Oil, Inflation and Iranian Economy

The purpose of this study is showing to find influences of different factors of economic on Iranian inflation. The main objective of the study is ¿impacts of oil price and selected macroeconomics variables on Iranian economy¿. Time series data are used for the period 1971 to 2010. Seven variables are used in this study. They are the inflation rate as the dependent variable and the oil price, money supply, nominal exchange rate, gross domestic product, interest rate and sanctions as the independent variables. The main finding in this research is that the inflation rate in Iran has positive long-run relationships with the nominal exchange rate, money supply, gross domestic product, interest rate and sanctions. It is means that any increase in any of these variables causes the inflation rate to increase. The sanctions imposed by the United States, the United Nations and more recently by the European Union, have caused a significant decline in oil exports, oil revenue, inward foreign portfolio and direct investment in Iran as well as significant depreciation and devaluation of the Rial against the US dollar and other currencies so it fed into higher inflation as goods become scarce.