How Did the 2016 U.S. Election Ripple Through Iran’s Economy?

Cracked American and Iranian flags on a wall.

The 2016 election of Donald Trump had immediate ramifications for Iran, sending its economy and currency into a tailspin due to mounting fears of renewed sanctions.

At a Glance

Iran’s rial plummeted to historic lows following Trump’s victory, trading at 703,000 to 1 USD.
The currency dip signified apprehension about potential new sanctions targeting Iran.
Iran’s economy was already struggling under severe U.S. sanctions reinstated in 2018.
The rial lost 50% of its value, spurring inflation and shortages of vital imports.

Currency and Economic Instability

Iran’s national currency, the rial, plummeted to unprecedented lows against the U.S. dollar following Donald Trump’s victory in the 2016 election. Observers witnessed the currency fall to 703,000 rial to 1 USD, eventually settling at around 696,150 to 1 USD. This significant depreciation revealed widespread apprehension in Iran’s financial markets about possible new economic sanctions under Trump’s administration. Previous sanctions had reduced Iran’s oil exports and revenue, which had further depressed the national economy.

The anticipation of a shift back to aggressive U.S. foreign policy, especially one concerned with Iran’s ongoing nuclear activities and regional involvements, such as support for groups like Hamas and Hezbollah, exacerbated the economic instability. Even before Trump’s election, Iran’s economy was grappling with longstanding sanctions due to its nuclear program and other geopolitical conflicts. Experts highlighted that the sanctions significantly contributed to the currency’s devaluation, inflation, and a deep economic recession.

Stocks, bond yields and bitcoin surged as the U.S. election brought Republican gains and Donald Trump closed in on 270 electoral votes.

Iran's currency, the rial, fell to an all-time low, as its economy struggles under international sanctions. https://t.co/6vkp0ib46Q

— The Associated Press (@AP) November 6, 2024

Sanctions and Economic Challenges

In 2018, under Trump’s “maximum pressure” strategy, the U.S. reintroduced significant economic sanctions aimed at hampering Iran’s fiscal capabilities, particularly targeting its oil exports. These actions were intended to compel Iran to renegotiate the nuclear agreement. Despite a brief period of hope following the election of Joe Biden, who had aimed to revisit the nuclear deal, Iran’s economy continued to face severe repercussions. The sanctions contributed to a nearly 10% contraction in Iran’s GDP by 2019 and soaring unemployment rates.

Iran’s financial turmoil saw not only the rial losing over 50% of its value, but also substantial inflation. The price hikes permeated essential commodities, including food and fuel, creating a cost-of-living crisis for ordinary Iranians. Nationwide protests ignited by these economic strains illustrated the crippling impact of international and domestic fiscal policy on the average citizen.

Iran’s Strategic Responses

Despite crippling sanctions, Iran has sought countermeasures to minimize economic dependence on Western economies, aiming for a “resistance economy.” This strategy focuses on leveraging local manufacturing spurred by the currency’s devaluation and reducing imports. However, Iran’s capabilities remain hindered due to continued geopolitical pressure. Major Asian markets, including China, have shown reluctance to engage in formal trade out of concerns about U.S. sanctions.

Ultimately, Iran’s economic path forward is inextricably linked to nuclear negotiations and its geopolitical strategy. Returning to the nuclear agreement could offer a lifeline for economic recovery but would likely require Iran to balance its political ambitions with the pressing need for economic stability. While some sectors, like manufacturing, have shown resilience, the broader challenge remains maintaining national stability amid these tumultuous global shifts.