 All right, let's get started. I first wanted to welcome all of you to the Carnegie Endowment. I'm Karim Sajidpour. I'm a senior associate here at Carnegie. And I wanted to welcome our guest speakers today. Shanta Devarajan is the chief economist for the Middle East North Africa at the World Bank. And he's the author of the report, which we're going to discuss today, very timely, very insightful new reports on economic implications of lifting sanctions on Iran. To my right, Shanta. To my left is my friend and colleague, Uri Dadush, from the Carnegie Endowment, also a former senior official at the World Bank. And we only have about 60 minutes today, so I just wanted to jump right into it, and then we'll have kind of a discussion amongst ourselves, and then we'll hand it over to all of you. So, Shanta, please. Well, thanks very much, Karim. And thanks to Carnegie for inviting us. First, I should say that I am one of the authors of the report. I happen to be the boss. So that's why I think my name comes out there, but one of the other authors, Lili Motahi, is here as well. You know, we did this because we thought that the nuclear agreement of July 15th was one of the most important events of this time, and it's going to have important economic implications for the world as a whole, but also for Iran in particular. I have to confess, we also thought that, since this was the dog days of the summer, that our report would be the most important event to come out, but I think we were wrong on that because this summer has been quite chaotic with Greece and China and whatever else. But nevertheless, we think it's important to try to understand the economic implications of the lifting of sanctions on Iran. Now, this is a very difficult and complicated problem. There's no crystal ball you could look through and say, aha, this is exactly what's going to happen. And so we had to use a variety of different techniques, and we were almost trying to triangulate the implications using different methods, and sometimes methods that are not exactly consistent with each other. And to organize it, we said we're going to look at the implications at the global level, what's going to happen, what effect it's going to have on the global economy, the effect it's going to have on Iran's trading partners, and thirdly, what it's going to do to the Iranian economy itself. So let's first start with the global level, and the most important implication at the global level is the increase in oil exports by Iran as a result of lifting sanctions. As you can see there, when sanctions were tightened, particularly the European Union tightened sanctions in 2012, there was a precipitous drop in Iran's oil exports by roughly about a million barrels a day. You can also notice, for later reference, that the composition of trading partners also shifted. So the big drop was in the European trade with Western Europe, whereas trade with the eastern partners, the oil exports to eastern partners actually increased in some cases, and certainly the proportion was much larger. So what we did was we said as a first approximation, let's say that Iran's oil exports were going to, as a result of lifting sanctions, was going to grow by about a million barrels a day in about six to 12 months after the court is ratified. That's what people expect is the time needed to bring production back up to this level. And we took that assumption of a million barrels a day and simulated it in a multi-country general equilibrium model. So this is a model of multiple countries that are trading with each other, and then we insert an additional million barrels a day of Iranian exports. We also actually simulated the effect of lifting some of the other restrictions that sanctions had, such as on insurance and services trade, but those turned out to be of less significance. So the big effect is that these additional million barrels a day had an effect of lowering world oil prices by 14%. Now some people and I myself was a bit surprised initially because a million barrels a day doesn't sound like a lot of oil, an additional million barrels a day. And how do you get a drop of 14%? But if you think about it, it's really the other side of the coin of the fact that oil demand is quite inelastic. See, we normally talk about inelastic oil demand in terms of, well, when the price of oil goes up, demand doesn't fall very much. It only falls a little bit. But the other side of that coin is, if you have an increase in supply of a small amount, the price will fall by quite a large amount. As you can see from this graph, that if you have a shift in the supply curve of a million barrels a day, given how steep that demand curve is, you get a pretty big drop in the price of oil. Now keep in mind that this is the pure effect of the additional million barrels a day. It's not a prediction about what the price of oil is going to be six months from now or a year from now, because lots of other things determine the price of oil, including growth in China or Europe or everywhere else. Secondly, this is a simulation that assumes no strategic behavior by other oil exporters. So in particular, we're following what seems to be the case with other oil producers, particularly the ones with swing capacity like Saudi Arabia, which is that when the price of oil fell back in the end of 2014, they didn't really adjust their production. They continued keeping the production as it is. Now what is the effect of this additional million barrels a day and the drop in the price of oil on different countries? Because that's what we're trying to get at. And we express this in terms of welfare, but you could think of it as a measure of income. But it's just a little bit more precise an expression of income. And this effect is about a 3% increase in welfare for Iran itself. See, Iran is the one country, because it has an additional quantity exported and there's a price of oil falling is going to be a net gainer, even though it is an oil exporter. Then if you look at other countries, the price of the oil exporters, they