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Not all of Iran’s frozen foreign assets are likely to thaw anytime soon. Frozen dollar via

Iran’s frozen funds: how much is really there and how will they be used?

The value and planned release of Iran’s frozen foreign assets have become hot political topics in both Tehran and Western capitals.

Yet few observers, it seems, have a clear idea how much is likely to be released as a result of the nuclear deal, and political motivations of one kind or another seem to be behind the varying estimates.

Conflicting accounts

Inside Iran, there have been several conflicting statements about the total volume of these funds ever since the historic nuclear deal with the West was announced on July 14.

Estimates range anywhere from US$20 billion to $180 billion. The larger figures generally come from conservative critics of the government in parliament. Rouhani government officials, on the other hand, have generally offered smaller estimates.

In the West, questions have also been raised about the total value of these funds but also about what Iran might do with them.

President Barack Obama initially offered an estimate of approximately $100 billion. More recently, he cut that in half, to between $50 and $60 billion.

Opponents have cited similar or larger estimates as they expressed concern that this money represents a large and undeserved gift to Iran that would be used to support its proxy wars in the Middle East. They have argued, in other words, that as a result Iran is likely to become bolder in Iraq, Lebanon and Syria and cause more trouble for the US and its allies.

How much is really there?

Iran’s portfolio of foreign assets is diverse, and the segment that has been frozen as a result of Western and international economic sanctions is spread among several countries and dates from different times. The freeze date for some goes as far back as the 1979 Islamic Revolution.

The conflicting estimates about the value of assets to be released within a year of the deal’s implementation are partly due to the fact that there are different types of assets: some will be very easy to recover, while others will likely remain tied up. Details are murky.

In general, the value of all Iranian assets blocked since 1979 most likely exceeds $100 billion. However, the assets that will be released in the aftermath of the current deal are those that were blocked more recently because of Iran’s nuclear program. These represent only a fraction of Iran’s total frozen assets and probably won’t include any of those in the US.

Within Iran the conflicting figures have led to sharp criticism, prompting the Central Bank of Iran (ICB) to release more detailed information (mostly in interviews rather than official reports) about their value and composition.

The most detailed and comprehensive account has been provided by the ICB’s deputy director for currency management, Gholamali Kamyab (see the table below). He estimated the total value of Iran’s foreign assets that have been blocked as a result of recent sanctions at $89.6 billion, excluding those in the US whose status won’t change as a result of the agreement.

A breakdown of Iran’s frozen foreign assets. Associate director of the Iran Central Bank., Author provided

As to the financial and physical assets in the US, mostly frozen within a few years of the Islamic Revolution, they initially totaled $12 billion (the last item in the table), but since they have been accumulating interest for more than 30 years, the present value is significantly higher. At a conservative rate of return of 3% per year, the present value of this $12 billion portfolio would more than $33 billion after 35 years.

In fact, most of Iran’s foreign assets are in Asia as a result of the country transferring them from European banks to China and other Asian countries between 2006 and 2011 in anticipation of financial sanctions.

A large portion of Iran’s assets in China, for example, are deposited in Chinese banks as collateral for several Chinese investments in Iran (item three in the table). Others are locked in the foreign asset portfolio of Iran’s Oil Ministry (item four).

Kamyab and several other Rouhani government officials have argued in recent weeks that only the first and second items in the table are likely to be available for use in the short run as a result of the nuclear deal.

These items add up to just $29 billion. The rest may remain blocked for much longer because of legal disputes and ongoing tensions between Iran and the United States over other issues.

Putting the amounts in context

In order to understand how the release of this $29 billion worth of frozen assets will affect Iran’s domestic and international behavior, let us compare it to Iran’s oil export revenues.

Thanks to record-high oil prices at the time, the value of Iran’s oil exports reached a peak of $114.7 billion in 2011, according to OPEC statistics.

Western oil sanctions, which went into effect in the second half of 2012, caused a significant decline in Iran’s daily export volume, and, as a result, crude revenues in 2013 plunged to $62 billion and to $54 billion in 2014.

Even if sanctions are lifted this year and Iran is able to pump more oil, it’s unlikely to boost its export revenues much because of the continuing slump in the price of oil. Based on the US Energy Information Administration oil price forecasts and the expected increase in Iran’s oil export volume after sanctions are lifted, the country’s oil export revenues will be in the $40 billion to $50 billion range this year and perhaps 20% higher in 2016.

Seen in this light, $29 billion of released funds doesn’t amount to that much and represents only half of Iran’s current oil export revenue. Iran also receives sizable non-oil export revenue equivalent to about 15% to 25% of oil income in an average year.

It’s also worth nothing that Iran is hoping to attract a large volume of foreign investment after sanctions are lifted. This amount will likely be several times larger than the value of the released funds. The rush of European diplomatic and trade missions to Iran since the deal was agreed upon signals how eager they are to return to the country. They will be competing with investors from Asia, Turkey and the United Arab Emirates, which are also actively preparing to reenter the Iranian market as soon sanctions are lifted.

The French are eager to get back in business in Tehran. Here, French Foreign Minister Laurent Fabius, left, meets with Iran President Hassan Rouhani. Reuters

What will Iran do with these funds?

The most important question for US policymakers and the public is how Iran plans to spend the cash it gets back. How much if any will be spent on arms and economic resources for Iran’s allies in the region, such as the ruling regime in Syria and Hezbollah in Lebanon?

There is some evidence that Iran had to cut back its financial and military support for its Middle Eastern allies in 2014 because of lower oil revenues and economic sanctions. So it is likely that the release of frozen assets and improved oil export revenues will enable Iran to offer more financial assistance to them.

However, at the same time, the government faces strong political pressure to devote most of these additional resources to domestic needs. After three years of severe sanctions, the economy is starving for financial support to spur job creation.

These economic hardships have led to growing public resentment over the government’s support for Hezbollah, the Palestinians and the Assad regime in Syria. To contain this resentment, the government is likely to demonstrate that Iranians themselves will experience most of the economic gains from the nuclear agreement.

Iran is also expected to use a portion of funds it gets back for two other activities that will further reduce the amount available for its foreign policy objectives in the Middle East.

First, Iran’s oil and gas industry is suffering from a large shortage of capital investment and will require a significant injection of cash to replace aging machines and upgrade technologies.

Second, Iran is likely to maintain some of the released funds in foreign accounts as a confidence-building measure. Quickly withdrawing all of the funds would send a signal that Iran is not confident about the durability of the nuclear deal and wants to repatriate its cash in preparation for new sanctions. Hence Iran will be mindful of how its behavior will be interpreted if it uses up or repatriates all of the released funds quickly.

Hezbollah, Iran’s ally in Lebanon, is unlikely to get much extra funding as a result of the nuclear deal. Reuters

Various estimates suggest that in recent years, the value of resources that Iran has spent on supporting its proxies and allies in the Middle East is approximately $10 billion. It is unlikely, I would argue, that Iran will devote more than $10 billion of the additional funds to these proxies.

Furthermore, even if we assume that Iran will devote half of the released funds (up to $14.5 billion) to support its Shia allies in Iraq, Syria and Lebanon, this will be no match for the financial resources that Saudi Arabia and other Gulf Cooperation Council countries can offer to Iran’s opponents.

Ever since the Arab Spring uprisings of 2011, Saudi Arabia has demonstrated a willingness to confront Iran in every proxy conflict with tens of billions of dollars of financial and military support.

As a result, it is unlikely that Iran’s additional resources will be able to generate a decisive victory for any of its proxies. What these resources can achieve at best is to prevent the defeat of Iran’s allies and help them endure longer in the ongoing conflicts.

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