Opinion

Iran’s shrinking economy faces further beating in 2020

Iran’s shrinking economy faces further beating in 2020

Author
President Hassan Rouhani said Iran is going through “one of its hardest years since the 1979 Islamic revolution.” (AFP/File photo)

When it comes to economic growth, 2019 has been one of the worst years for Iran’s ruling mullahs since the establishment of the Islamic Republic in 1979. Last week, even President Hassan Rouhani admitted for the first time that the “situation is not normal” and that the Islamic Republic is going through “one of its hardest years since the 1979 Islamic revolution.”

The US withdrawal from the Iran nuclear deal in May 2018 and its reimposition of draconian sanctions, which had been lifted under the Obama administration, began having a real impact this year. The International Monetary Fund (IMF) last month again adjusted its forecast for Iran’s economy, stating that it is expected to shrink by 9.5 percent, down from 6 percent, by the end of 2019.

One of the reasons for the IMF’s gloomier picture of Iran’s economy is the Trump administration’s decision not to extend its sanctions waivers for Iran’s eight biggest oil buyers: China, India, Greece, Italy, Taiwan, Japan, Turkey and South Korea. As a result, instead of showing economic growth in 2019, Iran’s economy will only be about 90 percent of its size compared to two years ago, based on a recent report from the World Bank.

What about 2020? Iran’s economy is not likely to rebound next year — instead it will most likely continue to take a beating due to several factors.

First of all, the Trump administration continues to step up its “maximum pressure” policy against the Iranian regime, and specifically its energy sector. The Islamic Republic depends heavily on oil revenues to fund its spending. Iran has the second-largest natural gas reserves and the fourth-largest proven crude oil reserves in the world, and the sale of these resources accounts for more than 80 percent of its export revenues.

Even though Khamenei boasts about the country’s self-sufficient economy, several Iranian leaders have hinted at Iran’s major dependence on oil exports

Dr. Majid Rafizadeh

Iran’s 2019 budget totaled nearly $41 billion, with the regime expecting to generate approximately $21 billion of this from oil revenues. This means that approximately half of Iran’s income comes from exporting oil to other nations. But the regime’s oil exports continue to plummet. Before the US Treasury Department  leveled secondary sanctions against Iran’s oil and gas sectors in November 2018, Tehran was exporting more than 2 million barrels per day (bpd). In just a year, its oil exports went down to less than 200,000 bpd — a decline of roughly 90 percent.

Even though Supreme Leader Ali Khamenei boasts about the country’s self-sufficient economy, several Iranian leaders have hinted at Iran’s major dependence on oil exports. Rouhani last week admitted: “Although we have some other incomes, the only revenue that can keep the country going is the oil money.” He added: “We have never had so many problems in selling oil. We never had so many problems in keeping our oil tanker fleet sailing… How can we run the affairs of the country when we have problems with selling our oil?”

Iran can partially compensate for its revenue loss by accumulating taxes from all sectors and businesses. Nevertheless, the wealthiest Iranian organizations, which are mainly owned by the Islamic Revolutionary Guard Corps or the Office of the Supreme Leader, such as Astan Quds Razavi and Setad, are deemed exempt from paying any taxes and technically operate outside the formal economy.

Another issue is Iran’s devalued currency, which will likely continue to put extreme strain on the economy in 2020. Iran’s currency, the rial, is now trading at about 105,000 to the dollar.

Third, if Iran continues to step up its violations of the nuclear deal, other countries, particularly the Europeans, might be forced to impose unilateral sanctions on Tehran, as well as reinstate the UN Security Council’s sanctions. After the International Atomic Energy Agency confirmed that it had found uranium particles at an undeclared site in Iran, the EU, France, Germany and the UK last week warned the Islamic Republic to comply with the 2015 nuclear agreement or face action.

Finally, some of the major domestic factors behind the country’s economic crisis will most likely continue to persist in 2020. These include the widespread corruption within the theocratic establishment, the mismanagement of the economy, embezzlement and money laundering within the banking system, and the hemorrhaging of the nation’s wealth on militias, terror groups and proxies across the region. These shortcomings are ingrained in the political and financial institutions that are the country’s backbone. According to Transparency International’s Corruption Perception Index, Iran is ranked 138th out of 180 countries.

Iran’s economy took a major beating in 2019, and it will most likely continue to deteriorate in 2020 due to the US sanctions, declining oil exports, its currency devaluation, financial corruption, economic mismanagement, and the potential reimposition of further sanctions, as Iran continues to breach the nuclear agreement.

* Dr. Majid Rafizadeh is a Harvard-educated Iranian-American political scientist. He is a leading expert on Iran and US foreign policy, a businessman and president of the International American Council. Twitter: @Dr_Rafizadeh

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view

Khamenei dismisses deadly protests sweeping Iran, hundreds arrested in crackdown

Protestors block a road after authorities raised gasoline prices, in Tehran, Iran, Saturday, Nov. 16, 2019. AP)
Updated 18 November 2019

Khamenei dismisses deadly protests sweeping Iran, hundreds arrested in crackdown

  • White House condemns Tehran for using lethal force in responding to the demonstrations
  • One civilian was killed during demonstrations in the central city of Sirjan

TEHRAN: Iran’s supreme leader on Sunday threw his support behind a decision to hike petrol prices, a move that sparked nationwide unrest in which he said "some lost their lives.”