typically lose. Because for them, the price of oil has just fallen as a result of the increase in Iranian oil exports. And oil importers, including the US and the European Union, gain. So this is the classic terms of trade shock that we have experienced in different ways, both in the upswing and in the downswing, with the price of oil in different times in history. Now let's turn to the second question we were asking, which is what is the effect on trading partners? Because this is a global model that doesn't actually look closely at Iran's bilateral trading relationship. And for this, we use a different technique, which was to try to simulate or try to track Iran's bilateral trading relationships using what's called a gravity model, which basically is looking at the growth rate of the trading partners and Iran's own growth rate and looking at what that trade would have been in the absence of sanctions. And then we looked at what the effect of 2012 and 13 were. How much by how much that trajectory of trade changed as a result of the events of 2012 and 13 when the EU sanctions became binding. And we could use that to actually calculate the net loss in exports, bilateral exports, that Iran underwent as a result of the tightening of sanctions in 2012 and 2013. And you can see that in this last column here that there's a loss of exports over those two years of various trading partners, including some of the Western European ones, which is what you would predict. Totaling to something like $17 billion, or about 3 and 1 half percent of GDP over a two-year period. And this could be thought of as the net effect of sanctions on exports. And conversely, this is the amount by which we might expect exports to go back up once sanctions are lifted. The other thing is that to keep in mind here is the composition of trading partners. Because what happened both before sanctions became tightened, as well as during the sanctions era, was that there was a shift towards Eastern partners. Iran was President Ahmadiyanad himself had been shifting to look East policy or something like that. And they were trading more with Russia, with Korea, with China, India, and so on. And that process accelerated during the sanctions era. Now, I think what we will see with the lifting of sanctions, first of all, is just an increase in trade with the West, both simply because that was what was cut during the sanctions era, but also because the composition of goods that they trade with the West are very different. Iran basically buys consumer goods from the Eastern partners, but it actually buys high-tech machinery and equipment from the Western partners. And it is in dire need of those having neglected technology upgrading during the sanctions period. Now, let me then turn to the third part, which is the effect on the Iranian macroeconomy or the Iranian economy. And as I think many of you know, during the period of sanctions being tightened, particularly the first two years, 2012 and 2013, Iran went into a recession, quite a deep recession, in fact. And growth has now become positive just this last year to about 3%. Now, we expect that to be somewhat higher with the stimulation, with the stimulus offered by the increase in oil exports. It's pretty much the spending of oil export revenues that's going to revive the economy. And we expect growth to be about 5% to 6% by 2017. Now, that's one side. Now, you can see from the graph the other big issue in Iran, as it is in many other countries, is unemployment, particularly youth unemployment. And here, there's an interesting twist to the usual story. Because if you look at unemployment rates and labor force participation rates, particularly if you split it up between women and men, we found a very interesting pattern during sanctions. And that pattern was one where the unemployment rate for young women actually went up. And the labor force participation rate went down. So women were dropping out of the labor force, as well as they were increased in unemployment. But the unemployment rate for young men actually went down. Now, this was a bit of a surprise. But if you think about it, it's one of those cases where economics actually is useful, Uri. Because what was going on there was that during the sanctions period, 2012, 2013, as some of you may recall, the currency depreciated, the real depreciated rapidly. Now, when the currency depreciates, like a devaluation, the tradeable sector is relatively more profitable relative to the non-tradeable sector. Now, women were mostly in the non-tradeable sector, in services. Whereas the men were in the tradeable sector of the manufacturing, to some extent in the manufacturing sector, like the automobile sector, and so on. And so you had the shift of the pattern of employment, where the services sector was the one suffering from the real depreciation. And so women were having trouble finding jobs, and many of them dropped out of the labor force at that time. Now, if you buy the story, this whole pattern could reverse with the end of sanctions, with the lifting of sanctions, where you would get now foreign exchange coming into the country. And so the services sector will start growing, and you would actually be able to absorb women back into the labor force and into employment. And the tradeable sector, and that's my last point, the tradeable sector might suffer. This is the non-oil tradeable sector might suffer. And this is an important point to keep in mind, because this event, the lifting of sanctions, can be thought of as a windfall to Iran. But it really matters how you manage this windfall if it's going to generate any kind of sustainable growth. And there are some concerns. And in the report, we track the experience of previous windfalls, because Iran has had windfalls before when the price of oil has doubled and tripled at various times. And the way they have managed those windfalls is, shall we say, not very impressive. And in particular, in 73, when the price of oil first shot up, the Shah decided to sideline the National Planning Office and decided by