Kourosh Ziabari – Asia Times: One year since conservative cleric Ebrahim Raisi rose to the presidency, his campaign promises to shield the Iranian economy from sanctions and lift it to new heights have gone wholly unfulfilled. As street protests against the dire state of the economy spread across the country, political stability is being put to a potential make-or-break test for the politically inexperienced leader.
Iranian purchasing power has recently hit record lows amid runaway inflation, stagnant wages and a collapsing currency, galvanizing more and more Iranians to take to the streets to protest against their economic plight and the government’s perceived mismanagement.
Despite the protests mushrooming across the country, Raisi continues to put on a happy face, reiterating that he is “optimistic” about the country’s direction while his cabinet members tweet equally sunny messages with hashtags promising a “bright future.”
Raisi’s roadmap for those better economic times is ambiguous at best and desperate at worst, as his administration struggles to generate the revenues needed for the day-to-day functioning of government. At the same time, his government is heaping new tax burdens on an already suffering populace to fill the fiscal gaps.
The share of taxes in the national budget has surged by 61% on average, with the income taxes for employees rising by a whopping 41%. The administration is meanwhile busily selling off state properties to pay debts and shipping hugely discounted oil to China to keep the national accounts afloat. The budget deficit for the calendar year ending March 2023 is anticipated to be around US$21 billion.
At a time the global energy crisis precipitated by the war in Ukraine and augmented demand could restore Iran’s lost position as a major oil and natural gas exporter, its crude and petroleum products are largely stuck in refineries due to the lack of progress in securing a new Joint Comprehensive Plan of Action (JCPOA) nuclear deal with the US and wider West.
There is no sign a new deal is imminent as Iranian negotiators stick to their guns on the need for economic guarantees and sanctions relief.
Raisi’s cheerleaders in the Iranian state media are echoing his optimism, recently trumpeting the International Monetary Fund’s April reports that identified Iran as the world’s 14th largest economy with a gross domestic product (GDP) of US$1.74 trillion, recently overtaking Mexico, Switzerland and Saudi Arabia.
However, critics quickly pinpricked that upbeat assessment, noting the calculation was based on Iran’s official exchange rate of 42,000 rials per US dollar at a time the unofficial market rate hit 300,000 rials to the greenback in June.
Reconciling those official and market exchange rates will be a painful process. In early May, the Raisi administration announced plans for “grand economic surgery” including subsidy cuts on wheat, flour and most food items, a move that caused prices to shoot up across the board.
The most immediate effect was a manifold increase in the price of bread, a vital staple, and a surge in the prices of pasta and rice. Cooking oil, poultry and dairy products have also been included in the new austerity measures.
Rising prices are forcing Iranians to make tough dietary decisions. Iran’s dairy industries association say the consumption of dairy products such as milk, cheese and yogurt has declined by 20% compared to the previous year. The consumption of red meat, meanwhile, has contracted by 50%, according to industry reports.
Some experts have argued the subsidy cuts were long overdue and had to be taken at some point to acclimatize Iranian society to real supply and demand-driven market prices. However, the shock therapy has decimated Iranian purchasing power nearly overnight.
In June, inflation jumped 52.5% with the price of food items rising 82.6% over the same month in the preceding year. The Iranian rial, as studied by the Johns Hopkins University economist Steve Hanke, is now one of the 10 most fragile currencies in the world.
According to the World Bank, the net national income per capita of Iranians was $1,822 in 2020, far below Iraqis at $3,222 or the $7,135 seen in Turkey. The purchasing power of Iranians per capita is similarly tapering off; at $15,791 in 2020, Iran fared worse than Turkmenistan, Maldives and Libya.
Meanwhile, sporadic protests sparked by economic suffering are testing political stability. Teachers, nurses and Covid-19 frontline workers, pensioners, drivers and manual laborers have all taken to the streets to demand living wages, with many demonstrations blaming corrupt officials for their plight.
The dire economic readouts are raising hard questions about the competence of Raisi’s mostly inexperienced economic lieutenants.
Hojjat Abdolmaleki, the 40-year-old former minister of labor, cooperatives and social welfare and a known theoretician of “resistance economy”, had floated unrealistic ideas on how to make Iran one of the three predominant economies of the world by 2050, alongside the United States and China. However, he submitted his resignation on June 14 without citing reasons; others have since followed as the economy has cratered.
“Iran suffers from a host of problems that the present government is unlikely to be able to fix. Sanctions and corruption are the most talked about, but water shortages, global warming and the surge in global commodity prices are taking a large toll on the economy,” said Joshua Landis, the Sandra Mackey chair and director of the Center for Middle East Studies at the University of Oklahoma.
“Without the hope of sanctions relief, the Raisi government is unlikely to be able to revive economic growth or stabilize the currency and inflation,” he added.
Landis, who is also the director of the Farzaneh Family Center for Iranian and Persian Gulf Studies at the University of Oklahoma, says the current economic stalemate ensures the protests will continue. “With the standard of living plummeting for so many people and commodity prices soaring, popular discontent and demonstrations seem inevitable. We have seen similar demonstrations in many other countries of late, whether in South Africa, Tunisia, or Latin America,” he said.
Others note the Iranian economy, including the manufacturing sector, has not collapsed altogether under the weight of sanctions, which authorities have found certain ways to work around. But these workarounds are not everlasting and sufficient to lift the standard of living of a population that is young, educated and brimming with expectations, analysts say.
“Iran has done about as good a job as you could imagine in structuring an economy resistant to sanctions, the so-called ‘resistance economy’, but what they have not been able to do, and what they will not be able to do, is to create a self-sufficient economy that is able to maintain a high standard of living for its citizens,” said Jonathan Cristol, a research fellow in the Levermore Global Scholars Program at Adelphi University in Garden City. “And the decline in living standards, be it in cuts to subsidies for gas, food or basic staples, is really what drives people to the streets.”
“Do pessimism around JCPOA or other specifics of international politics play a role? For sure they do, but that is not the only factor – it is the totality of the economic situation in which people find themselves, and the government’s heavy-handed response does, at times, create a vicious circle by increasing dissatisfaction with the regime that might otherwise have been able to be directed externally.”
Raisi has reiterated on multiple occasions that the JCPOA is not the only aspect of his foreign policy, which he has said will be multi-pronged and balanced as his government seeks to diversify Iran’s sources of revenue.
While diversification makes good economic sense, it is virtually impossible for Iran to engage in free trade with its partners and normalize its relations with the wider world without a revived JCPOA, which is the only credible way to bring Iran back into the community of nations.
“As history has shown, serious economic challenges regularly lead to political unrest, which is seen across several sectors of Iranian society. The Raisi administration cannot ignore these protests, which without A response will gain traction,” said Simon Mabon, professor of international politics at Lancaster University.
“The future appears bleak, particularly without the possibility of a revived JCPOA. The Iranian economy is hugely reliant on the sale of oil, a sector which itself needs a huge injection of capital to modernize infrastructure, but without this, there are additional challenges down the line,” he told Asia Times.
This article was originally published in Asia Times