As usual, the Iranian new year started with a major policy speech by Ayatollah Ali Khamenei, who yet again dedicated an important part of the oration to outlining economic strategies and necessities. The supreme leader said the Iranian economy was in need of a serious and grand move that has to rely on indigenous capacities. Khamenei described the economic field as a battlefield and rejected the notion of economic growth and progress based on exogenous resources. He cited external sanctions and the developments on the international oil market as proof that one cannot depend on external means. Khamenei reiterated his concept of economy of resistance, which can be described as Iran’s remedy to confront external sanctions.

The core element of the economy of resistance is domestic capacity building and an end to the export of raw materials. The strategy makes a lot of sense as Iran wishes to generate as much added value on Iranian soil as possible, which would make the Iranian economy more immune against external irritants and also prepare the ground for further economic and technological growth, create the jobs that are needed due to the youthful population and empower Iran on the international stage. These are also the goals that Tehran has pursued in its so-called 20-year vision. Khamenei reminded everyone that the country had arrived halfway through the 20-year plan, which was passed in 2005. The country is nowhere near the goals that it set for itself in the mentioned document. At the same time, analysts agree that the country enjoys the key elements that would provide for exceptional future economic growth. These phenomena include a unique set of natural resources, an educated human resource base, the country’s geostrategic position — including access to huge regional markets — and a rich merchant culture. While the combination of these resources has made the Iranian economy resilient against external pressures, the existence of a number of bottlenecks has hindered progress.

Judging from Khamenei’s speech, there are two schools of thought in the country: One, those who believe that Iran’s economic potential can be achieved through greater integration with the global economy; the other, those who believe that Iran has to rely on its domestic capacities. However, a closer look at the key impediments to economic progress indicates that both paths would lead to the same set of policies.

Presently, sanctions may seem to be the main source of irritation. Nonetheless, the Iranian economy has faced multiple sources of vulnerability, including corruption, mismanagement and inadequate laws leading to a dysfunctional investment climate. Despite all its laws and regulations, the regime has failed to create a business climate that induces progressive private sector investment. The other source of vulnerability is the government’s dependence on oil export revenues. Though Iran’s reliance on oil export revenues has decreased as a direct result of external sanctions, the government has not yet achieved a balanced budget without oil revenues. In the 1394 budget law that will govern the state budget for the next 12 months, 32% of government revenues will be generated through oil and gas export revenues, down from 40% in the previous Iranian year. Incidentally, both government and parliament have shown a resolve to move toward a scenario to reduce the treasury’s dependence on oil and gas export revenues to zero. This may take a few years, but it will certainly be a key component of the resistance economy strategy.