himself on all the public investment projects to be spent on that. And they weren't very well designed or managed. And it was really a wasted opportunity. And more recently, when commodity prices rose in the early 2000s, which is another windfall, because Iran was exporting oil there, because the sanctions hadn't started becoming binding yet, there was this big windfall. And it was very interesting, because when there is this windfall, you get this real exchange rate appreciation. You get the price of non-tradables going up. And traditionally, you expect the non-oil tradeable sector to suffer. And they did during that period, except for two sectors. It was pharmaceuticals and petrochemicals. Those actually continued to grow their exports. Now, why is that? Well, it turns out those are the two that were subsidized the most. Not only did they receive direct subsidies, because the president at that time wanted to promote these two sectors as exporting sectors, particularly to the Eastern partners. And the other is that not only did they receive direct subsidies, but these are the sectors that benefited the most from the energy subsidies, because these are highly energy-intensive sectors. So really, the reason why they kept the non-oil tradeable sector going in these two areas was huge subsidies, which is a very inefficient way to maintain it. So my final point is that this time, let's try to make good use of this windfall. And the ways to do that would be, and I don't think the real exchange rate appreciation can be avoided. That's just a phenomenon of market forces. But we can do something in Iran about lowering the costs of production of these non-oil tradeable sectors by removing some of the man-made constraints to doing business. There are lots of constraints that are really policy and bureaucratic constraints and the lack of competition in many of these sectors that if we can implement some of those policies and reforms, you can actually bring down the cost, even when the real exchange rate is appreciating. And secondly, infrastructure. And in particular, Iran has a relatively good infrastructure in some case, some ways, but the telecommunications infrastructure has been neglected. And this is critical for these non-oil exportable sectors, because they need telecoms, particularly the high-tech ones. And my final point is that this is what's going to be key for the post-oil era, because Iran actually has to start preparing for what it's going to do when the oil runs out. There's tremendous potential in this country, because it's got a highly educated population. And if you've got a highly educated population and you want to move to the non-oil era, you've got to move to a knowledge economy. And those are the things that require high-tech communications, equipment, and good infrastructure, as well as the complementary policies for business environment. Thank you, Shanta. On Wall Street, they say, never confuse genius with the bull market. And in Iran, maybe the adage is never confuse economic wisdom with high prices of oil. Everyone thinks they're kings when oil prices are high. So let me hand it over to Uriina, or are you not using slides, are you? No, no, no. I'm just going to speak. Low-tech. Low-tech. First of all, I'd like to congratulate Shanta, my friend Shanta and his team, for their timely and comprehensive analysis of the lifting of Iran sanctions. Let me say a bit on the study and a bit on policy implications. The study brings home a couple of things. First, how devastating the intensification of sanctions since 2012 has been on the Iranian economy, and how important the boost of lifting them will be. It makes you understand better why Iranians came to the table and also why the negotiators are confident that they are unlikely that the Western negotiators, so to speak, the P5 plus 1, that they are unlikely to lightly flout the agreement in the future. Second, the report shows that the lifting of sanctions will be beneficial for the world economy overall, even though oil producers will lose. It's a striking fact that the economies of developing countries, on average, are about 25% to 30% bigger than they were pre-financial crisis. But the Iranian economy is not much different than it was then, that to me is underlines in a very simple way what the effect of saying, we're talking real money in these numbers. The report describes the lifting of sanctions as a windfall, which suggests a one-time big gain. And of course, there is a one-time big gain, but the lifting of sanctions should not be called the windfall, in my view. It's much more of a fundamental shift in the Iranian economy, an economic regime change, not a political regime change, but an economic regime change. And so it should be looked at as the potential for a new start, a start where Iran integrates into world markets in an integral way and where confidence rises with the lifting of sanctions. If you look at it this way, then the welfare gains for Iran are potentially, in my view, significantly larger than the 2% a year or so estimated in the report. Because in addition to the one-time boost to oil exports and the efficiency effects of trade opening, you have to factor in a sustained increase in total factor productivity growth and in private investment, not only foreign investment, but also domestic private investment. Shanta is absolutely right to stress that these beneficial effects will depend predominantly on how Iran deals with the new economic regime as an opportunity to enact structural reforms and clean up its governance or, alternatively, as an opportunity to capture rents by the state and its associated special interests and possibly get up to no good abroad. Iran is a large and sophisticated economy about the same size in terms of population and income as Turkey, an income, an economy about 40% larger and 40% richer per person, roughly, than Egypt. It is much more than an oil economy or an oil state. Pre-sanctions, it produced 1.6 million cars. That is almost three times as many as Italy produces today. Admittedly, Italy