Economist In Iran Says Big Chunk Of Crisis Due To US Sanctions
An Iranian economist says the role of US sanctions in causing economic chaos in Iran has been significant, as the national currency continued its free fall on Sunday.
An Iranian economist says the role of US sanctions in causing economic chaos in Iran has been significant, as the national currency continued its free fall on Sunday.
Iranian government officials, experts and the regime’s opponents have long argued that economic sanctions imposed by the Trump administration since 2018 inflicted a serious blow to Iran’s weak economy, but few have ventured to quantify the impact.
What is clear now is that Iran’s oil-dependent currency, the rial, fell from 35,000 to more than 600,000 against the US dollar in exactly five years. This led to very high inflation, officially at more than 50 percent, which has impoverished tens of millions of Iranians. But how much of the bad news was the result of sanctions and how much was the outcome of a natural trend in Iran’s state-controlled and inefficient economy.
Masoud Nili, an economist in Tehran believes that the impact of sanctions on the fall of the rial has been significant and serious. In a television program reported by Roouydad24 news website. Nili said that if the United States had not withdrawn from the JCPOA nuclear deal and imposed sanctions, the rial would be probably trading at 100,000 against the US dollar, instead of 600,000 and counting.
The economist based his estimate on trends since at least 2000 and concluded that the rial would have lost value in the past 5 years, but at a manageable pace.
Iran’s currency was trading at 70 to the dollar right before the 1979 revolution but in the 44 years since the establishment of the Islamic Republic it has steadily declined and now is headed toward a 10,000-fold fall in value.
But in Nili’s estimate, without the ‘Trump’s sanctions’ the Islamic Republic would have faced rial’s natural fall and not a catastrophic decline that it cannot control now.
The economist had a similar appraisal of the rate of inflation. Looking at trends in more than two decades he argued that the average annual inflation rate was around 16 percent, except in the past five years. The latest official figures put the inflation rate at more than 50 percent for January 2023, although there are no independent estimates.
Nili argued that the difference between the 16 percent average since the year 2000 and the current inflation rate is because of US sanctions.
But that difference is exactly what made the current situation an hyper-crisis instead of a weak economy limping along with the steady income from oil exports.
The Biden administration that assumed office criticizing the its predecessor’s decision to withdraw from the 2015 nuclear accord, also argued that sanctions have been ineffective and Tehran has expanded its nuclear program instead of making any concessions.
Critics on the other hand argued that sanctions take time to leave a serious impact and those imposed on Iran would have hardly worked in just two years from 2018-2020.
As the Biden administration entered talks with Tehran in April 2020 to revive the JCPOA, it did not suspend Trump’s sanctions and Iran struggled to sell oil and engage in in international trade. After depleting its foreign currency reserves, the economic situation began to quickly deteriorate, especially as optimism disappeared in the latter part of 2022 in the absence of a new nuclear deal with the US.
The reports quote rumors circulating on the popular messaging application Telegram as saying that Mostazafan Foundation Chief Parviz Fattah, a member of the ultraconservative Paydari Party is likely to replace Vice President Mohammad Mokhber who has been under attack for the rapidly falling national currency in the past week.
In a closed-door session of the parliament Saturday morning, Mokhber reportedly refused provide a convincing answer for the rial’s fall and told the lawmakers: "That is how it is. Take it or leave it!"
Conservative news website Nameh News, which reported the possibility of a change at the top level of the Raisi administration on Saturday, said that Vice President for Economic Affairs Mohsen Rezaei is also likely to be replaced by Zahedi Vafa, another Paydari member.
Political observers have been saying recently that no routine change in the combination of the cabinet can save the administration, particularly because all of these hardliner conservative groups are equally inefficient and unpopular. Nonetheless, rumors in Tehran indicate that the new arrivals will strengthen the position of Planning and Budget Organization Chief Massoud Mirkazemi and his efforts to contain the current chaos.
President Ebrahim Raisi recently promised during a public meeting with Iran’s ruler Ali Khamenei that the rial will be strengthened. Since then, during the past week the rate of exchange for the US dollar has risen from over 450,000 rials to more than 570,000.
At the same time, while the government is under pressure for the failure or rather lack of an economic policy, an editorial in the reformist daily Sharq predicted that according to political observers in Tehran, as street protests seems to have receded, Iran is likely to face a new wave of unrest because of the inevitable rise in prices as the rial falls.
