Analysis |

The Iranian Regime Is in Trouble

but will the latest round of protests topple it?

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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A group of protesters chant slogans at the main gate of old grand bazaar in Tehran, Iran, June 25, 2018.
A group of protesters chant slogans at the main gate of old grand bazaar in Tehran, Iran, June 25, 2018.Credit: /AP
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Judging by the enthusiastic reactions in Israel to the renewal of the demonstrations in Iran this week, you’d be forgiven for inferring that the Islamic Republic is nearing collapse, soon to be replaced by a Western-style democracy, and that the nuclear deal will be abrogated and Iran will withdraw its forces from Syria and sign a peace agreement with Israel.

But going by the blogs and the traffic on the social media that haven’t been blocked in Iran, the Israeli-American dream is far from coming true.

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This week’s protests were not the biggest in Iran this year. At least two dozen Iranians were killed in massive demonstrations in many cities in January. They were followed by strikes and work stoppages in the intervening months, as well as sit-ins outside government offices. There’s no reason to see the voluntary closure this week of shops in Tehran’s Grand Bazaar and protesters shouting “death to the dictator” and “death to Khamenei and Rohani” (as they also did six months ago) as a sign that the entire country is about to shut down.

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File photo: Iran's Supreme Leader Ayatollah Ali Khamenei and President Hassan Rohani in Tehran.Credit: /AP

But just as the strikes and demonstrations didn’t begin this week, the economic crisis is also the result of four decades of corruption, dysfunctional government, political power struggles and international sanctions. The numbers aren’t pretty. The rial plunged to 90,000 to the dollar; the official unemployment rate is 12 percent; oil exports have declined by about half a million barrels a day and might decline even further as the effect of the renewed U.S. American sanctions increases.

The European Union, meanwhile, is making no effort to keep its promise to comply with the terms of the nuclear agreement even after the United States pulled out. Iran’s national debt is climbing, foreign companies are leaving and inflation is eroding consumers’ buying power.

On the other hand, Iran is not a poor country. Its foreign currency reserves are estimated at over $140 billion. The country’s sovereign wealth fund, the National Development Fund of Iran, receives 20 percent of all revenues. Its reserves exceed $50 billion. China and Russia have promised to maintain their trade with Iran. China, Iran’s biggest oil customer, has said it will increase its purchases and even invest in developing new oil fields. Turkey will also avoid complying with the renewed U.S. sanctions for now, and Tehran’s plans to cut national spending should help keep the economy afloat.

But the economic crisis can’t be measured by macro data alone. Iran is mired in a crisis of confidence and a crisis of frustration. The former stems from the fact that President Hassan Rohani has been unable to keep most of his promises: to create new jobs, to implement economic reforms and to improve human rights.

Even before the United States abandoned the nuclear deal, Iranians’ confidence in their government was eroded by the cancellation of some subsidies, the removal of millions of people from the welfare rolls and the spending of billions of dollars on wars in Syria and Yemen instead of at home.

Added to that is frustration that the nuclear deal did not bring about the promised economic revolution. Iranians were willing to wait patiently for economic renewal when it seemed nearer than ever. After the nuclear deal was signed in 2015, multinational companies began opening local headquarters. The purchase of Boeing and Airbus passenger planes signaled the opening of the skies and tourism development. The partnership with Peugeot and Citroen, the bonanza enjoyed by car dealers, the plans for a new port that would connect India and China via Iran and the shelves filled with imported merchandise gave Iranians the feeling the nuclear treaty was bearing fruit.

The main cause of the frustration that fueled the demonstrations in January was the slow pace and insufficient scope of economic development and recovery. U.S. President Donald Trump’s decision to withdraw from the nuclear deal and the predictions of impending disaster as a result spoiled the party. The government prohibited the import of over 1,400 items, claiming that there were local substitutes. Iranians were asked not to buy dollars and to limit their foreign travel. Money changers were arrested for allegedly running up the dollar exchange rate, car prices soared by tens of percentage points when Peugeot and Citroen left the Iranian market and the panic to maintain the value of their money pushed civilians into purchasing more dollars, more gold, and for anyone who could afford it, real estate, which caused housing prices to speak.

This fear had an immediate effect on the dollar exchange rate that spoiled the government’s plan to combine the official dollar rate with the black market rate, and to peg it at 42,000 rials per dollar. In order to deal with the dollar crisis, the government came up with an idea of dubious efficacy, which was opposed to official policy — to introduce a parallel foreign exchange market with three dollar rates: 40,000 rials, 60,000 rials and the black market rate. It’s unclear how the market will work and whether it will succeed in calming the rush for dollars that causes price rises every day.

Government spokesmen claim the crisis is psychological rather than due to genuine economic ills, and are now trying to bring down the price of the rial. The president will probably announce a change of government officials, like that carried out in Jordan and Egypt. But in Iran, the economy is not managed only by the president. There is also a Resistance Economy council established by Supreme Religious Leader Ayatollah Ali Khamenei, who is deeply involved in the crisis, which means that any public complaint about the economy is targeting Khamenei as well as Rohani.

Khamenei is in a dilemma and must decide on his priorities. For him, Iran’s involvement in Syria and Yemen is not only a matter of national security, but a matter of prestige, especially due to his fight with Saudi Arabia. These wars cost billions of dollars, but pulling out could pit Khamenei against the Revolutionary Guards, who hold half and more of the Iranian economy. He will face a similar threat if he cuts their budget, which has soared since last year. Reducing government expenditures would cause the unemployment of hundreds of thousands of officials, and the loss of billions in taxes. A greater cut in subsidies is liable to lead to violent rebellion.

Rohani hopes that the present crisis will cause the supreme leadership to allow him to implement the necessary reforms, but Khamenei may try to oust him, in order to blame him and his government for the crisis. A few members of parliament have urged him to resign or to dismiss his economy ministers and economic advisers.

In that case radical elements would probably run a replacement, and some are talking about Qassem Soleimani, the commander of the Revolutionary Guards’ Quds Force, as the next president. So when in the West they’re talking about the chances of bringing down the regime, in Iran they’re talking about replacing the leadership, in order to preserve the regime.



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