is not a very good example of efficiency. Opening up Iran, I was working in Italy when they were producing 2 million cars in 1975. Opening up Iran has a non-trivial effect on world trade and investment at a time when world trade is stuttering. The report says that Iran could attract FDI in the low single digits. But the number could be much higher than that. Turkey attracted $13 billion in 2013. And Turkey does not have huge oil reserves in need of technology and money to restart and expand. As for the effect on oil markets, which the report stresses is the biggest gain for the world economy, I have to say that I have my doubts as to whether this is good for the world today. I understand the point that it improves the incomes of oil importers, including the United States, and reduces the incomes of oil exporters. But the point is that we live now in a low inflation, low price world. We live now in a low oil price world. And I believe you can have too much of a good thing. The oil price has already fallen so fast and so low that the well-known destabilizing effects on the budgets of oil exporters and on the income statements and balance sheets of companies in the oil sectors are already very significant. And they could outweigh the positive effects of consumer demand. Looked at another way, oil is today a much smaller part of the family budget, but it is absolutely critical at the margin for a lot of oil producers. I'm also concerned. This is slightly below the belt, Shanta. I'm also concerned about the effect of even lower oil prices on carbon emissions and the increased oil consumption that this implies. As I mentioned in a comment to an IMF report last month in this room, it's amazing to me how the IFIs, the international financial institutions, can segment their analysis to put climate at the top of the list one day and then to ignore it the next. Finally, a word about business and about economic policies. Businesses have already assumed that the deal is going to go ahead and have been flocking to Tehran for months. The opportunities lie in investment in the energy sector and in providing all manner of goods and especially services, as Shanta has stressed, in an expanding economy. How big the opportunities turn out to be depends on the energy investment regime Iran puts in place on the evolution of the real exchange rate on the international trade and foreign investment regime and on the growth of the Iranian economy. Obviously, the levers on these policy variables are in the hands of Iranian politicians. But the international community is not without tools to help and influence this process. Iran throughout this period has continued to receive article four missions from the IMF and to cooperate with them and apparently to listen to them. The message we have is that in all respects they're moving in the right direction on macroeconomic policies. Businesses will be looking for sound fiscal monetary policy, a sense that inflation is under control, that the exchange rate is simple. The exchange rate regime is simple and nondiscriminatory. The exchange rate must be realistic. IMF can help on all these. As important is the fact that Iran has renewed its bid as it already has several times to join the World Trade Organization. Accession to the WTO is a multi-year process. It's a very frustrating process. But it's also one which provides a unique opportunity to reshape Iran's economy for modern times. A tough WTO negotiation will result in an Iranian economy with lower and more uniform tariffs, a more liberal investment regime affecting particularly trade and service, a reduction in the role of state-owned enterprises, respect for international standards and norms, including an intellectual property. Crucially, if it is done well, the WTO negotiation will greatly strengthen the hands of reformers in Iran. For the World Bank, which has stayed pretty much out of Iran for many years, Iran would represent the single most important active program in the Middle East region. There will be large lending opportunities, I suspect. And these are obviously important for the bank's effort to be commensurate and sustained. But in the end, the money will be secondary in Iran. The bank, on the other hand, will bring enormous experience and analytical resources on Iran's most pressing structural challenges, reforming the trade regime, improving the economy's competitiveness, upgrading the infrastructure, modernizing the education system, establishing more transparent governance mechanism, making social assistance more effective, reforming the labor market. The list goes on. Finally, I want to say that development economists learn the hard way that economic analysis is not the most important part. It's the politics, stupid. I may be naive, but I still like to believe that if Iran can make substantial progress in terms of growth and economic integration and that the benefits are felt by families and the young, that the politics will gradually change. Shanta's report helps clarify everyone's thinking. Thank you so much, Yuri. And Shanta, let me start with a simple question, which probably doesn't have a simple answer. But that is that if Iran's oil production and exports are projected to double at a time when the price of oil has been cut by more than half, could we look back a few years from now and say, actually, this opening up for Iran was a net negative that their GDP was higher when they were sanctioned? Not in the case of Iran, because if you think about it, Iran is still currently an oil-dependent economy. So if you like, their comparative advantage was oil. And that was the one thing they couldn't produce, or they weren't able to export much. So even if the price of oil falls, it's not going to fall so far that Iran will suddenly discover its comparative advantage as something else. So there will be a gain. Now, the magnitude of those benefits will be lower. The lower is the price of oil. That's the point that Yuri was making. There's no question about that. But I think it's still a net gain to Iran. The figures