How currency collapse compounds Iranian regime’s crisis of legitimacy

Tehran’s growing international isolation has had grave consequences for the value of the Iranian rial. Analysts say that economic woes are inflaming anti-government protests across the country. (AFP)
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Updated 29 January 2023

How currency collapse compounds Iranian regime’s crisis of legitimacy

  • Rial, the Iranian currency, has lost 29 percent of its value since protests and a harsh regime crackdown began
  • Double blow of a depreciating currency and high inflation has sparked a cost-of-living crisis and discontent

IRBIL, Iraqi Kurdistan: Iran’s currency has been hitting record lows against the US dollar, which observers say is a reflection of the regime’s increasing isolation on the international stage and the seriousness of the new EU sanctions against its paramilitary enforcer, the Islamic Revolutionary Guard Corps.

Coming as it does on top of ongoing mass protests sparked by the death of 22-year-old JIna Mahsa Amini in police custody last September, the currency crash has defied measures such as the replacement of the central bank chief last month and fueled speculation that it would destabilize, or even bring down, the regime in 2023.

The rial has lost 29 percent of its value since anti-government protests and a harsh regime crackdown commenced late last year. On January 22, it was trading at around IRR450,000 against the US dollar, representing a new all-time low.

Dr. James Devine, associate professor in the Department of Politics and International Relations at Mount Allison University, believes it is Iran’s growing political isolation — due to its brutal crackdown on protesters, its military support for Russia’s war with Ukraine, and doubts about a revival of the 2015 nuclear deal — that has dragged down the value of the rial.

“All of this is compounded by mismanagement and corruption, which have dogged Iranian economic planning since the regime took power,” Devine told Arab News.

Although Iran’s economic situation seems particularly bleak at present, Emily Hawthorne, a senior Middle East and North Africa analyst at the risk intelligence company RANE, describes the rial’s depreciation as serious, “but certainly not unprecedented.”

“High inflation, international isolation, low investor confidence, and low consumer confidence are all driving the decline,” she told Arab News.

The double blow of a depreciating rial and high inflation has triggered a cost-of-living crisis, which in turn has spread discontent and stoked anger at the regime.




More protests are expected due to rising prices and a scarcity of goods for Iranian consumers. (AFP)

Arash Azizi, author of “The Shadow Commander: Soleimani, the US, and Iran’s Global Ambitions” and a doctoral candidate in history at New York University, says the collapse of the currency “has long had an important psychological weight in Iran,” with potential political and economic consequences.

“Those who yearn for the pre-1979 Iran, for instance, usually like to talk about how a US dollar was worth IRR70 — as opposed to more than 450,000 today,” Azizi told Arab News.

“It also continues to have a real downward effect on wages, which have not nearly kept up with inflation and with the fall of the currency.

“Much in Iran is imported and paying for these imports has become increasingly difficult for individuals and companies. It has also made foreign travel very hard for most Iranians, even for nearby places such as Dubai and Turkiye, although the latter has also seen its own currency collapse.”

According to Hawthorne, the “poor and fragile” state of the global economic environment makes this period worse than previous ones and creates “additional external pressure on the Iranian economy.”

“Also, some Iranians feel growing anti-government anger, as reflected in the Mahsa Amini protests and some recent organized labor strikes and demonstrations, which contributes to the sense of economic insecurity,” she said.

However, Hawthorne is doubtful that new EU sanctions against the IRGC would “have a significant impact on the rial, beyond the downward pressure already created by increasing sanctions from Europe on other Iranian individuals and entities.”

For his part, Devine is convinced that with increasingly aggressive sanctions “there is a cumulative effect that is becoming serious for the regime.”

However, while the currency collapse has piled further pressure on Tehran, he is not sure it is the regime’s “most vulnerable spot.”

“I have not seen any clear sign that the currency collapse or the sanctions represent the final straw for the IRGC,” Devine said. “The IRGC controls between 25 percent and 40 percent of the Iranian economy, so they will still have access to goods and services within Iran.”

FASTFACTS

• At the end of December, the governor of Iran’s central bank resigned after the rial lost around 30% of its value in 2 months, falling from IRR330,000 to IRR430,000 per US dollar.

• On Jan. 22, the national currency traded at around IRR450,000 per dollar, a new all-time low, after inflation reached 45% at the end of December 2022.

Given this privileged position, the IRGC is best placed to take advantage of black markets and smuggling, according to Devine. And while it is undoubtedly feeling the pressure, neither its leaders nor rank and file are likely to consider changing course or defecting from the regime.

