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Ebrahim Raisi's Victory Is a Win for Iran's Crony Capitalists

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Women flash their hands with their index and middle fingers painted with the colours of the Iranian flag, and inscribed on one hand text in Persian reading "Rouhani bye-bye", during a rally celebrating the victory of Iran's newly-elected president Ebrahim Raisi in Imam Hussein square in the capital Tehran on June 19, 2021.
Women sporting the Iranian flag colors. The writing on their hands reads "Rouhani bye-bye", at a support rally for Ebrahim Raisi in Tehran, June 19, 2021Credit: ATTA KENARE - AFP

If the conventional wisdom is correct, hard-liner Ebrahim Raisi’s victory in Iran’s presidential election on Friday won’t stop the United States from reviving the 2015 nuclear accord.

Raisi doesn’t take office until August 3, which is plenty of time for the negotiators in Vienna to close a deal under the current Iranian president and present Raisi with a fait accompli. Anyhow, the decision is in the hands of supreme leader Ayatollah Ali Khamenei, so who’s president doesn’t make an awful lot of difference.

But Raisi’s election does make a lot of difference when it comes to what kind of country Iran will be going forward.

The return of the U.S. to the Joint Comprehensive Plan of Action will bring an end to most of the sanctions Donald Trump imposed on Iran when the U.S. withdrew from the pact in 2018, sending the Iranian economy into a tailspin. But the last time sanctions were lifted, back in 2015 when the JCPOA was first signed, the relief was limited. 

Iranian economic growth soared in the following year but then faded. The economy enjoyed a one-time gain as oil exports spiked, but Iran wasn’t able to capitalize on sanctions relief government because of endemic corruption and inefficiencies. Ending sanctions could only do so much.

This is where Raisi comes in. From places like Washington and Brussels, the pitiful state of the Iranian economy –  a shrinking GDP, the collapse of the rial, oil exports, high unemployment, punishing inflation and declining standards of living –  may look like serious threats to the regime. Even if you assume that the country’s leaders aren’t particularly concerned about the well-being of the average Iranian, they at least have to be worried that people will take to the streets to protest, shortening the lifetime of the Islamic Republic.

In fact, during the presidential race, the economy had pride of place in the televised candidate debates. But with the exception of Abdolnaser Hemmati (a former central bank governor), the presidential hopefuls offered nothing but commiseration for the voters’ sufferings and airy, populist policy prescriptions that carefully avoided tackling the economy’s underlying problems.

Raisi, whose ideas are now the only ones that are relevant, promised to create one million jobs and build four million affordable homes. He vowed to bring down inflation to the single digits by 2025 and, of course, to crack down on corruption. All very nice, but about how he proposes to build these homes, create these jobs or tame inflation, he had nothing to say.

Raisi has spent his career as a state enforcer, starting with a place on the Islamic Republic’s execution committee after the revolution, rising through the ranks of the judicial system, and earning himself a personal place on the U.S. sanctions blacklist along the way. He had a brief stint as custodian of Astan Quds Razavi, one of the quasi-government charitable foundations that are in fact giant business empires, but that is the total sum of his business experience. He is not Mr. Economics.

Corruption is the lifeblood

About corruption, which sits at the core of Iran’s economic problems, Raisi had been in a position to do something about it during his years in the judiciary. But he did nothing. In an economy controlled by foundations like Astan Quds Razavi and the Revolutionary Guards that are in turn controlled by government officials and clerics without any public accounting, corruption is the lifeblood of the state of which Raisi is an integral part. It’s crony capitalism, Iran-style.

That system, and the hardliners like Raisi that represent it, isn’t interested in truly opening up the Iranian economy to trade and investment. Even if the Iranian economy as a whole has gone from bad to worse, the system itself has done quite well for itself by providing the products and services that can no longer be imported.

The hardliners do want to bring an end to the sanctions so they can export more oil and gas; the government desperately needs the profits to fund its activities. But they don’t want foreign investors flocking to Tehran to open McDonald’s, import foreign products, or build factories that could compete with local industry and corrupt Iranian youth.

With or without sanctions, the goal of hardliners like Raisi is to build a "resistance economy”  of home-grown manufacturers that will enable Iran to withstand economic pressure from the West. From their point of view, sanctions have served as a catalyst for the resistance economy to grow and develop unhindered by foreign competition. If the price has been a shrinking economy and rising poverty, it’s one the regime is quite willing to pay.

Once the sanctions are lifted, the hardliners’ plan is for economic “resistance” to continue. There won’t be any fundamental reforms, because those would harm the resistance economy and only help foreign investors. The result will probably be that Iran’s oil economy gets a one-time boost, as it did after 2015, but the benefits will end there. The best ordinary Iranians will get is aspirin to alleviate the ache of their declining standard of living.

For Israel, this is by no means the worst possible outcome. It is true that with Raisi in power, the odds of Tehran pulling back in any substantial way from its interference in Syria, Iraq and Lebanon are nil. After all, the whole point of the resistance economy is to give Iran the freedom to act as it wants to in the region. But because it won’t be profiting much from the end of most Trump-era sanctions, Iran will continue to struggle economically.

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