are debated about what price of oil Iran needs to be able to balance its budget. Do you guys have an assessment of that at the bank? Let me ask my colleague there. I don't think we have one for Iran. It's 100? Very good. Yuri, do you have an assessment on that about just kind of the, well, let me actually move the subject slightly. And that is, both of you have been working in the field of development economics for a very long time. And there was a very interesting piece about Myanmar, Burma, in the Wall Street Journal, a few weeks back about how the country's economic opening a couple of years ago has really enriched government cronies, military cronies. It hasn't really trickled down to the population in Myanmar. If you can kind of project it two, three years forward, based on kind of a comparative perspective that you have, how do you see the potential removal of economic sanctions? How do you see that playing out within Iran? And to add on to that, what are the kind of countries which oftentimes people who do political science like to invoke 1970s China or the Soviet Union? Is there another country or region which you find kind of most applicable to Iran's potential opening? Well, I think I can answer a little bit on the first part of the question, which is we have done some analysis not on Iran but in several other countries in the MENA region, in particular Tunisia and Egypt, where we find that the unemployment problem is directly related to crony capitalism, to elite capture. So we find that the Ben Ali regime in Tunisia before the revolution had family connections that owned the banking sector, the telecom sector, and the transport sector. And as a result, those sectors stood in the way of export-led growth. Now, there is some work by Kevin Harris at Princeton that's trying to do a similar kind of analysis of Iran. So it's preliminary work. But he's also finding various connections in the private sector with the regime that could lead to similar consequences. So I think there is certainly a concern. And in many ways, what I was referring to in terms of creating a better business climate really is trying to promote competition so that this elite capture doesn't get in the way of promoting employment. Yeah, no, I agree completely with what Chanta said. What I would add is that on first principles, not having been to Iran recently or ever, I'm just looking at the data and comparing it with other countries. You have a country that has been closed for a while. There's been a big shift of resources towards the traded sector very simply because you couldn't import. And this is somewhat artificial. I'm sure that a lot of positions of rent have been developed in this highly distorted and relatively isolated economy in the course of the last three to four years. In this sense, this is why I have put so much stress on the WTO accession negotiations, which the Iranians apparently are really very, very keen on. And they keep coming back to. Because that's precisely what the WTO negotiations can help offset to a degree by putting forward the interests of exporters and creating a binding mechanism for the reformers in the country to change things. And that's what has happened in China. That's what happened in Vietnam. That's what happened in a number of other countries that underwent serious WTO negotiations. The other point I would make is that this is drawing a little bit from the recent experience in Egypt. If the regime is confident and well entrenched, it can take on its special interests more easily. If a regime is feeling threatened, insecure, and Karim, you're the best judge of that, not me, then its capacity to confront cronies and special interests is more complicated. In the sense that there's been an evolution in the thinking in Washington about the wisdom of Iran's accession to the World Trade Organization. Because I think in the past, especially I remember during the Bush administration, that was perceived as a carrot. We shouldn't offer that to them. And I think now there's a sense that this country is, if you're an economic mafia, if you're the revolutionary guards, joining the WTO is not necessarily in your interest. And it's seen as something that is not a gift to the regime, but potentially a gift to private sector in civil society. A couple more questions before I hand it over to all of you. So please have your questions ready. You talk a little bit in the report about the potential winners and losers as a result of the removal of sanctions. I mean, the winners are major oil importers, China, Europe. Potential losers are the major oil producers, Saudi Arabia, Russia. Can you talk a little bit more about that, how you see that playing out? And maybe other countries that aren't necessarily in the obvious category, the effect that this economic opening might have. Well, just to be clear, we were talking about winners and losers as a result of the effect of increasing oil exports on the world oil price. So that was simply that one particular thread that we were tracing through. Now, there are lots of other implications as a result of the nuclear deal, shall we say, including the lifting of sanctions, that will change the pattern of winners and losers. And there are people who are saying that this could actually eventually lead to greater peace in the Middle East region. There are some huge winners there, like all of us, that we don't analyze, but could definitely be part of the story. Great. No, again, I want to stress what I said at the beginning is that we've already had this big boon from the lower oil prices. Actually, the results have been quite disappointing in terms of economic growth, in part because, I'm talking about the decline in oil prices that's already occurred, in part because, you know, the effects on investment, oil investments, and many oil exporters has been more important than many had anticipated. They've cut back quite a bit, and in part because, in many instances, the benefits of lower oil prices have not filtered through to consumers, sometimes for good reason