RESOLVING THE LEDGER
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A former adviser to Iran's central bank pushed back against U.S. President Donald Trump's claim that the country is on the brink of economic collapse, but warned that the United Arab Emirates' decision to sever trade ties could deepen Iran's contraction to about 5% this year.
"We should be a little bit cautious about the view that the Iranian economy is simply on the verge of collapse," Mehrdad Sepahvand, a former economic adviser to the Central Bank of Iran, told CNBC's Dan Murphy on " Access Middle East " on Thursday.
His comments came hours after Trump vowed "economic warfare and isolation on an unprecedented scale" against Iran, declaring the regime is "hanging by a thread," following the collapse of ceasefire talks.
The announcement extends a pressure campaign the Trump administration has waged since April under the banner Operation Economic Fury, aimed at cutting off what it terms the regime's global terror financing and revenue streams.
Iran's gross domestic product is estimated to have contracted by 2.7% in the year ending March, according to the World Bank, citing economic disruption from last year's widespread protests and intensified hostilities in the region.
Inflation surged to 62.2% in February, with food price inflation reaching a historical high of 99%, according to the World Bank. An Iranian official estimated that the war has caused the loss of one million jobs, according to the New York Times .
Even so, Sepahvand, now director at Daric Investment Group, said Iran's economy is indeed deteriorating under the weight of mounting sanctions — but far from unraveling. "Shops are still full of food and basic goods, and there is no sign of panic buying," he said.
"Despite serious imbalances in the banking system and even severe cyberattacks, public confidence in the banking system has not collapsed, and we have not seen any major run on banks," he added. "Although hope has clearly weakened, it has not completely disappeared. So the situation around is not as bad as we imagine."
A tougher test may come from the United Arab Emirates. The UAE, which was Iran's largest source of imports before the war, said on Wednesday that it would halt all trade and financial ties with Iran, following what it claimed were two Iranian ballistic missiles fired at the Gulf state.
"The UAE is one of the main Iranian financial gateways," said Sepahvand. The rupture will pressure the exchange rate, raise trade costs, and feed inflation over the next two quarters, he said. "Our estimation is about minus-5% for now, and [UAE's sanctions] may worsen the situation."
Earlier Thursday, Trump warned that any country that offers Iran an economic "lifeline" will face what he described as tremendous economic consequences of its own.
He named oil smuggling, currency swap lines, cash transfers, exchange houses, ship registries, and front companies as channels he wants shut down immediately, stressing that Iran will never be permitted to acquire a nuclear weapon.
The economic and political squeeze, however, is strengthening the regime Washington wants to weaken and reducing the prospects for a deal, said Sepahvand. "The hardliners in the state are actually taking advantage of the situation, and that makes things harder [to reach] an agreement with the U.S."
The burden, meanwhile, falls on low-income Iranians and the young, who face surging prices and vanishing jobs, he said.
— CNBC's Emma Graham contributed to this story.
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