctions completely. Iran would benefit by way of its unique geographic position and its untapped market of the middle class.
Figure 1 | Iran’s total trade in Pearls, Stones and Precious Metals pre- and post-sanctions (2012-2018)
Source | DeltaMetrics 2014
On the other hand, Russia faces increasing sanctions over its annexation of Crimea. Since March 2014, the US and European Union have imposed sanctions targeted at individuals in President Putin’s inner circle, banks, and arms and industrial manufacturers. Russia’s economy, heavily reliant on energy exports, has been hit by falling oil prices and Western sanctions. The Rouble lost half its value against the Dollar in 2014 and the Russian economy contracted by 0.5% in November, the first fall in its Gross Domestic Product (GDP) since October 2009. President Putin blamed sanctions for about 25% of the Rouble’s fall and Finance Minister Anton Siluanov said that the economy could contract by 4% in 2015 if oil prices average $60 a barrel and Western sanctions continue. However, China has signalled its desire to bail Russia out of its economic woes. China is arguably Russia’s largest trade partner with trade totalling $100 billion in 2014 and here at Delta Economics, we see that bilateral trade will see a year-on-year increase of 14.52% this year. China’s move to act as a lender of last resort will have lasting effects on the global economic system. It would not only question the efficacy of sanctions and the Western-led Bretton Woods system of international institutions but could also end the United States’ role as hegemon and linchpin in the global system.
Economic Sanctions in 2015 | Author | Dipali Anumol | Research Analyst