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Iran’s deteriorating economy widens gap between ruling establishment and its people 

December 9, 2019 at 1:30 pm

The groundbreaking ceremony of Bushehr Nuclear Power Plant, held in Bushehr, Iran on November 10, 2019 [Fatemeh Bahrami/Anadolu Agency]

As Iran further expands its nuclear enrichment program, the country’s economy is plummeting under the heavy weight of US imposed sanctions. Growing dissatisfaction and disappointment with the current establishment have caused even deeper divisions within Iran’s society. However, it is still unsure how Iran’s ruling elite will respond to growing economic and international pressure.

Iran’s approach to wait until the end of Trump’s presidency, while hoping to negotiate with a less hostile US administration, may not work.  Many outside observers believe that the fall of Iran’s economy is going faster than expected, and predict that the country may not be able to wait out Trump, as Iran’s economy has lost nearly ten per cent of its output since the re-introduction of sanctions.

Although Iran’s economy appears to survive the initial storm, time is not on Iran’s side, as recent protests in the country have shown. Also, it is highly debatable whether Tehran’s decision to proceed with gradual resumption of uranium enrichment can deliver any significant results, and provide Iran with enough leverage to hold its positions and achieve its goals.

Speaking to MEMO, Hooshang Amirahmadi, a professor at New Jersey-based Rutgers University and the founder and president of Iranian American Council, as well as a candidate for Iranian presidential elections in 2005, 2013 and 2017, announced that the current Tehran approach is not likely to pay off. He believes that Americans, and others, know that this is more of a bluff, and “if Iran passes certain red lines they can simply destroy the facilities.” He also expresses some doubts regarding Iran’s seriousness about returning to full enrichment.

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According to Sara Bazoobandi, a non-resident senior fellow at Atlantic Council think tank, Iran is ready to take enrichment to the level that will be a breaking point between the EU and the US. “If it gets to that point, the choice will be very difficult for the EU,” she explains. The European countries formally rejected Iran’s policy as soon as Tehran issued the announcement that it will start with uranium enrichment through a multi-phased approach last May, though Europeans reiterated their commitment to the 2015 Iran nuclear deal. But, despite growing disagreements with the US on a number of issues, it is hard to imagine that Europe would openly challenge Trump for the sake of Iran. After all, three European powers last week accused Iran of testing ballistic missiles, signaling that they may be losing patience with Tehran. The UK, France and Germany warned the United Nations that Iran tested a Shahab-3 missile “equipped with a manoeuvrable re-entry vehicle” that could deliver a nuclear weapon.

Vahid Yucesoy, an expert on Iranian foreign policy at Université de Montréal in Canada, holds the belief that given the impact of the latest protests, which seem to have largely severed the very fragile social contract between Iran’s rulers and the residents of provincial Iran (the historic bastions of the regime), it is difficult for Iran to withstand the heavy pressure of the sanctions. He also deems that some form of dialogue for negotiations is not impossible.

Under current circumstances, a prospect for the future looks rather bleak. According to Amirahmadi, the Iranian economy is “near collapse”, but the main problem is largely associated with mismanagement, rather than sanctions. Amirahmadi esteems that the regime knows that returning to negotiations will not be their panacea, and thus it will “continue to resist and wait in vain for Trump to disappear.”

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The economic indicators are alarming. In the World Economic Outlook report published in October, the International Monetary Fund (IMF) announced that Iran’s economy would contract 9.5 per cent this year, leaving only Libya and Venezuela behind. The sharp fall is caused by “plummeting oil and gas exports,” as well as new sanctions on the country’s mining and metal industry exports.

Oil revenue is the key to its survival, as almost 80 per cent of Iran’s tax revenues come from the country’s oil exports.

In the wake of re-imposed sanctions, Iran tried to apply an alternative oil export strategy by offering oil to private entities, through energy bourse and using its smuggling networks to sell oil. However, selling oil every once in a while, has not saved Iran from the worst.

Bazoobandi mentions some rather pessimistic facts: the country’s oil export level dropped to less than 500,000 barrels per day. Sanctions have also triggered a high inflation rate, reaching 42.7 per cent and some items such as property prices, have increased up to 78 per cent. While the unemployment rate is more than ten per cent, the unemployment amongst university graduates, which stands around 44 per cent, is highly concerning.

Some authors, like Djavad Salehi- Isfahani for example, claims that there is an intense debate inside Iran about future development strategy, as well as regarding future foreign policy steps between those who advocate so-called “resistance economy”, and those who fear isolation and returning to the model which was apparent during the first decade of the revolution, when the state took over the economy.

As for Amirahmadi, no side has the answers to solve accumulated problems, as “there is a serious deadlock and the status quo will continue.” Yucesoy notes that the country has greatly changed since the first two decades of the revolution, and given that even in provincial towns there is widespread discontent with the regime, he claims that one cannot expect the good old concept of “resistance economy” to work so swimmingly, without the attendant domestic repercussions.

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Worsening economic situations and foreign pressure could trigger even deeper divisions within the country, as recent protests suggest. Bazoobandi observes that cleavage between the state and the people, is at its deepest level. According to her, the recent protests prove two things: “that people have grievances which are not being addressed” and “that the government is ready to use maximum violence in response to any opposition.” Besides widespread dissatisfaction, there is “complete loss of trust for the establishment amongst the people,” she clarifies. As for Amirahmadi, President Rouhani’s government is on the verge of collapse, and it is even possible that ”a coalition of the army along with the people may overthrow the government.“

But for the time being, Yucesoy observes that Iran’s reformers and hardliners have been, more or less, united in their attempts to counter these protests, despite their opposing views on many issues. On the other hand, the protesters’ slogans actually targeted the entire establishment. While taking place in more than 100 cities including Tehran, these protests didn’t really favour any ruling camp and targeted the entire establishment, and interestingly, according to him, they were not aimed at the US. The Green Movement (or Persian Spring) leaders like Mir-Houssein Mousavi and Mehdi Karroubi, have also sided with protesters, but Yucesoy notes that they still envision a system where Iran’s theocracy can be reformed. However, given the corruption scandals implicating the involvement of reformists have also made headlines in social media, the possibility of such reforms are fading.

So, although there are no significant signs of divisions within the ruling establishment, if the current atmosphere of uncertainty, economic mismanagement and popular angst amplifies, such divisions are not impossible.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.