because they've reduced subsidies, which, by the way, is the case of Iran as well. Apparently they have a very serious energy subsidy reform program, and in part because some governments just needed more taxes, so they've increased taxes. So the effects so far have been quite disappointing, but what worries me most now is that there are a lot of precarious situations among the oil producers, okay? So I don't assume, I understand the logic of a transfer of resources being from low spenders to high spenders being positive for world aggregate demand in the short term. I just question that that is the case now at this level of oil prices. I'm concerned that further oil price declines will actually mean no effect on world aggregate demand and perhaps a decline in world aggregate demand because of the bad effect it has on oil producers at this low level of oil prices, okay? Yeah, I had meant to respond to one of Wurri's comments earlier, and this reminded me though. I think it's important to separate two things, which is the effect of an increase in oil supply in the market at its effect on oil prices from this secular decline in oil prices we saw say towards the end of 2014, and in fact we're seeing again now, which is more on the demand side. So one of the reasons that, and as Wurri says, we're not seeing this growth as a result of the lower oil prices because it's the lack of growth that is bringing oil prices down. And so we have to separate those two. Those are two different phenomena. I think the low inflation is also a result of the lack of growth. I mean we're just seeing a slowdown in China's, lower growth in China, lower growth in Europe, and a nascent recovery in the United States. Last question from me before I hand it over to all of you. I remember when the major financial crisis happened, global crisis happened 2008, 2009, it didn't really affect the economic situation within Iran, I think the terror on stock exchange even went up during that time. And Iran bragged about how it was basically immune to global economic trends. Now put aside the price of oil for a second, but some of these major collapses were having in emerging markets and the ebbs and flows on Wall Street. How do you see that impacting the economic situation in Iran moving forward? Well I think it's still the case that Iran isn't all that integrated in the global financial system, as Uri was alluding to earlier as well. So I think the actual, the effect of the current turmoil say in stock markets and so on, on Iran in the near future is going to be through the oil price mechanism. That's the main channel we're going to see until and when Iran becomes more integrated in the global financial system. Very good, so hand it over to all of you. I'll take maybe three questions at once if you can just introduce yourself and be brief as possible here in the front. Michael Gordon, wait for the mic. Michael Gordon, New York Times. Under this, following up on the notion of winners and losers. Under this, the JCPOA, the Saran Agreement which is a rather complicated document, there's a long list of banks, companies, individuals, enterprises of various sorts on whom sanctions are removed and it's a phased up process. Some are removed right away on implementation day when the nuclear conditions are met. Some are removed on transition day, eight years down the line. And in some cases the sanctions ought to be removed by the European Union but not necessarily by the United States depending on the entity involved. But many, if not most of these enterprises are linked to the IRGC and to people who have been involved in the nuclear program. So a question I have is did you examine within the framework of the Iranian economy what the effect is on removing these sanctions in terms of strengthening or weakening various players? Does the agreement strengthen the IRGC linked companies? And do you think the strengthening of these IRGC linked companies encourages economic reform in Iraq, discourages it or has no effect? It's a big one, so why don't we actually start? Yeah, well it's a big question and a very important one but I have a simple answer which is we did not look at that. Mainly for the reasons that you alluded to it. It's very complicated and there's a lot of uncertainty even over how much money there is that is being blocked. In fact, I remember reading an article in the New York Times, maybe you wrote it about the range of estimates. So we really didn't, we completely ducked that issue. It's potentially very important but I think we also don't wanna mix up stocks and flows. We're talking about the effect of the lifting of sanctions on the productive capacity of the economy. These are assets, they're sitting there, there's money sitting there and the question is will they be able to use it rather than have it frozen as it is now and then there's a question of how much money there is but also that's a political judgment how they're going to use it. I mean, we don't have any prior, any independent assessment of how those resources will be used. I think Michael is this operating assumption that because of the fact that the revolutionary guards had really benefited from Iran's economic isolation they filled the void left behind by the major international world companies that somehow this economic opening will be inimical to the interests of the revolutionary guards. My sense is that old saying goes in a rising tide all boats rise that the revolutionary guards will stand to benefit from this as well. Big question is whether they will stand to benefit from this opening up more than the population and that remains to be seen. That's why I asked this question about Burma because I think at the time these things happen there's great hope and oftentimes we look back whether it's Russia or Burma in retrospect and we say that, well, few cronies got very wealthy but didn't necessarily trickle down to the people in the way that people anticipated. Do you want to weigh in, should we go? Let me, I'll come back to the front but let me go back to the