Iran's economy was already in crisis, and the war brought it to the brink of collapse. The agreement with the US will now allow oil exports to bring in revenue again. However, a number of reliefs are conditional.
Iran will not be able to recover easily after the almost four-month war with the United States (US) and Israel. But the country has already been internationally isolated for years because of its nuclear program and suffers from sanctions that have reduced oil exports, its main source of income, by approximately half.
Even before the war, the Iranian economy was in dire straits, inflation was running at 50%, there was a serious shortage of basic goods. The war further worsened the situation - the economy shrank by another 10 percent, and oil export infrastructure was severely damaged.
The memorandum of understanding, agreed on June 17, lifted US sanctions, allowing Tehran to increase exports of crude oil and refined petroleum products. The 60-day waivers also cover shipping, insurance and banking transactions, effectively putting the Islamic Republic in a stronger legal and financial position than it was before the war.
Ali Vaez, director of the Iran project at the International Crisis Group, believes the memorandum of understanding provides Iran with “immediate economic relief” that the country desperately needs.
The remaining elements of the agreement – including the unfreezing of assets and a proposed $300 billion recovery fund – remain conditional and could take months or years to materialize.
Oil exports are recovering quickly
Iran has been exporting oil in violation of these sanctions for years, relying on a “shadow” fleet of tankers and heavily discounted sales, mostly to China, to generate revenue. Even after the war began in late February, limited supplies continued, even though the Strait of Hormuz was effectively closed. According to data from TankerTrackers, which tracks shipping, exports fell to 64,000 barrels due to the US-imposed naval blockade of Iranian ports.
With the entry into force of the Memorandum of Understanding, the country can now export oil at higher prices. Until now, it was mainly supplied to Chinese refineries at prices significantly below market rates - up to $15 below the price of Brent crude.
Iran also had difficulty receiving its money from China, much of which remained blocked in trust or clearing accounts. In other words: Tehran could not use these funds to import vital goods or for state spending. The new exemptions specifically cover banking transactions, which should help free up those funds.
Richard Nephew, a senior fellow at Columbia University, told the Wall Street Journal that Iran could generate about $8 billion in oil revenue during the initial waiver period.
Iranian oil exports have already rebounded sharply, with 36 million barrels passing through the Strait of Hormuz since June 15, according to TankerTrackers, an average of more than 5 million barrels per day. Another 36 million barrels are on oil tankers waiting to pass through the strait.
The next hurdle: frozen funds
Under the Memorandum of Understanding, Tehran could gain access to some of the more than $100 billion in assets frozen by sanctions – mainly in banks in China, Qatar, India, Iraq and Japan. The document states that the frozen funds will be “fully accessible” once the agreement is implemented. Washington has assured that any actual transfer of funds will be on a “payment for performance” basis, meaning that it will be tied to Iran’s fulfillment of commitments.
Even if the entire amount is released, analysts warn that it will be only a small relief for the regime and of little help to ordinary Iranians. "It's hard to imagine that $24 billion or anything like that would really help Iran recover from this conflict," Vaez said.
A $300 billion recovery fund, but with conditions
Next comes the much larger recovery fund, which comes with quite strict conditions, especially regarding Iran's nuclear ambitions and the financing of terrorism in the form of regional groups like Hamas and Hezbollah.
Tehran initially demanded direct compensation/reparations worth billions of dollars for the damage caused by the war. After the Trump administration rejected the request, the idea of creating a private reconstruction fund worth $300 billion was reached, and the Gulf states - Qatar, Saudi Arabia, the UAE - are expected to become the main sponsors.
However, the proposed fund seems like an unrealistic dream at this stage, according to a number of analysts. “If we ever get to the second phase, in which the reconstruction fund materializes - and with a big “if” - then I really believe that the Gulf states have an interest in investing in Iran”, Vaez told DW.
After becoming the target of Iranian strikes, the Gulf states would probably have such an interest – as long as the fund brings long-term stability to the region. In addition, they would also gain some influence over Iran. At the same time, however, their leaders are reserved, as they fear that they will have to set aside huge sums of money without any guarantee that Iran will change its behavior and that trust will be restored.
Both the United States and Iran see the first phase as a key test, which, however, could fail at any moment, as analysts point out. “The Iranians want to see whether Trump will really keep his promises to ease sanctions and deter Israeli Prime Minister Benjamin Netanyahu. Otherwise, there will be no point for them to negotiate a more comprehensive agreement,” Ali Vaez of the International Crisis Group told DW.