Devine added: “If the regime goes, the IRGC goes with it. It has no raison d’etre without the Islamic Republic. Moreover, if there was a change in government, the IRGC leadership would likely face prosecution at home and/or abroad.

“At the lower levels of the rank and file, there may not be the same ideological commitment or privilege, but they are still better off than the average Iranian and the post-regime future is uncertain for them as well.

“In short, it will take a lot to decouple the IRGC and security services from the regime.”

While the growing global consensus against Iran does not include China and Russia, the ability of the two non-Western powers to help reverse the rial’s decline is open to question.

“China and Russia share with Iran a dislike for unilateral sanctions from any one country or institution and are likely to continue transacting with Iran, especially Russia, which is also isolated from the rest of the global community due to sanctions linked to its invasion of Ukraine,” Hawthorne told Arab News.

“However, this won’t provide enough of a lifeline for Iran to help the rial stay afloat. Rather, it could provide some trade and some exchange of goods and equipment but won’t save the economy.”

Devine also believes that although Iran is selling a “healthy” number of barrels per day of oil, mainly to China, this is unlikely to be enough to “reinvigorate the rial.”

Furthermore, Washington has begun clamping down on Iran’s smuggling of dollars from neighboring Iraq, which is also negatively affecting the rial’s value.

“While Russia and China may not be able to bail out the rial, they can make sure that going forward, Iran will not be as economically isolated as it was in the past,” Devine said.

Hawthorne predicts there will be more “economically motivated protests” in Iran throughout 2023, but doubts the Iranian government will collapse this year or in the near future, “even though economic strain will contribute to its unpopularity.”

Azizi also says “the regime has long survived harsh economic crises and this isn’t an exception either.” He added: “It adds to its problems, but it doesn’t seem to lead to state collapse just yet.”

Devine expects more protests due to rising prices and a scarcity of goods for Iranian consumers, which will further undermine the regime’s legitimacy and make it more reliant on coercive power to maintain its control.

But whether or not this is a tipping point for the regime is a much more complicated question.

“I think the regime has the institutional and coercive capacity to survive the current level of unrest and probably quite a bit more,” Devine said. “However, they could lose control if they make political mistakes.




The rial has lost 29 percent of its value. (AFP)

“For instance, if they overreact to the protests and begin killing large numbers of Iranians in the street, particularly young women. The execution of dissidents also has the potential to cause a backlash.”

Devine believes the “complicating factor” at play is the “coherence of the regime.”

“Reformists and moderates have criticized (President Ebrahim) Raisi for being too hard on the protesters and by the hardliners for being too soft,” he told Arab News. “This kind of environment could lead the regime to mis-calibrate its response.

“At a certain point, the more moderate members of the regime may go beyond criticism and disown the regime. If enough of them do that, it could snowball into a crisis, particularly if the regular military joins.”

In the meantime, Devine says, the protesters require better organization. While they can create “small disturbances,” he added, they do not seem to have the kind of organization that could really challenge the regime’s “control of the country and economy.

“Perhaps the currency crisis will provide the impetus for this to happen, but I have not seen it yet.”


