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International implications of Iran’s economic unrest

May 31, 2022 | AIJAC staff

While Iran's economy is currently in poor shape, estimates are that a nuclear deal could provide Teheran with up to US$275 billion within a year and US$800 billion over five years (Image: motioncenter, Shutterstock)
While Iran's economy is currently in poor shape, estimates are that a nuclear deal could provide Teheran with up to US$275 billion within a year and US$800 billion over five years (Image: motioncenter, Shutterstock)

Update from AIJAC

05/22 #04

Iran is in the grip of yet another round of popular protests sparked by huge spikes in prices of staples such as bread and cooking oil. These economic protests have been exacerbated by the collapse of a building in Abadan, killing at least 19 people, last week. This Update is about some potential international implications of Iran’s economic problems and the unrest they have sparked.

We lead with Jerusalem Post Middle East correspondent Seth Frantzman, who notes that, as well as the protests, there are clear signs that the economic situation in Iran is quite severe. He discusses how Iran has looked to China as its key economic partner, and this is leading to inflation and supply-chain problems which are causing many of the economic woes in Iran. Frantzman suggests Iran may try to mobilise its regional proxies as a distraction, but it is not clear it has the economic capabilities to do so at the moment. In any case, it’s likely Iran’s economic issues will be clouding the whole region, one way or another. For his full argument, CLICK HERE.

Next up, Middle East expert Bobby Ghosh, writing in Bloomberg, argues Iran’s economic problems amount to an opportunity for Washington, but the Biden Administration seems disinclined to take it. He says the economic crisis behind the unrest seems real and is likely to grow, but Iran’s lifeline remains covert sanctions-busting oil exports to China. Ghosh says the Biden Administration could easily curtail this trade, but appears unwilling to do so, both because of lingering hopes for a nuclear deal with Iran, and because it might raise oil prices already high as a result of the Ukraine war. For the rest of his analysis of why he thinks Washington is likely to waste this opportunity to pressure the Iranian regime, CLICK HERE.

Finally, American foreign policy analyst Ilan Berman looks at Iran’s strategic and economic relations with Russia – and suggests major change appears to be brewing in those relations. He argues that in light of Russia’s economic isolation in the wake of the Ukraine invasion, Moscow, once the senior partner in this relationship, is now looking more like the junior partner to Teheran. He blames US policy in part for the shift – especially the Biden Administration’s concessions to Iran to facilitate a potential new nuclear deal, and unwillingness to return to the Trump Administration’s “maximum pressure” policy under virtually any circumstances. For Berman’s unique take on Iran-Russia relations, CLICK HERE.

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Iran facing economic uncertainty – analysis

 

The regime is putting out the messages that are designed to forestall the protests and chaos that could arrive. In a difficult position, what will Iran’s regime do?

By SETH J. FRANTZMAN

Jerusalem Post,  MAY 17, 2022 15:13


Mass protests against price hikes in the city of Abadan, the centre of the protest movement, on May 25. (Photo: Twitter).

Iranian media are admitting the country has severe economic hurdles ahead. This is an issue that affects the whole world and not just Iran.

Supply-chain problems have become the norm during the pandemic. China, which has lockdowns in the key city of Shanghai, is spreading global economic chaos.

Iran is vulnerable because it is already under sanctions and also because Tehran signed a 25-year deal with Beijing and relies on China.

Iran’s far-right regime believes that China is the future, and it wants to be untethered from relying on the West. But the West is perhaps weathering the economic storm better and also has different pandemic policies geared to opening up, while China is closing down. Iran didn’t count on this, and now it is facing real troubles.

Video of clashes and protests over the past week are only one part of the Iranian economic problem. Because Iran crushes dissent, it is hard to know if the videos reflect widespread discontent. What we can measure is that even Iranian media outlets, especially those affiliated with the IRGC, are no longer talking about missiles and drones but are droning on about economic issues. For instance, the semi-official Fars News Agency published an article about subsidies for basic products such as oil and eggs.

When major media that usually champions “martyrs” are talking about eggs, butter, oil and chicken prices, that is because there is a huge problem. The media don’t say there is a huge problem, but why put articles about subsidies at the top of the pro-government propaganda media website unless this is a serious issue. People don’t need subsidies when they can afford basic goods.

Tasnim News Agency published articles about a new program to build 100,000 housing units and help people buy cars. An article about cars said the system was working to create more “transparency” and “fairer supply.” That sounds like the system is breaking down. Another article seemed to reflect inflation fears, noting a desire by the government not to have rents and housing increase more than 25% in the near term.

Other articles promised that Iranians would get more subsidies and deposits in their accounts. Another article even touched on the price of bread and more talk of subsidies. “What about the subsidies?” asked an article at Tasnim. Solat Mortazavi, vice president for executive affairs, said bread and other basic goods would not become more expensive, Fars reported.

Clearly, the issue here is that there are huge fears of things becoming more expensive. Inflation is now looming over Iran and the rest of the world. Supply-chain chaos is harming Iran. The regime doesn’t want to admit how bad the situation is, so it is promising more subsidies, more housing and cars, and that the prices won’t increase.

