Environmental Consequences of Imposing Economic Sanctions in Iran: Applying a Dynamic Computable General Equilibrium Model

Sadeghvand, Behzad; Heidari, Hassan; Nejati, Mehdi

doi:10.22054/joer.2025.80917.1229

Document Type : Research Paper

Authors

¹ Ph.D. Student in Economic Sciences, Department of Economic Sciences, Faculty of Economics and Management, University of Urmia, Urmia, Iran

² Professor, Department of Economic Sciences, Faculty of Economics and Management, University of Urmia, Urmia, Iran

³ Associate Professor, Department of Economic Sciences, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran

https://doi.org/10.22054/joer.2025.80917.1229

Abstract

Iran simultaneously faces the dual challenges of economic sanctions and escalating environmental concerns. This study aims to examine how oil export sanctions contribute to increasing carbon dioxide (CO₂) emissions across various economic sectors. Using the dynamic GTAP-E-Power model—a computable general equilibrium (CGE) model tailored for energy and environmental analysis—the impact of sanctions is assessed under three oil export reduction scenarios: 60%, 65%, and 70%. Results indicate a consistent increase in Iran’s total CO₂ emissions under all scenarios, with emissions rising further as the severity of sanctions intensifies. Sectoral analysis reveals that electricity production and distribution, low-tech manufacturing, base-load fossil fuel power generation, and petroleum refining are the most affected, showing substantial emission increases. Conversely, sectors such as renewable-based electricity generation and high-tech manufacturing either experienced a decline or only a marginal increase in emissions. These findings suggest that sanctions not only impact Iran’s economy but also exacerbate environmental degradation. Accordingly, the study recommends prioritizing the removal of sanctions as a macro-level policy objective, enhancing investment in oil extraction with modern technologies, expanding renewable energy infrastructure, and supporting high-tech industries that demonstrate greater resilience to sanctions and lower environmental costs.
Introduction
Iran is concurrently grappling with widespread economic sanctions and escalating environmental challenges. Among these, the impact of oil export sanctions on carbon dioxide (CO₂) emissions stands out as a critical concern. This study investigates the extent to which sanctions, particularly those reducing Iran's oil exports, exacerbate environmental degradation. Employing a computable general equilibrium (CGE) model—specifically, the dynamic GTAP-E-Power model—this study assesses CO₂ emissions under three scenarios of oil export reduction: 60%, 65%, and 70%. The results reveal a direct correlation between intensified sanctions and increased CO₂ emissions, emphasizing the environmental costs of economic isolation.
Methods and Materials
The study utilizes the GTAP-E-Power model, a dynamic extension of the Global Trade Analysis Project framework, tailored to incorporate power sector and energy-related emissions. This model facilitates the analysis of environmental impacts resulting from shifts in economic and energy-related variables. The analysis simulates three scenarios wherein Iran’s oil exports are reduced by 60%, 65%, and 70%, respectively, over the period from 2019 to 2050. The model estimates CO₂ emissions across various economic sectors under these constrained export conditions, comparing them to a baseline of unrestricted oil trade.
Results and Discussion
The simulation results indicate a consistent increase in CO₂ emissions within Iran as oil export sanctions intensify. Specifically, emissions rise by an average of 0.187%, 0.193%, and 0.197% in the three respective scenarios. Conversely, sanctioning countries experience a decline in their own CO₂ emissions, likely due to increased adoption of clean energy alternatives.
Sectoral analysis reveals that electricity production and distribution, low-tech industries, fossil fuel-based power generation, and oil product manufacturing are the most affected sectors. These sectors exhibit the highest CO₂ emission increases, with emission intensity growing alongside the severity of sanctions. In contrast, sectors relying on renewable energy and high-tech industries display minimal or even negative emission growth, highlighting their resilience.
Electricity generation using fossil fuels under base load conditions sees annual average CO₂ increases of 0.602%, 0.641%, and 0.677%, while peak load shows slightly lower increases. However, renewable-based electricity generation demonstrates minimal or negative changes: +0.015% and +0.08% in the first two scenarios, and -0.001% in the third.
Moreover, low-tech and medium-tech industries show significantly higher increases in emissions than high-tech industries, which remain relatively unaffected due to their access to advanced and efficient technologies. Similarly, sectors such as mining, coal, agriculture, and services all show
Conclusion
The findings underscore the substantial environmental costs of oil export sanctions on Iran. Sanctions lead to increased reliance on carbon-intensive industries and outdated technologies, thereby elevating national CO₂ emissions. In contrast, high-tech sectors and renewable energy-based power generation exhibit greater resilience.
Key policy recommendations include:

Prioritizing the removal of international sanctions to mitigate environmental and economic damage.
Investing in oil product manufacturing with access to cleaner, advanced technologies.
Expanding renewable energy sources in electricity production to reduce fossil fuel dependency.
Strengthening high-tech industries to enhance technological resilience.
Focusing development on sanction-resilient sectors, particularly those capable of maintaining efficiency and environmental standards under constrained conditions.

Strategic investments in clean technology and the facilitation of knowledge transfer are vital to offsetting the negative environmental consequences of continued sanctions.

Keywords

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Environmental Consequences of Imposing Economic Sanctions in Iran: Applying a Dynamic Computable General Equilibrium Model

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Volume 24, Issue 93 - Serial Number 2July 2024Pages 5-59

Volume 24, Issue 93 - Serial Number 2
July 2024
Pages 5-59