Spain's PM heads to Morocco to reap benefits of mended ties

Updated 6 sec ago

Spain's PM heads to Morocco to reap benefits of mended ties

BARCELONA, Spain: Spanish Prime Minister Pedro Sánchez travels to Rabat on Wednesday along with 12 ministers before a meeting with Moroccan government officials. This visit comes as part of the European country’s strategy to improve historically complex relations with its neighbor across the Strait of Gibraltar.
It comes 10 months after Sánchez went to meet Moroccan King Mohammed VI and put an end to a diplomatic crisis that had erupted in 2021 regarding Morocco's disputed territory of Western Sahara. During that meeting, Sánchez declared “a new phase of bilateral relations” with Morocco, an important partner with the European Union in fighting extremism and aiding the bloc's irregular migration policies.
Sánchez is flying south again on Wednesday and will attend a forum of business leaders from both countries in Rabat. On Thursday, he will sit down with Moroccan Prime Minister Aziz Akhannouch, a billionaire businessman who won a 2021 election and is considered close to Mohammed VI.
Sánchez’s agenda doesn't include another meeting with the Moroccan king, with whom he shared the Iftar meal to break the day’s fast during the Muslim holy month of Ramadan last April in the highlight of their reconciliation.
Sánchez’s office said that the prime minister instead had a phone conversation with the monarch in which they agreed that the meeting would “contribute to consolidating this new era in the relations between Morocco and Spain.” It added that Sánchez accepted the invitation by the king to make another official visit to Rabat at an unspecified date.
Moroccans make up the single largest foreign community with 800,000 residents in Spain, and important economic ties unite the neighbors which are separated by just 13 kilometers (8 miles) of water at the nearest point.
But relations between Spain and Morocco were severely damaged in May 2021 after Spain allowed the leader of the Polisario Front, which has waged a low-intensity armed rebellion seeking the Western Sahara’s independence from Morocco, to receive medical treatment for COVID-19 in Spain.
Morocco responded by relaxing its border controls around Spain’s North African exclave of Ceuta and thousands of people crossed over into the city. Tensions remained high until Sánchez did an about-face on Spain’s long-standing position on Western Sahara by backing Rabat’s proposal to give it more autonomy as long as it remains unquestionably under Moroccan control. Madrid maintains that the people of Western Sahara must decide their future via a referendum.
Sánchez paid a high price for moving closer to Morocco.
His shift on Western Sahara angered Algeria, a backer of the Polisario Front and major natural gas supplier to Spain. It was also widely criticized in Spain, which held Western Sahara as a colony until 1975, and caused friction inside Spain’s governing left-wing coalition between Sánchez’s Socialists and its junior partner. Politicians from across Spain's spectrum considered Sánchez to have betrayed the Sahrawi people of Western Sahara for very little tangible gains in return.
Now, Sánchez is aiming to reap some benefits after last year’s return to diplomatic normalcy.
This will be first meeting since 2015 with such a large delegation of ministries represented. Sánchez is taking along his ministers in charge of the economy, energy, foreign affairs, security and policing, agriculture, commerce, transport and migration, among others.
Thursday's meeting between the governments is expected to produce several agreements between ministries and to favor business growth, including the opening of customs offices at the border crossings for Ceuta and its sister exclave, Melilla, which Morocco has never officially recognized as Spanish territories. Melilla’s customs office was closed by Morocco in 2018, while Ceuta has never had one.
Spain is the largest foreign investor in Morocco, accounting for a significant chunk of all foreign investments, making economic cooperation a top priority for the Moroccan government. Morocco is Spain’s third most important non-EU commercial partner after the United States and Britain.
Morocco, in similar fashion to Turkey and other countries in north Africa, has reaped economic benefits from the EU in exchange for curbing irregular immigration to Spain. That, however, has not stopped thousands of migrants and refugees, including young Moroccans looking for a better future in Europe, from attempting a dangerous crossing of the Mediterranean, or a perilous Atlantic journey to the Canary Islands.
The frontier policing methods of both Spain and Morocco have fallen under intense scrutiny following the death of at least 23 African men, many reportedly refugees from Sudan, when they stormed a border fence at Melilla in June.
Rights group Amnesty International held a protest outside the seat of Spain’s government in Madrid on Wednesday, with cutout silhouettes of the victims of the Melilla tragedy. The rights group raises the number of deaths to 37 and says that 77 more people are still missing from the incident.
“A summit today between Morocco and Spain pretends to ignore what happened just seven months ago,” Esteban Beltrán, head of Amnesty International in Spain, said. “We want to remember that (the victims) are with us, and we want to remember the suffering of their families who have no information or a real investigation of what happened.”

Suez Canal tugs working to move broken down tanker, shipping traffic unaffected: Sources

Updated 01 February 2023

Suez Canal tugs working to move broken down tanker, shipping traffic unaffected: Sources

  • Canal sources say that shipping traffic is unaffected

CAIRO: Suez Canal tugboats are working to move a broken down LNG tanker called Grace Emilia on Wednesday, two canal sources told Reuters, adding that shipping traffic is unaffected.
The incident happened in a southern section of the canal where a second channel allows for ships to bypass the blockage caused by an engine malfunction, one of the sources said.


