Perfect economic storm fuels new protests in Iran

Iran on Monday was reeling from 10 days of demonstrations, in which more than 100 protesters are believed to have been killed in cities across the country amid a near-total Internet blackout.

The demonstrations were sparked November 15 by a massive hike in fuel prices, but discontent stemming from inflation, nepotism and the crippling impact of US sanctions has been brewing for years.

Between 2012 and 2013, the exchange rate of the Iranian rial, often referred to as the Toman, jumped from 800 to 3,600 IRR to USD. 

The rate remained stable in the lead up to the 2015 Joint Comprehensive Plan of Action, or Iran nuclear deal. But in early 2018, with the threat of a looming US withdrawal from the deal, the rate jumped again, reaching 14,000 IRR to USD by April 2019.

Repeated crashes in the exchange rate have had a ripple effect across the economy, affecting everything from the price of fruit to rent and wiping out peoples’ savings.

Last year, residents of the capital Tehran experienced a nearly two-thirds hike in rent prices, with some property owners even demanding that tenants pay in increasingly scarce US dollars. 

Vahid, a small shop owner in the city of Mashhad, was saving to buy a new car just ahead of the last currency crash. He was 5 million rials short of the figure needed to buy his dream car, the Peugeot 206i, when the dollar shot up, doubling its price in a matter of weeks and putting it far out of his grasp.

The rate of year-to-year inflation now stands around 42%.

Generation Aghazadeh

While Iranians are losing their purchasing power every month, government officials and their families and relatives are getting richer every day.

Nepotism is prevalent in Iran, and it keeps young, well-educated ordinary Iranians out of office.

Over the past four decades since the 1979 Islamic Revolution, Iranians have seen the same group of people in power and holding higher office. A common joke is that senior officials never die – they simply move from one position to another.

Against the backdrop of high unemployment, top-ranking officials have all secured positions, wealth and access for their children and relatives, giving rise to the term Aghazadeh, or “children of a respected official.”

Corruption and embezzlement are also consistent features of Iranian politics these days, and it is hard to pick up a newspaper in the country today and not see a report of individuals arrested for fraud or for funneling massive sums of money outside the country. 

Money for religion

The amount of state funds directed toward religious organizations and soft power projection versus secular institutions and domestic needs has been another cause of public discontent.

At a time of crippling sanctions, religious institutions, cultural foundations and “soft power” organizations aimed at proselytizing receive vast amounts of money but are generally exempt from performance evaluations.

While university students endure high cafeteria prices, old dormitories, and an overall lack of public spending, they see their counterparts in religious schools as being granted special privileges. 

The governmental Centre for Services to the Islamic Seminaries, for example, is dedicated to the welfare of local and foreign religious seminary students, providing them with insurance, home loans, and even lay-buy payment plans on other goods.

Tax evasion 

Another factor that has hurt the state’s budget in a time of need is tax evasion, something that has never been taken seriously. 

The bulk of those taxes collected in full and on time come from government employees, since the deductions are automatically taken from their monthly salaries. 

Doctors, entrepreneurs, business owners in the bazaar, and religious foundations like the construction branch of the IRGC, on the other hand, either do not pay, pay very little, or are exempt. 

In a recent speech, the head of Iran’s Tax Organization said that more than half of the country’s top earners pay no taxes. A recent report highlighted that during the past year there was around $1.5 billion in tax evasion, and this was only the amount detected.

The raw number of undetected and uncollected tax is perhaps closer to $7 billion, a sum which could significantly bolster the state budget, elevating the contribution of taxes from a mere 8% during a time of extreme need.

US sanctions bite

Finally, the bite of US sanctions imposed on the country’s petroleum sector one year ago has decimated the national budget. 

Since US President Donald Trump came to power and reinstated sanctions on Iran, oil exports have declined as the country has been forced to smuggle it out or offer it at low prices and even cover transportation costs to be able to find customers.

In cases where Iran does secure clients, it is extremely difficult to bring the money back into the country.

The money usually ends up locked in an offshore account or, at best, used to buy goods from the purchasing country. This has caused a serious decline in revenues for the government, leading to increased calls for a shift towards a non-oil based budget for the upcoming solar calendar. 

But in the interim, the government opted for a massive tax hike on petrol, raising prices at the pump 50% for the first 60 liters and 300% after that.

The policy may have been correct at heart, but the timing and execution could not have been worse, and it is what sparked an explosion of public discontent.

Imagine yourself as an Iranian, who has been forced to drive a decrepit, old, fuel-hungry, locally produced car. You are forced to under a national policy that places restrictively high tariffs on imported vehicles in the name of protecting the national industry, which in practice benefits the very few. 

Now, you are being forced to pay even more at the pump, after being prevented from purchasing a fuel-efficient, modern car.

As with all situations of unrest related to Iran, opposition groups ranging from loyalists of the defunct monarchy to members of the cultish MEK have sought to ride the wave of anti-government sentiment. Amir Hossein Etemadi, a pro-monarchy activist recently claimed on air in a televised debate on BBC Persian that he and his colleagues have been laying the groundwork for the current protests for the last two years. It is likely that these groups were responsible for setting fire to banks, ambulances, and bus stations in recent days. 

Also read: US-Iran standoff moves from high seas to dry land

The Iranian security system, instead of allowing space for peaceful protest and arresting only those who resorted to violence, cut off the country’s Internet connection and are believed to have killed around 100 people on the streets.

After a week of protests and being cut off from the world, the situation seems to have cooled down, but the Iranian government and entire ruling system should know this: If they do not resolve the issues explained here or reform themselves and the economy, more protests will be around the corner.

Sirous Amerian is a Ph.D. Candidate and Tutor at the Centre for Defence and Security Studies, Massey University in New Zealand. He tweets at @AmerianS