back. Please, yeah. Hi, Nazan in search with IHS. And my question is a bit more with regards to domestic politics and its effect with regards to economic reforms. As you know, Iran is Speak up a little bit more. Iran has talked about economic reforms for years. Part of why there hasn't been a lot of success has been that there hasn't been this sort of consensus that is needed amongst these different political actors within Iran and basically lack of political will. Now, Rouhani has a quite extensive economic reform plan and my question is and perhaps Kerm, you can also contribute to this. What are some areas where Iran will have an easier time politically instituting some of these reforms such a foreign, basically development of productive sector as well? And what are some areas that Iran might have to wait a bit longer to do later on? Great question. And let me come here to the front, Bairzad. Hi, my name is Bairzad Sabat visiting fellow Georgetown Managing Editor at IranPolitik.com. My question is for Mr. Dadoosh. So you mentioned the implications of the Iran deal as a kind of economic regime change. But obviously you acknowledge that that kind of depends on choices of economic reform forward. But I actually want to take it one step backwards. How come we say that the post deal kind of economic environment constitutes economic regime change when Iran will actually be facing stronger sanctions in place for the next several years than it did before the 2004, 2010 when the new sanctions regime was put in place so the financial action task force continues to blacklist Iran's financial system. There's a much higher level of private sector risk perception towards Iran even if they managed to insert a force-measure clause in case of sanctioned snapback and when US sanctions implementation on other issues has actually become much stronger, much more effective over the years. So are we, is it economic regime change or are we going back to something similar to what it was before 2010 when there were still a lot of restrictions in place on Iran's economy? Thank you. Thanks, Bairzad. Let's take one more of this gentleman here in the front. Garbisir Rajan, Chief Economist at the IAEF. We did a study also on Iran and I think one of the implications of lifting the sanctions is it will strengthen the position of the moderate Rouhani government and the reform minded. So that brings me to the issue raised that lifting the sanctions is good for the moderate government and they will proceed further with reforms. In fact, with the sanctions, the hard liners benefit more. And that brings me to the issue of the exchange rate. Shanta mentioned that the windfall will appreciate the currency. I think the center of it will not allow significant appreciation of the official rate. What could happen is that the black market rate will appreciate and you will eliminate the spread between the two rates. Now, any appreciation of the exchange rate which will be very small, probably 10% of the black market, could be offset with further structural reforms and it's more likely that the Rouhani government will go ahead with the reforms in an environment where the sanctions are lifted. Thank you. Some good questions. The first one in particular, I was wondering if you could tackle about what are the sectors that are less sensitive for them to try to reform economically? Well, I was hoping you would answer that. Yeah, I'm happy to do that too. Because I don't know the politics. But I guess it's really a combination of which sectors are where there's an economically compelling case for reform as well as that there's a political window. And I don't know whether it's sectors but certainly the whole area of subsidies seems to be a very high priority on both sides. I mean, there's a political imperative to do something about subsidies because it's draining the fiscal balances enormously. And obviously there's an economic benefit to it. The other thing to keep in mind is that Iran maybe more so than others did an amazing reform of subsidies seven years ago. And this is one where they replaced fuel subsidies with cash transfers with a particular twist which is worth keeping in mind. I keep telling other countries to do it. Which is that they provided the cash transfers ahead of the reform in a way where people could see the money in their bank account but they couldn't spend it until the reform was done. And this shifted the political balance because all of a sudden people actually said they were supporting the subsidy reform because now they could use the cash transfers and it was a credible opportunity. Now for various other reasons it didn't work out so well and now the subsidies are back. So, but I think having done it once there's a chance that they might be able to do it again. Yeah, on the point of where it's going to be politically easier, it will be politically easier as Shanta says where the economic case is compelling. Now the economic case in my view is especially compelling, it can be in subsidies but it's especially compelling in the whole energy sector where there will be desperate to attract foreign investment. So the kind of oil royalties regime that they have and their panty they're moving in the direction desired by international oil companies in that regard. In general, they will be looking for foreign investment. There's many good reasons to get foreign investment, particularly foreign investment of a greenfield type which is generation of employment and transfer of technology and funding, access to funds. So this should be a relatively easy play in many sectors except in those where the cronies so to speak are most prominent and most sensitive. I would expect trade liberalization by definition in the manufacturing and tradeable sectors to be a particularly tough not to crack because my experience when you have a lot of, a long time where an industry remains protected and state owned enterprises play a big role, that's very, very tough to open up quickly. Again, I go back to accession to the WTO and to the negotiations. I'm not sure