Iran’s economy is going schizophrenic: on the one hand, sanctions are loosened and energy deals are booming and on the other hand the average Iranians are suffering. Where’s all the money going? The answer, my friends, is blowin’ in the winds of over Tehran.
Business is Booming
As sanctions loosen up, Iran is riding a tidal wave of new business ventures with its neighbors to capitalize on its vast energy resources: While China is planning to reach a $200 billion a year trade with Iran within 10 year, Russia is ready to ink a$20 billion oil-for-goods deal. Other countries in the region and in Europe are following suit and have sent trade money-laden delegations to Tehran. In order to accommodate for the boom in business, Iran has launched a huge floating gas export terminal and is getting ready to lay pipelines to its regional neighbors. The $7 billion sanction relief under the nuclear agreement and approximately $100 billion relief once all sanctions are lifted should place Iran’s economy in great shape. The IMF has gone as far as to state that a final nuclear deal would cause Iran’s economy to “soar“. In fact, Tehran’s stock market has risen steadily since Rouhani’s presidency up until about a month ago when the reality of the economic situation finally sank in.
But Money is Scarce
As the Norouz festivities came and went, dark clouds of pessimism remained over most Iranian families: sharp price hikes in commodities (24% electricity, 20% gas, 20% water, 50% petrol…), increased taxes, cuts in subsidies and skyrocketing interest rates have contributed to an alarming decrease in the purchasing power. At a rate of 40% inflation and 12.6% unemployment, salaries are being increased by less than 20% – in fact the real wages are less than 65% of what they were 2 decades ago. Iran’s vice president reported that 43% of 850,000 industrial units remain closed due to “the weakness of the economy” while in a recent poll, only 20% of the companies actually planned to increase wages meaning that the situation is going from bad to worse. As fishmonger Shahin Anbarani’s in Tehran simply put it – “People don’t have any money“. Rouhani’s big middle class support might be disillusioned by the fact that the economic turnaround he promised did not materialize but, to be honest, Rouhani’s promises might be hard to keep after decades of mismanagement. The massive surge in privatization in Ahmadinejad’s presidency was funneled to key regime players in the IRGC whose extent in the Iranian economy is conservatively estimated at 1/3 of the GDP. Khamenei who acknowledged that the earlier privatization efforts were not beneficial and is betting on the “Year of Economy and Culture with National Determination and Jihadi Management” will have to find the golden path between his hardliner stronghold in the IRGC and Rouhani’s popular promises for change. And politics are not the only problem – warnings of a looming drought have led to water shutdowns which seem to be on the increase.
Some (Not Enough) Shifts in Priorities
Rouhani’s greatest challenge is prioritizing and those left out are losing heavily: Hezbollah, long supported by Tehran, is spiraling into an economic crisis of its own due to cutbacks from Tehran, the raging war in Syria and an increase in sanctions on other contributors.
Having said that, money is still being channeled out of Iran: Tehran has invested too much in Assad to back down now and is still supporting him financially and militarily adding 30,000 tons in aid to a $3.6 billion line of credit.
And although Iran should be saving quite a bit of money by downsizing its nuclear program under the nuclear deal, the fact is that contrary to the Western negotiators’ beliefs, there have not been any serious cut backs in the program. And if it is up to Khamenei, which it is, there won’t be any cutbacks in the future either.
If Rouhani wants to bring about the economic turnaround he envisioned, he will have to fight Khamenei and the IRGC chiefs to really change priorities. Unfortunately, his support outside of Iran as a moderate has placed him at odds with the IRGC hardliners so that leaves him with only one valid option: convince the Supreme Leader to change priorities.