Iranian media admit “some problems.” The reality is likely that this is the tip of the iceberg. It’s possible that while “maximum pressure” did cut off some funding to Iran and its proxies, the real tidal wave of inflation and supply-chain chaos, caused by one of the consequences of the pandemic and Tehran’s reliance on China, could swamp Iran.


Signing of the Iran–China 25-year Cooperation Program in Teheran last year: Iran has put its economic eggs very much into the Chinese basket, and this is currently not looking like a wise bet. (Photo: Wikimedia Commons)

The regime is putting out messages that are designed to forestall the protests and chaos that could arrive. In a difficult position, what will Iran’s regime do? It will likely reach out to China, Qatar and Turkey and try to shore up its failures.

It has a problem because Russia is also being pressured by the West. Iran can’t seem to get much from Russia if Moscow is now under huge pressure from the West. Meanwhile, Iran can’t get the “deal” it wants in Europe, and the deal may not help enough to alleviate the problem.

Can Iran afford to push tensions in the region, perhaps via distraction by using the Houthis or Hezbollah? It’s not clear if it can mobilize its proxies if it is also suffering too much at home. It has already wasted resources on weapons for decades, while harming the average person.

Iran’s only way around its failed policies was to try to use proxies because it didn’t want to sacrifice ordinary Iranians. Now, its economic uncertainty could cloud the region in a different way than its proxies.

Seth Frantzman is a Ginsburg-Milstein Writing Fellow at the Middle East Forum and senior Middle East correspondent at The Jerusalem Post.


Biden Is Missing an Opportunity to Put Pressure on Iran

 

Protests have weakened the regime in Tehran, but the US has been reluctant to enforce sanctions on oil exports while the war in Ukraine rages.

Bobby Ghosh

Bloomberg, March 20, 2022


The Iranian regime has taught two generations of its citizens to chant “Death to America.” Now they are hearing “Death to Putin”, “Death to Raisi” and even “Death to Khamenei” ringing out. (Photo: Wikimedia Commons.)  

Having trained two generations of Iranians to performatively chant “Marg bar Amrika” at every opportunity, the country’s hardline leaders might now wonder about the wisdom of making the call for death to hate figures a national reflex. Cries of “Marg bar Putin” at recent demonstrations in Tehran against the invasion of Ukraine must have been embarrassing for a regime that regards the Russian leader as an ally.

But that is nothing compared with the discomfort caused by chants of “Death to Khamenei” and “Death to Raisi” now ringing out at protests across the country. As demonstrations against rising prices of food and fuel have turned political, more Iranians are directing their rage at Supreme Leader Ali Khamenei and President Ebrahim Raisi.

Having exhausted their standard excuse that US sanctions are to blame for everything that ails Iran, the clerics have quickly moved on to their usual Plan B: Killing and jailing protesters and imposing internet blackouts on cities where demonstrations have broken out. But as yet, neither the brutality nor the government’s offer of $14 monthly cash handouts for the neediest families has quelled the upheaval.

There is every chance the protests will grow, along with the prices of essentials: A prolonged drought is increasing Iran’s need for grain imports just as two major suppliers, Russia and Ukraine, are locked in a war. The regime will likely ratchet up the repression, just as it did in the fall of 2019, when it stamped out demonstrations against fuel price increases by killing hundreds of protesters.

In normal circumstances, this would be an opportunity for the US to ramp up pressure on the regime in Tehran by turning the sanctions screw while holding out the lever of food aid. But the Biden administration has been doing the opposite, letting Iran flout sanctions with impunity while the State Department offers lip service to Iranians’ “rights to peaceful assembly and freedom of expression.”

The war in Ukraine has given Iran a windfall in oil revenues — the very thing sanctions were meant to prevent — almost entirely from exports to China. Raisi has boasted that exports have doubled since last summer, and his budget for the next fiscal year projects export revenues to rise by a third.

Iran’s oil exports are carried through crude subterfuge: Oil tankers turn off their transponders to conceal their routes or transfer their cargo en route to other ships. A US administration paying close attention would easily see through such deception; professional tanker trackers routinely use satellite imagery to spot vessels that have gone dark.

But the Biden administration has chosen to look the other way. In part, this is because the US president had made a priority of reviving a 2015 nuclear deal struck between Iran and the world powers and effectively rescinded by his predecessor. The administration was willing to cut the Iranians some sanctions slack in the hope they would be more amenable to returning to the terms of the deal, known as the Joint Comprehensive Plan of Action.


Iran’s economic unrest has given US President Joe Biden and his Secretary of State Antony Blinken an opportunity to up the pressure on Teheran – if they are prepared to stop turning a blind eye to sanctions-busting Iranian oil exports to China (Photo: Alexandros Michailidis, Shutterstock)

Tehran was happy to take the sweetener, but offered no concessions in return. It has continued to enrich uranium to dangerous levels and build its stockpile. To date, it refuses to even let the Americans back to the JCPOA negotiating table.

