Months of war and a blockade have battered Iran. Its navy is at the bottom of the Persian Gulf. Its air force is destroyed. Its economy is in ruins.
Still, after the dust settles, the Iranian regime may end up in a better financial situation than before the war started.
The 14-point memorandum of understanding between Iran and the United States includes an un-freezing of Iranian assets, significant sanctions relief, a massive cash investment and permission for Iran to sell its oil.
Much remains uncertain about the agreement that US officials say will be signed in Switzerland on Friday.
Nevertheless, the financial incentives could give the Iranian government the funds to rebuild the economy and potentially normalize relations with foreign investors. That would be a gamechanger.
Most crucially and immediately, the agreement reestablishes the regime's primary economic engine: selling oil.
Now that sanctions are lifted, Iran can freely sell tens of millions of barrels of oil sitting in floating storage on oil tankers. It can probably also sell roughly 2 million barrels of oil a day – about a third more than the country was selling before the war, according to Jorge Leon, head of geopolitical analysis at consultancy Rystad. And because those sales would be on the up-and-up, Iran would no longer need to offer steep discounts.
“This sounds like a pretty good deal for Iran,†Leon said.
The regime makes about 50% of its revenue from oil sales, according to the US Energy Information Administration.
To evade US sanctions, Iran has effectively relied on shadow fleets to sell its oil for years – almost exclusively to China. But a US blockade over the past couple months effectively cut off all Iranian oil from leaving the Persian Gulf.
The agreement said the US Treasury would provide Iran with immediate sanctions waivers to transport, insure, sell and, importantly, gain proceeds from its oil through financial institutions.
If the sanctions waiver lasts only for the 60-day ceasefire extension following the agreement's signing, international buyers could be unwilling to play ball, cautioned Homayoun Falakshahi, an oil market analyst at Kpler. But Iran also agreed to toll-free passage through the Strait of Hormuz for just 60 days, potentially allowing it to resume charging tankers about $1 per barrel of oil, which has netted Iran around $2 million per tanker transiting through the waterway.
And its resumption of oil shipments is already off to a strong start: Iran successfully exported 3.8 million barrels of oil from the Strait of Hormuz this week after the US agreed to end its naval blockade, according to maritime intelligence company TankerTrackers.
Iran could quickly restore its cut-off cash flow if the United States unfreezes more than $100 billion of Iran's funds currently locked up in banks around the world.
Although the timing and scope isn't clear, the agreement states that Iran's frozen funds and assets will be made “fully available†for use by Iran's central bank.
Iranian media outlets and analysts estimate that Iran has between $124 billion and $167 billion in frozen assets – about a quarter of Iran's pre-war annual economic output, according to Frederic Schneider, a nonresident senior fellow at the Middle East Council. The most readily available funds are the roughly $12 billion sitting in Qatar, noted Gregory Brew, senior Iran and energy analyst at Eurasia Group.
Iran has insisted on accessing a large portion of its frozen assets prior to agreeing to any deal, but a US official told CNN on Sunday that “no frozen funds will be released without the Iranians implementing their commitments.â€
The deal could establish a $300 billion investment fund, which could go a long way toward helping the country rebuild.
US and Israeli strikes destroyed huge amounts of Iranian infrastructure, including steel plants and petrochemical facilities. Iranian authorities claim that the damage has been around $270 billion, although that's impossible to confirm.
It will take considerable resources and time to refurbish those industries, according to Adnan Mazarei, senior fellow at the Peterson Institute for International Economics and former deputy director of the International Monetary Fund.
The details remain murky, but the investment fund would be financed privately and not by US taxpayers, according to the Trump administration.
President Donald Trump told reporters at the G7 meeting Wednesday that other countries and financiers will be able to invest in the rebuilding of Iran's economy, but he doubts foreign investors will have significant interest for quite some time.
“If they do it, fine,†Trump said. “But I would say they won't be doing it for a while until they find out the behavior.â€
Removing sanctions on Iran could allow their businesses and banks to freely trade goods and financial services with the rest of the world.
That could make some foreign financial institutions more willing to do business with Iran, though many will probably hesitate unless the US Treasury issues specific licenses for particular transactions.
“When there's vagueness and ambiguity, banks are unwilling to take risks because many have been heavily penalized by US for doing business with Iran,†said Mazarei. “And they'll want assurances that this won't just snap back.â€
Any removal of penalties on foreign investors that do business with Iran would mark a significant shift from roughly five decades of US policy.
Trump and other members of his administration have claimed that sanctions would be lifted only if the regime upholds its end of the bargain – including commitments related to ending its nuclear program.
A major caveat: It's not clear how much authority Trump has to lift sanctions unilaterally. A skeptical Congress may have to approve some sanctions relief.
All of this relies on an agreement holding, and there's no guarantee of that. But the framework could leave Iran in a drastically improved financial situation.
Already, the rates for foreign exchanges of Iranian goods on the black market have appreciated a bit – the first sign of some potentially positive news for the Iranian economy, according to Mazarei.
That could eventually help relieve pressure on Iran's massive inflation rate, which has averaged more than 50% over the past 12 months, the country's highest since World War II. Food inflation has run well over 100% .
Around 90% of Iranian trade goes through the Persian Gulf, Mazarei said.
Foreign investment could go a long way toward restoring the economic activity that was depleted because of the US blockade on the strait.
Iran could also use the funds to restore internet access . The outage forced some companies to lay off workers. And Iran could rebuild its aging oil infrastructure to become a more viable global competitor.
But those are optimistic goals for a regime that has proven unable or unwilling to keep its own economy afloat.
“Besides sanctions that have hurt Iran very badly, arguably the key problem in Iran is mismanagement and corruption,†said Mazarei.
That means the Iranian people probably won't benefit, if history is any guide. Without proper guardrails, the money, instead, could be used to fund terrorism and subterfuge in the Middle East and beyond – exactly the kind of behavior that the Trump administration said it got into the war to prevent.
