Adaptation in the Sanctioned Economy

The oil boom of the late 2000s created significant headwinds for Iranian manufacturers. As the value of oil exports surged, the Iranian rial appreciated, real wages rose, and foreign goods flooded the Iranian market. Middle-class families relished in their newfound purchasing power, gladly buying French cosmetics, Korean appliances, and Turkish clothing while shunning domestic brands. This is how Iran caught a textbook case of “Dutch disease”—the oil bonanza undermined Iran’s manufacturing base. Programs initiated by populist president Mahmoud Ahmadinejad redistributed wealth to Iran’s lower classes and exacerbated the problem. But the  sanctions shock of 2012, when the Obama administration’s stringent financial and energy sector sanctions thrust Iran into a recession, altered the course.