According to Shargh newspaper, while social protests in the Iranian year 1401 [2022-23] led to major unrest, in 1402 [2023-24] economic matters are likely to create political turmoil. Shargh wrote that this possibility is so strong that even some government institutions have expressed concern about the likelihood.
Meanwhile, political analyst Ghasem Mohebali told Rouydad24 website in an interview that "We are facing a government whose style of management is based on wishful thinking and chanting slogans, mindless of the fact that time is over for that kind of management." Mohebali added: "This is a system that has all the political power and financial resources at its disposal and does not need the people for being elected another round."
"The government thinks that by spreading 'good news' about developments such as a probable visit by the Sultan of Oman, it can lower the rates of exchange, but it does not realize that this wishful thinking does not solve any problem," Mohebali added. He said the government is in a situation that it cannot step back from its positions and at the same time it cannot continue its current policies.
In another development, lawmaker Shiva Ghassemipour said: "although the economic situation was not ideal before Raisi, people's livelihood has become increasingly more difficult under the Raisi administration." Pointing out the political and economic impasse, she said that "It would have not possibly made much of a difference even if someone other Raisi was steering the administration."
The government’s official rate of 417,500 for the dollar on Saturday meant very little. Availability of foreign currency at that rate is very limited which drives buyers to the curbside black market.
Fluctuations in the foreign currency exchange rates have immediate effect on the prices of several other commodities including gold, jewelry, and vehicles -- which many Iranians buy for investment or to preserve the value of their savings -- as well as electronic devices such as computers and smart phones and even home appliances.
The property market usually reflects the changes in exchange rates after a period of around 30 days but buyers and sellers both appear very apprehensive as the rial has been rapidly falling daily for about a week. No one can be certain how far the currency will fall and is not sure about any business decision.
The deep plunge of the rial has also affected many businesses where pricing is not as obviously reflective of foreign currency rates, as is the case with mobile phones and cars.
The price of mobile phones, for instance, rose sharply Saturday with many retailers preferring to hold on to their stock in anticipation of further fall of the rial. According to Etemad newspaper, an iPhone 13 Pro Max which sold for one billion rials ten days ago was priced at 1.2 billion on Thursday when the dollar traded around 560,000 on the street. The price of other brands and models such as Samsung phones has also risen accordingly.
Some textile retailers and goldsmiths in the Grand Bazaar of Tehran, for instance, closed their shops Saturday afternoon as the rial continued to fall. In such circumstances, retailers as well as wholesalers are too reluctant to sell for the fear of not being able to replenish their stock with the ‘worthless’ money they earn.
The country is also suffering from an inflation rate of well over 50 percent.
The parliament held an extraordinary, closed session with First Vice President Mohammad Mokhber Saturday morning regarding rials fall and the chaos it has created for businesses.
Once again, Mokhber insisted that the problems which already existed when the administration of President Ebrahim Raisi took over in August 2021 are “gradually diminishing” and that the foreign currency market “will soon be stabilized” while the governor of the Central Bank of Iran (CBI), Mohammadreza Farzin, told lawmakers that only the rates announced by the bank’s new portal were “real”.
Many, however, believe that the rial’s depreciation will continue as long as the Islamic Republic does not reach an agreement with world powers over its nuclear program that can lift sanctions, and stop provoking the international community with rash remarks and statements.
Economy Minister Ehsan Khandouzi tried to convince the parliament that “hidden hands” were responsible for the chaos in the market and that these “saboteurs have been identified.” Security, intelligence, and judiciary bodies will soon deal with these people, he said.
The Islamic republic has resorted at times of similar to hanging individuals whom it accused of “corruption on earth” through their economic activities including destabilizing the foreign currency and gold markets at. Officials also usually accuse foreign governments and “enemies” whenever upheavals in the markets cause popular discontent.
In November 2018, Vahid Mazloumin, who came to be known in the media as “The Sultan of Gold Bullions” and another businessman Mohammad-Esmail Ghasemi were hanged in Tehran after being convicted of “creating a network to destabilize the country’s economic, foreign currency, and financial systems by conducting illegal transactions and large-scale smuggling of foreign currency and gold bullions.”