A policeman was killed in the western city of Kermanhshah in a clash with armed "rioters", the second confirmed death since protests erupted across Iran on Friday.

Ayatollah Ali Khamenei blamed "hooligans" for damaging property despite widespread anger at the increases and as Iranians suffer from the country’s economic woes.

 

Several people were also wounded and dozens arrested in two days of demonstrations that saw motorists block highways and others attack and set fire to public property.

In a speech aired on state television, Khamenei said "some lost their lives and some centres were damaged".

The White House on Sunday condemned Iran for using "lethal force" against the demonstrators.

"The United States supports the Iranian people in their peaceful protests against the regime that is supposed to lead them," White House press secretary Stephanie Grisham said.

 

 

State news agency IRNA said the protests struck more than 100 Iranian cities and towns. Iran's semi-official Fars news agency said 1,000 protesters had been arrested and 100 banks torched.

The protests flared hours after it was announced that the price of petrol would be raised by 50 percent for the first 60 litres (16 gallons) and by 300 percent for anything above that each month.

It is a rise many consumers can ill afford, given that Iran's economy has been battered since May last year when President Donald Trump unilaterally withdrew the US from a 2015 nuclear agreement and reimposed crippling sanctions.

The rial has plummeted, inflation is running at more than 40 percent and the International Monetary Fund expects Iran's economy to contract by 9.5 percent this year and stagnate in 2020.

The petrol pricing plan was agreed by the High Council of Economic Coordination made up of the president, parliament speaker and judiciary chief.

Khamenei said that "I am not an expert and there are different opinions but I had said that if the heads of the three branches make a decision I will support it.

"The heads of the branches made a decision with the backing of expert opinion and naturally it must be implemented," he said.

"Some people would definitely get upset over this decision... but damaging and setting fire (to property) is not something (normal) people would do. It is hooligans."

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Following his speech, parliament cancelled a motion to reverse the price hike, semi-official news agency ISNA reported.

President Hassan Rouhani defended the controversial hike in gasoline prices during Sunday’s Cabinet meeting, arguing the alternatives were less favorable.

But Dr. Mohammed Al-Sulami, an expert in Iranian affairs, said that Rouhani’s remarks “may be read by protesters as a sign of weakness from the government and thus lead to raising the ceiling of popular demands, especially as most of the slogans chanted by the demonstrators hit Khamenei personally and the regime of the Islamic Republic, burning images of Khamenei and attacking the headquarters of the Basij forces.

“The coming days remain important, especially if the protests continue until Friday,” he said. “The protests are expected to widen and increase in frequency.”

Some of the worst violence was in the central city of Sirjan, where acting governor Mohammad Mahmoudabadi said a civilian was killed and fuel stations were among the public property attacked and damaged.

In Kermanshah, a policeman died Sunday, a day after a "confrontation with a number of rioters and thugs," the provincial police chief told IRNA.

In Tehran on Saturday, protesters were seen shouting slogans and burning tyres on a street.

Similar scenes were witnessed in the cities of Shiraz, Isfahan and Bushehr, where security forces fired tear gas and water cannon at demonstrators.

Forty "disruptors" were arrested in the central city of Yazd after clashing with police, the province's public prosecutor told ISNA on Sunday. Most were not locals, he added.

Police said security forces would "not hesitate to confront those disrupting peace and security and will identify the ringleaders and field forces and confront them".

The intelligence ministry said those behind the unrest "have been identified" and that measures would be taken against them, according to ISNA.

Access to the internet has been restricted since the demonstrations broke out.

Netblocks, an internet monitoring website, said late Saturday the country was in the grip of a shutdown.

"Confirmed: Iran is now in the midst of a near-total national internet shutdown; realtime network data show connectivity at 7% of ordinary levels after twelve hours of progressive network disconnections," it said on Twitter.

It came after a decision by the Supreme National Security Council, according to a report by ISNA on Sunday.

"Upon the decision of the Security Council of Iran and communicated to internet operators, access to internet has been limited as of last night and for 24 hours," it said, quoting what it called an informed source at the information and communications technology ministry.


Sudan’s finance, foreign and energy ministers replaced in reshuffle

Updated 40 min 13 sec ago

Sudan’s finance, foreign and energy ministers replaced in reshuffle

  • PM Abdalla Hamdok named interim replacements to lead all seven ministries

CAIRO: Sudan’s prime minister has accepted the resignation of six ministers including the finance, foreign and energy ministers as part of a cabinet reshuffle, a government statement said on Thursday.
Prime Minister Abdalla Hamdok also dismissed the health minister, and named interim replacements to lead all seven ministries, the statement said.