Iran says Iraq-based Kurd groups ‘involved’ in drone attack

Updated 01 February 2023

Iran says Iraq-based Kurd groups ‘involved’ in drone attack

  • Iranian authorities earlier reported “unsuccessful” drone attack

TEHRAN: Iran has accused Iraq-based Kurdish groups of being “involved” in a drone attack last week against a defense ministry site in the central province of Isfahan, Iranian media reported Wednesday.
“Parts of the drones that attacked the workshop complex of the defense ministry in Isfahan, along with explosive materials, were transferred to Iran with the participation and guidance of the Kurdish anti-revolutionary groups based in Iraq’s Kurdistan region,” Nour news agency said.
Iranian authorities reported an “unsuccessful” drone attack late Saturday that targeted a defense ministry “workshop complex” in Isfahan province, home to the Natanz nuclear enrichment facility.
An anti-aircraft system destroyed one drone and two others exploded, the defense ministry said, adding that there were no casualties and only minor damage to the site.
Nour charged that Kurdish groups brought the drone parts and explosive materials into Iran from “one of the hardly accessible routes in the northwest” upon “the order of a foreign security service.”
The news agency, considered close to the Islamic republic’s Supreme National Security Council, did not specify which country’s security service it accused of being behind the attack. It said the drone parts were delivered to the “service’s liaison in a border city.”
“The parts and materials have been assembled and used for sabotage in an advanced workshop by trained forces,” Nour said.
Some Western media have blamed the attack on Iran’s arch foe Israel.
Iraq’s autonomous Kurdish region hosts camps and rear-bases operated by several Iranian Kurdish rebel groups, which Iran has accused of serving Western or Israeli interests in the past.
In November, Iran launched cross-border missile and drone strikes against several of the groups in Iraq, accusing them of stoking the nationwide protests triggered by the death in custody in September of Iranian Kurdish woman Mahsa Amini.


Eight rockets fired at Turkish base in Iraq

Updated 01 February 2023

Eight rockets fired at Turkish base in Iraq

  • Iraqi contractor in the base was wounded
  • No group immediately claimed responsibility for the attack

IRBIL, Iraq: Unidentified attackers fired eight rockets at a Turkish military base in northern Iraq on Wednesday, two of which landed inside the facility, the Counter-Terrorism Group, a security organization in Iraq’s autonomous Kurdish region, said.
A Turkish security source said the attack had caused no damage and there were no casualties in the base, without going into further detail.
An Iraqi security source who declined to be identified said an Iraqi contractor in the base had been wounded.
No group immediately claimed responsibility for the attack in the early hours on the Zilkan base, which hosts Turkish troops in Ninevah province of northern Iraq.
Turkiye has been carrying out operations in Iraq for decades against the Kurdistan Workers Party (PKK), which has bases in the region. It is designated a terrorist group by Turkiye, the United States, and the European Union.
The group launched an insurgency in southeast Turkiye in 1984 in which more than 40,000 people have been killed.


Iraqi PM says banking reforms reveal fraudulent dollar transactions

Updated 01 February 2023

Iraqi PM says banking reforms reveal fraudulent dollar transactions

  • Iraq has in recent months been making efforts to ensure its banking system is compliant with the international electronic transfer system known as SWIFT

BAGHDAD: Iraq’s premier said Tuesday that new banking regulations had revealed fraudulent dollar transactions made from his country, as the fresh controls coincide with a drop in the local currency’s value.
Iraq has in recent months been making efforts to ensure its banking system is compliant with the international electronic transfer system known as SWIFT.
Referring to the new controls, Prime Minister Mohammed Shia Al-Sudani hailed “a real reform of the banking system,” but denounced “falsified invoices, money going out fraudulently,” in particular as foreign currency payments for imports.
“That is a reality,” he said in an interview on state television.
The adoption of the SWIFT system was supposed to allow for greater transparency, tackle money laundering and help to enforce international sanctions, such as those against Iran and Russia.
An adviser to Sudani had said that since mid-November, Iraqi banks wanting to access dollar reserves stored in the United States must make transfers using the electronic system.
The US Federal Reserve will then examine the requests and block them if it finds them suspicious.
According to the adviser, the Fed had so far rejected 80 percent of the transfer requests over concerns of the funds’ final recipients.
Before the introduction of the new regulations, “we were selling $200 million or $300 million a day,” Sudani said.
“Now, the central bank provides $30 million, $40 million, $50 million,” he said, questioning: “What were we importing in a single day for $300 million?“
“There are products that were entering (Iraq) for prices that make no sense. Clearly, the objective was to take foreign currency out of Iraq,” he said. “This must stop.”
Money may have been transported to Iraq’s autonomous Kurdistan province “and from there to neighboring countries,” Sudani said, without specifying whether he was referring to Turkiye, Iran or war-torn Syria.
He said the new controls had been planned for two years, in accordance with an agreement between Iraq’s central bank and US financial authorities, and deplored previous failures to put them in place.
Iraq, which is trying to move past four decades of war and unrest, is plagued by endemic corruption.
The official exchange rate is fixed by the government at 1,470 dinars to the dollar, but the currency was trading at around 1,680 on Tuesday on unofficial markets amid dollar scarcity.
The drop has sparked sporadic protests by Iraqis worried about their purchasing power.
Foreign Minister Fuad Hussein and the new central bank chief will be among a delegation traveling to Washington on February 7 to discuss the new mechanism and the fluctuating exchange rate, Sudani said.