The war in Ukraine has given the Biden administration another excuse to disregard Iran’s sanctions-busting exports: Shutting them down would have a deleterious effect on oil prices. With sanctions now imposed on Russia, a major oil exporter, and the likes of Saudi Arabia and the United Arab Emirates refusing to raise their own output to fill the gap, prices have soared. Although Biden has dipped into the U.S. strategic reserve, Americans are paying high prices for gas at the pump.

There could be one other consideration for Biden’s reluctance to squeeze Tehran: Cutting off Iranian supplies might antagonize Beijing, and he is hoping China’s President Xi Jinping, who has for the most part backed Russia in the war, will help persuade Putin to end it.

There is little indication that Xi will do anything of the sort. But the Chinese are doing Biden a different kind of favor, albeit unintended. With Russia now needing alternative buyers for the oil it can no longer sell to the West, China is capitalizing on the heavily discounted prices. Russian oil is the more attractive because it doesn’t need to travel halfway around the world to reach China, as Iranian crude must. As a result, Iranian supplies to China have fallen in recent weeks.

This ought to free up Biden to end the long grace period he has allowed Iran and get serious about imposing sanctions on its exports. If Tehran won’t come to terms over the JCPOA, there is no sense in allowing the regime to fill its coffers.

Bobby Ghosh is a Bloomberg Opinion columnist covering foreign affairs. Previously, he was editor in chief at Hindustan Times, managing editor at Quartz and international editor at Time.


A Paradigm Shift For The Russian-Iranian Alliance

by Ilan Berman

Al Hurra DigitalMay 28, 2022


Russian President Vladimir Putin and Iranian Supreme Leader Ayatollah Ali Khamenei: In the past, Russia was the senior partner, and Iran was the supplicant, but these roles are now being reversed, Berman argues. (Photo: Wikimedia commons). 

The longstanding strategic partnership between Moscow and Tehran is changing. In recent days, the Kremlin and Iran’s clerical regime reportedly agreed to deepen their cooperation in a number of ways. The understandings, concluded during Russian Deputy Prime Minister Alexander Novak’s most recent state visit to Iran, are said to include plans for new energy swaps and the establishment of a transportation and logistics hub to facilitate trade between the two countries. These are arrangements in which, by all indications, Iran will serve as the senior partner while Russia plays the role of supplicant.

That amounts to a monumental role reversal. For decades, Russia has been a key enabler for the Islamic Republic, using its international standing to lessen the Iranian regime’s global isolation and reduce the effectiveness of Western sanctions. For just as long, officials in Washington have held out hope that it might be possible to somehow “flip” Moscow and make it a constructive partner in their ongoing efforts to constrain the Islamic Republic.

But Russia’s military offensive in Ukraine, and the resulting raft of Western sanctions that have been leveled against the Kremlin since this spring, have inverted this equation. Today, it is Russia that is increasingly becoming an international pariah. Already, the country’s stock market has shrunk dramatically, nearly 1,000 companies have suspended their business there, and decades of post-Cold War economic progress have been erased.

The aggregate result is a national decline of massive proportions. “It comes to something like $1.4 trillion of impact on Russia… about $8,000 per head of the Russian population,” economic strategist Tim Ash told NPR earlier this month. It is also a decline that is bound to be protracted, because – as Ash points out – we are now seeing “less investment, less growth, lower living standards, probably a brain drain, higher inflation and an overall undermining of Russia’s productive capacity.” In other words, in spite of the Russian government’s official bluster to the contrary, its new war has fundamentally altered the Russian economic condition – and, by extension, its global profile.

Iran, meanwhile, is on an upward trajectory, in both strategic and political terms, thanks in no small measure to U.S. policy. For over a year now, the Biden administration has worked diligently to revive the 2015 nuclear deal with Iran. In the process, it has offered significant sweeteners to Tehran (including relaxing the enforcement of existing sanctions) in an effort to coax Iran’s ayatollahs back to the negotiating table. Today, Administration officials say the likelihood of a new agreement with Iran is “tenuous.” But there are nonetheless many who expect that some sort of deal will still materialize.

If it does, it would be an economic boon for Tehran. In recent testimony before the Senate, Mark Dubowitz of the Foundation for Defense of Democracies laid out the scope of the financial benefits the Iranian regime can expect if a new agreement is indeed concluded. Within a year of such a deal being signed, he projected, “Tehran will receive a financial package worth up to $275 billion… [and] over the next five years, Iran could receive as much as $800 billion in sanctions relief.”

But even if a new agreement isn’t reached, the Biden administration is unlikely to return to the “maximum pressure” policy of its predecessor. Having railed against the extensive sanctions of the Trump era as a failed policy, the United States can be expected to try and influence Iran’s nuclear ambitions and regional misbehavior through inducements rather than penalties, at least while the current Administration remains in power in Washington. That, in turn, will mean more funds flowing into Iranian coffers – and a diminished appetite for renewed economic pressure on the part of the United States.

Officials in both Tehran and Moscow understand this reality very well, and it provides the backdrop for the new strategic and economic arrangements hammered out between the two capitals in recent days. They are plans that reflect Iran’s rising global clout, and Russia’s waning world influence.

Ilan Berman is Senior Vice President of the American Foreign Policy Council in Washington, DC. 

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