Do oil sanctions reduce Dutch disease phenomenon? A quasi-experimental approach evidence from Iran

Economists have hypothesized that currency appreciation resulting from oil production in oil-rich countries can suppress the production of tradable goods, a phenomenon known as Dutch disease, often assessed using econometric models. This study leverages sanctions on Iranian oil exports, employing a quasi-experimental design with two distinct periods (1959-2020): one marked by sanctions (oil revenue recession) and the other by non-sanctions (oil revenue boom). The result shows a reversal of the Dutch disease effect during sanctions, leading to a real depreciation of the national currency and heightened production of tradable goods over non-tradable ones. The observed pattern of the real exchange rate aligns with Dutch disease dynamics, depreciating during sanctions and appreciating during non-sanction periods. Furthermore, the tradable sector exhibited increased share and real output growth compared to the non-tradable sector during the sanction period.