Iran’s Already Struggling Economy is Being Crushed As Coronavirus Hits

As the coronavirus spreads beyond China and has already claimed more than 2,700 lives and infected in excess of 78,000 people, worries are increasing about whether the outbreak has become a pandemic and how it can be prevented and treated.

Coronavirus: a Global Infection

Cases of coronavirus have been confirmed as far as the United States and Australia, involving over 82,000 people and more cases keep being identified with each passing day. In response, flights have been cancelled, airports equipped with screeners and cargo ships stranded, creating panic and economic upheaval. There are already numerous worrisome reports projecting extent of economic impact the virus is going to have on global growth as trade is slowing down, adding to the woes of the business community. 

Iran Has Been Hit Hard by Coronavirus

Iran — which confirmed its first two cases of the virus on Feb 18 – has taken center stage in this outbreak, reporting the third highest number of infected patients outside China, only after South Korea and Italy. In terms of the casualties, it ranks second globally with 27 deaths – which many believe to be understated, suggesting the highest mortality rate among majorly affected countries at some 11%. In comparison, China’s mortality from coronavirus is about 3.5%, Italy’s 2.6% and South Korea’s 0.74%. Even its deputy health minister wasn’t immune from the disease and as per latest reports, the vice president has tested positive too. 

This has not only raised questions over the effectiveness – or the lack thereof – of the Islamic Republic in dealing with endemic, but has also seriously shaken the country’s struggling economy. Already gripped by heavy US sanctions after US President Donald Trump’s revocation of the Joint Comprehensive Plan of Action, Tehran has been in serious trouble lately as its oil exports have been cut down and businesses targeted. Consequently, the expected GDP growth rate has gone to negative 9.5% while annual inflation is estimated to be 20%, prompting citizens in November 2019 to stage demonstrations against the government after fuel prices were raised.

Iran’s Land Borders are Also Shut Down, Further Impacting Trade

All of Iran’s economic struggles have been made worse since coronavirus spread in the country. By Feb 24, most of its neighbors closed land borders, thus impacting the trade flows. This included Iraq, Afghanistan and Turkey: Iran’s second, fourth and fifth largest export destinations respectively, accounting for $11.3 billion of goods sold in the 10 months leading up to January of 2020.

Meanwhile, Iran’s largest trading partner – on which it has increasingly relied for oil exports since the imposition of sanctions – China, is itself grappling with the outbreak thus affecting cargoes to the country as well.

Similarly, the United Arab Emirates stopped all its flights – passenger and cargo – to and from Iran on Feb. 25 and then two days later, suspended passenger services with the Islamic Republic as well. The two countries trade some $15 billion of goods annually and the UAE is a major destination for rerouting Iranian products, which are often covered by international sanctions. 

Unsurprisingly, Tehran’s trade has already been hit badly. The extent of the damage will only be known once the data for ongoing month comes out. But the impact caused by coronavirus goes beyond exports and imports. Even the local supply chains have been disrupted as some restrictions have been applied on domestic movement of people inside Iran.

A Blow to Religious Tourism

Another area where the outbreak is already showing adverse effects is Iran’s religious tourism industry. Home to a number of holy sites, the Islamic Republic hosts as many as 8 million visitors a year of which a majority are Shiite pilgrims. 

The shutting of borders with Pakistan and Afghanistan has stopped devotees from the two countries with significant Shiite populations to enter Iran, dealing a major blow to the local economy especially in cities like Qom, Najaf and Mashhad which are dependent on religious tourism. 

Even the local tour industry operating on outbound travel isn’t safe as Saudi Arabia banned Iranian pilgrims while Russia has also put a halt on flights to and from the Islamic Republic.

Amplifying the troubles, the outbreak coincides with Iran’s blacklisting by the Financial Action Task Force which would discourage companies and banks to deal with the already sanctions-stricken country. The two factors combined brought rial to a year-low against the dollar at 158,000 on Feb 26.