fully, I know enough to answer your question. My, I started from the assumption that sanctions are lifted. Now, I'm sure that, I'm not even familiar with all the details, but I'm sure that this will take time and et cetera. There are a number of hoops to go through including in the next month. And, but once the sanctions are lifted, which is the intention of this deal and this may take a year or two or three for it to come to completion, then I would argue that you're dealing with a different Iranian economy, an Iranian economy that can be part of the world system. The sanctions really, honestly, I was very surprised when I looked at the numbers. You know, how devastating the effect of sanctions has been. It's really enormous. So this is, I stress, I remain of the opinion that this is an economic regime change potentially for Iran. Just make one point which is, sorry, did I interrupt? Yeah, no, no, go ahead, go ahead. Well, you know, Ayatollah Khomeini famously said that economics is for donkeys and his successor Ayatollah Khomeini hasn't said that, but in some ways he's acted like that. He's never put the country's economic interests as a first or even second tier priority. So some of the things that economists talk about which are just really no-brainers and so obvious from a purely economic perspective aren't obvious from the perspective of an authoritarian ideological regime. You mentioned telecoms, that's a very good example. If you're an authoritarian ideological regime, you don't want to see control of your telecom industry to, you know, to Ericsson or Nokia or outside companies. I have friends who work in the telecom industry in Iran and they say they always have the revolutionary guards breathing down their neck. Likewise, if you fear kind of, you actually, you know, the difference between Iran and some of the other countries in the region is that, I would argue that this regime has actually feared the growth of the private sector in the country. They're worried that that could seed more political control to their adversaries. And I think from the logic that you talk about, that's why trying to open Iran up economically is helpful to those forces that want to see it changed. But I think we're naive if we think that the hardliners are simply going to, you know, open up the doors and embark on a path that's going to potentially weaken their hold on power. This is going to be, you know, a long fight. We have time for one more question. There was a woman here in the front. If you're extremely brief, we can add another one, but I don't want to keep you all late. That's exactly right. Thank you. And there was a lady here, please, in the center. This will be the final question. Thank you. Judith Barnett, from a commercial perspective, once the implementation day passes or transition day, there will be a whole lot of trade that can go on for non-American companies versus American companies. In the next three to five years, assuming this works out as well as can be expected, how do you see the agreement affecting US companies overall? I know it's a pretty big question, but just wondered if you could opine on that. Since we'll be at a disadvantage initially, wondered how this could work out. Very good. Thank you. Uri, do you want to start? As a former entrepreneur? Yeah, as a former entrepreneur. Yeah, this is one of my worries, by the way, not just because of the mechanics of the deal, but because of the animosity, not to put it subtly, because of the animosity, particularly towards the United States and the distrust of the United States. On the other hand, the United States has a lot of assets. In its corporate sector, that's why it's the richest country in the world. It has a lot of technology, a lot of stuff that Iran needs. It also has companies with enormous financial clout in the oil sector and in a number of other sectors. So I think the United States is at a disadvantage. It's been at a disadvantage right now. And a lot of other countries are ahead. But again, the United States has enormous assets. And if we can get, if we can move forward on normalization, then over time, the United States can be a significant winner. I do think, though, that as long as Iran's position toward Israel remains the same and its support for groups opposed to Israel, Hezbollah, Hamas, Islamic jihad remains the same, Congress is very unlikely to lift the U.S. sanctions against Iran. And I think the situation will simply go back to what it was pre-2005, in which European countries were importing Iran, you're all doing business with Iran, but the United States was still largely shut up, Shanta. No, I think if the question was posed in the best of circumstances or something like that, if you want to talk about it that way, which is not what you were just describing, the U.S. does still have some niches that it could explain because there are some high tech equipment and technology that only the U.S. produces and is needed in Iran. So it may not be in the big oil companies. It may not be, as far as I know, it seems like the French and Germans are already in Tehran as we speak, beginning their deals. So I think the U.S. might be too late to the party on that one, but there are still plenty of things that the U.S. produces and nobody else produces and at this very high tech level, which is still needed in Iran. So I think there's potential there. There was a, oh, no, I like this question because I agree, my fellow chief economist or donkey or whatever you want to call it, that exactly the point, right, that you can make the real appreciation, however it transmits itself, work for you with structural reforms. That's how successful countries have done it. And that was what I was saying about trying to make sure that you use the windfall in such a way that the non-oil tradeable sector can continue to grow. So I fully agree. Great, well, thank you all for coming. And above all, thank you to Shanti for this terrific report, Uri, and hope to have you guys back soon. Thank you very much. Thank you. Thank you. Short and sweet. Oh.