Analysis |

Iran Has Drones and Missiles – but Not Enough Chicken or Meat

Talks are underway with the West over lifting sanctions, but it's not clear if Tehran – including the Revolutionary Guards – would accept the economic revolution that would follow

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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The market in Tehran.
The market in Tehran.Credit: Wana News Agency / Reuters
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Saeed Jalili, who headed Iran’s national security council and nuclear negotiating team under Mahmoud Ahmadinejad, certainly misses his trips to Europe, his hobnobbing with world leaders and also a job, maybe any job, in the Iranian government. Jalili made sure that the previous nuclear talks dragged on for years. In 2008, he described Iranian diplomacy as a “Persian rug that takes time to see the beauty in it” – and he's really good at taking his time.

Once Hassan Rohani was elected president in 2013, Jalili never rested. He set up a political party waving the banner of radical conservatism, said the president was someone of “weak character who grovels before the Americans,” and drew up a plan to revive Iran’s economy – which wound up in Rohani’s trash can.

Now Jalili is one of the economic experts under new President Ebrahim Raisi, who was inaugurated in August. This small group relies on a number of academics and economic experts who served under Ahmadinejad and who today are required to propose solutions to Iran's deep economic crisis.

Jalili has raised original ides, according to reports from Iran. The government must take back the dollars it gave businesspeople to set up new businesses according to the official exchange rate if they haven't met the targets they set when they asked for the money.

Saeed Jalili.Credit: Reuters

The official exchange rate is still 42,000 rials to the dollar, compared with about 300,000 on the open market. According to Jalili, the dollars the government would recoup should be distributed directly to the needy, who would be able to withdraw the money using smartphones that connect them to the banks.

The method of direct payments to the underprivileged is nothing new. It was implemented back in 2010 by Ahmadinejad, and each needy person received a sum worth $71 a month. Rohani then tried to start canceling the direct aid but ran into severe opposition that squelched that idea. In the meantime, the rial has tumbled while the nominal value of the direct payments hasn't changed, about 500,000 rials a month, about $1.50.

This isn't the only help the government grants its citizens. Subsidies for fuel, flour and other basic goods cost Tehran some $63 billion a year, and any attempt to cut this largesse could trigger enormous protests.

The government is printing huge amounts of money to cover the gap between Iran’s budget deficit, at about 50 percent, and its people's needs. But this step sent inflation also up to around 50 percent and forced the government to slow the printing presses.

Budget and housing problems

It was reported in Iran this week that the country's budget and financial planning chief told Foreign Minister Hossein Amir-Abdollahian that the 2022 budget would be based on the economic sanctions remaining in place. It's not clear if he asked Amir-Abdollahian whether this was the right assumption.

It's also unclear whether the publication of details from the meeting was meant to create an atmosphere of pressure and to convey that the sanctions don't scare Iran, which is in no hurry to reach a new nuclear deal.

Air pollution in Tehran.Credit: Wana News Agency / Reuters

In any case, the proposed budget assumes that Iran will continue to sell 1.2 million barrels of crude oil a day, but the budget deficit won't decrease. In other words, oil revenues – from sales to China in violation of the sanctions – won't increase, partly because the price that China, Iran’s biggest customer, pays is much lower than the market value.

These macroeconomic dilemmas didn't interest the residents of Tehran when in October they learned that rents had climbed 50 percent from a year earlier. Raisi may have promised to build 1 million new housing units, but “apartments don’t build themselves,” as a political economist said on the government television station.

Iran is believed to have over 2 million empty housing units whose owners aren't interested in selling or renting out, while thousands are forced to give up their apartments in Tehran because of the high rents.

According to government data, housing prices in Iran have jumped by eight times over the past seven years. These housing problems have stoked the theory that it's actually the government that's pushing to raise rents, to make people leave the big cities for rural areas because these cities, especially Tehran, can't provide proper services to people who flocked to them in the past, and while the infrastructure crumbles.

“The problem is that the central nervous system to run the country is missing,” the political economist said. “Who should we listen to? To the arrogant declarations by the Revolutionary Guards, who tell us how Iran has advanced missiles, drones and ships made here at home, or to what our eyes can see in the markets, where one day there are no chicken legs and another day no meat?”

'Jewel of global tourism'

Further criticism has come from the head of the Iran Chamber of Commerce, who wondered why the country isn't taking advantage of its full capabilities, “for example, in tourism. Why don’t we have a proper tourist infrastructure? After all, Iran is a jewel of global tourism. Why does Iran’s trade with Syria amount to only 3 percent of Syria’s trade, while Turkey controls 30 percent?”

To answer these allegations, the government released data on Iran’s trade with its neighbors showing that the country’s exports to China totaled some $9 billion a year, and about $6 billion to Iraq, $4 billion to Turkey and $3 billion to the United Arab Emirates.

President Ebrahim Raisi in the Iranian parliament.Credit: Vahid Salemi / AP

Even if these figures are correct, most of the money never reaches the government but goes to the Revolutionary Guards, who control about half the Iranian economy. Raisi’s announcement that the state must begin selling assets that aren't essential to pay for its operations is a step in the right direction, but such statements were heard during Rohani’s term too, and very little was done. The Guards and other interested parties are in no rush to release their assets, and in the balance of forces there's no one who can impose this privatization.

Iran, which is negotiating with the Western powers over lifting the sanctions and returning to the original nuclear agreement, still isn't willing to accept the revolution a removal of sanctions would unleash. The banking system is outdated, laws to encourage investment are still waiting for parliamentary approval, and most of all, the fight against corruption, the flagship issue of presidents Rohani and Raisi, is still nothing but a slogan.

With the 2015 nuclear deal and the arrival of multinational corporations, a power struggle broke out between the government and the Revolutionary Guards over how the investments would be divided up. The Guards feared that the multinationals and government would bypass them, but they realized that if they became intermediaries in the new deals, they would rake in enormous profits.

A similar battle is expected to develop now too if the sanctions are lifted. It seems, just like in the last round, that Iran’s citizens are expected to take their place at the end of the line, waiting for the few crumbs remaining to trickle down.

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