Iranian President Hassan Rohani is holding a hot potato: the Iranian rial. Last week, in a desperate move, his government banned money changers from selling dollars and euros.
At Iran’s international airport, passengers traveling to “nearby” countries can buy just 500 euros ($615), while those going to “distant” countries can buy 1,000 euros. Iranians may not hold more than $10,000 or 10,000 euros, and the official exchange rate was set at 42,000 rials to the dollar – about 20,000 rials less than the black-market rate.
The currency has plummeted by more than 35 percent since Rohani was elected to a second term in May 2017. This isn’t exactly the good news he hoped for.
It’s no longer clear who his harshest critics are: the conservatives who seek his downfall; his reformist supporters, who are disappointed and frustrated with him after five years in office; the general public, which has seen his promises of a higher standard of living go unfulfilled; or the millions of unemployed living on welfare.
The demonstrations that began last December in cities throughout Iran still reverberate. Dozens of protesters arrested then are still awaiting trial, and others have already received heavy sentences.
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That same month, workers at the Haft Tapeh sugar plant in Khuzestan Province – where some 5,500 people are employed – went on strike because they hadn’t been paid in months. Some even committed suicide because they couldn’t pay their debts.
This was not an isolated case. Strikes have occurred at dozens of factories, especially those that were privatized and sold to businessmen. The results of privatization haven’t been encouraging.
At the end of last year, the World Bank predicted that Iran’s economy would grow by 4 percent in 2018 and 2019 – about half the government’s desired pace. Industrial growth hit 18 percent during the second half of 2017, but has been just 4 percent so far this year. Production has flatlined. And the economic reforms Rohani promised to include in this year’s budget disappeared almost completely due to protests over the planned increase in prices and cuts in subsidies.
In March, farmers began demonstrating in Isfahan Province over water shortages caused by the mismanaged water economy. Even the heavens seem to be battling Rohani: This year’s drought has been the worst in half a century. The drought has also reduced the water flowing over Iran’s dams, which is expected to slash electricity production by more than 40 percent.
The regime’s woes don’t end at Rohani’s office. Demonstrators have cursed the supreme religious leader, Ayatollah Ali Khamenei, and wished him dead. They have also wondered why Iran continues to finance wars in Syria and Yemen. These complaints have reached the offices of Mohammad Ali Jafari, commander of Iran’s Revolutionary Guards, and Qassem Soleimani, commander of the Revolutionary Guards’ Quds force.
In media outlets that support the regime, one can read loyalists’ responses. They have been entertaining the idea of putting a military man in as president instead of a civilian. It’s not clear whether their intent is to run such a man in the next presidential election – which is scheduled for 2021 – or to try to oust Rohani during his current term.
Iran’s political tradition has thus far been to let presidents serve out the two terms they are permitted under the constitution. But if the civic protests spiral out of control, changes at the top would be one possible solution.
However, other countries in the region have tried this method of appeasing the public, and their experience shows that the effect of such change is brief.
Under Russia’s protection
Iran is also tensely awaiting May 12 – the date by which U.S. President Donald Trump must decide whether his country is quitting the 2015 nuclear agreement with Tehran. For Iran, this decision is critical. The waiting period has already had a tangible effect, resulting in a dearth of foreign investment; a freeze on projects already agreed upon with several different countries; and heavy pressure to reduce government expenditure.
Officially, Rohani has said Iran will continue to abide by the agreement even if the United States withdraws. He has held marathon talks with European leaders, as well as the leaders of Turkey, Russia and China – and most have reportedly said they plan to defend the agreement.
Germany, France and Britain have tried without success to persuade the European Union to impose additional sanctions on Iran – even if only symbolic ones – in order to persuade Trump to stick to the agreement. But the talks held in Brussels last week ended in failure. And if the EU and the United States don’t manage to reach an agreement by May 12, America’s unilateral withdrawal from the agreement is liable to harm not just Iran but also its business partners.
Patrick Pouyanne, CEO of the French energy giant Total, said last month his company is committed to its agreement to develop the South Pars oil field, and that he will seek an exemption from new sanctions if a decision is made to impose any. Russia and China will also continue their investments, as will many European countries. But without the U.S. banking system (which is boycotting Iran), European companies will have trouble investing in the country.
An outbreak of hostilities between Iran and Israel – something New York Times columnist Thomas Friedman and Israeli officials themselves have warned of – will apparently have to wait until at least mid-May.
Paradoxically, the battle between Washington and European capitals has seemingly contributed greatly to Iran’s restraint in the face of airstrikes on Syria attributed to Israel. Iran believes it can’t afford to start a new Mideast war, because that would play into Trump’s and Israel’s hands by releasing the European brakes.
The combination of the nuclear agreement and the economic crisis has backed Iran into a corner in which it is not only barred from developing its nuclear program, but also can’t risk a conventional war.
At most, it could return to the agreements in force prior to the nuclear deal – like the Nuclear Non-Proliferation Treaty without the Additional Protocol, which mandated less stringent oversight than the nuclear deal did – and scrap the nuclear deal’s detailed timetables. But if it takes those steps, it is liable to clog the pipeline of cooperation with Europe and put even Russia in a difficult position.
Its domestic constraints will also force Iran to make decisions in other arenas, especially Syria. The recent exchanges of aerial and verbal blows with Israel, and the possibility that Israel will increase its attacks on Iranian targets in Syria, require Iran to accelerate the diplomatic process Russia is spearheading.
The Israeli airstrikes will actually result in closer cooperation between Iran and Russia in an effort to reach a comprehensive agreement that will consolidate Syrian President Bashar Assad’s regime, demarcate both countries’ spheres of influence in Syria, set up de-escalation zones, restore control of the entire country to Assad and constrain Israel’s freedom of action in Syria.
To neutralize the danger of Israeli strikes on its bases in Syria, Iran can employ the strategy it successfully used in Iraq: embedding the militias which operate under its control into the Syrian army. In this way, it eventually forced Iraq to add the Popular Mobilization Forces to the army, which now pays the militiamen’s salaries.
Joint Syrian-Iranian army units and bases would make it harder for Israel to claim it is trying to keep Iran from consolidating its position in Syria, and every strike on a joint base would be considered a hostile act against the Assad regime.
Another way Iran could consolidate its position in Syria without hindrance is by removing parts of the Syrian population and replacing them with hundreds of thousands of Afghani and Pakistani refugees, some of whom are already fighting in Syria on Iran’s payroll and under its auspices. Both businessmen and militiamen are already buying land and houses in Syria, and are expected to be granted Syrian citizenship – which would give them the right to vote in parliamentary and presidential elections.
Any missile factories and heavy weapons plants Iran set up in Syria would also become part of Syria’s legitimate arsenal, making it difficult to distinguish between Syrian and Iranian arms.
As in Iraq, Lebanon and Yemen, regular Iranian forces wouldn’t need to be present on the ground in order to ensure the consolidation of Tehran’s influence. Under this strategy, Iran wouldn’t even need to set up a separate, pro-Iranian organization like Hezbollah in Syria. Instead, this role would be filled by the Syrian army, which would receive protection from the Kremlin against foreign attacks.
These steps, if they actually happen, could help the Iranian regime cope not only with the Israeli threat, but also with the domestic pressures it is likely to face if the United States decides to quit the nuclear deal.
Sure, the public protests against Iran’s continued participation in the wars in Syria and Yemen have been forcibly suppressed, but they haven’t completely disappeared. The regime is prepared for them to break out again.
Tehran’s need to reconcile the consolidation of its influence in Syria with assuaging public anger over the financial bloodletting the war in Syria has caused to its economy is ultimately what will determine how it acts toward Israel.