Iran

A glooming  military conflict with the United States, crippling economic sanctions, coupled with the COVID-19 pandemic, Iranians did not have much to celebrate this Nowruz, the Persian new year, in late March. As the continuation of the public health crisis puts more pressure on Iran’s already beleaguered economy, the regime is left with very few options.  

The Iranian economy, which was already taunted with various forms of economic sanctions over the past four decades, was brought down to its knees following the Trump administration’s “maximum pressure” campaign in May 2018. The oil and energy exports, which are the main source of the government’s revenue, have been the primary target of U.S. sanctions. About 60% of Iran’s economy is centrally planned, making it exceedingly reliant on oil exports. As a result of plummeting oil sales and almost complete exclusion from the global financial sector, the Iranian currency, the Rial, has lost 50% of its value against the US dollar on the unofficial market since 2018 (BBC, 2019). In November of last year, a fiscal deficit forced the government to unexpectedly cut petrol subsidies and increase the price by 50%. This led to widespread anger and protests across Iran which left at least 208 people dead and thousands injured (Amnesty International, 2019). Before the first official death from COVID-19 in Iran on February 21st, unemployment and inflation topped 20% and 35.7%, respectively (BBC, 2019). Even though the precise economic cost of the outbreak has not yet been determined, it was no secret that Iran’s battered economy would face one of its toughest years in 2020. 

As of April 14, Iran has suffered  one of the worst reported outbreaks in the Middle East with 74,877 infected and 4,683 deaths caused by COVID-19 (Johns Hopkins, 2020). Similar to other countries dealing with the outbreak, the service sector has taken the brunt of the storm. It is estimated that at least 3-4 million jobs will be at risk due to the COVID-19 crisis, potentially pushing the actual unemployment rate from around 20% to more than 35%  in just a few months (Mohseni-Cheraghlou, 2020). While the earlier unemployment figure mostly consisted of college-educated youth, those working in the informal economy and daily wage earners, which make up nearly a quarter of 23 million working Iranians, are the most exposed to these new economic hardships. With skyrocketing inflation and disappearance of their jobs, millions of Iranians struggle to find themselves shelter and food in the midst of the pandemic. 

In response, the government has issued a stimulus package to mitigate the economic ramifications. Since the state itself is the largest economic player in the country as opposed to simply being an economic regulator, a direct stimulus in the form of a bailout would largely go to state owned corporations and function as moving cash from one pocket to another. Instead, the government’s major focus has been on lowering the economic impact on small business and lower income classes (Khajehpour, 2020). The government’s stimulus package includes: 1) one-time cash handout to 7 million lower income class Iranians 2) interest-free loan of 20 million rials (about $474 at the official exchange rate) to the retail sector workers and street vendors who have lost their jobs 3) establishment of job training workshops to to align the capabilities of single mothers with the existing needs in the job market (Khajehpour, 2020).

Whether or not these measures are actually effective in assuaging the harsh economic realities brought on by COVID-19 is a different issue entirely. Burdened by budget deficit, mismanagement, closed borders, U.S. sanctions, and the recent collapse of global oil prices, the government is unfortunately left with limited options on the table. As a sign of economic distress, the government asked for $5 billion from the Internal Monetary Fund (IMF), which marks its first request since the 1979 revolution; yet Iran’s request was blocked by the U.S. on the grounds that the regime would use the cash to support its proxy allies in the region as opposed to helping the Iranian people (Atwood, 2020). Instead, the regime has turned to other means for providing itself with some relief. On April 6, Iran’s Supreme Leader, Ayatollah Ali Khamenei, approved the withdrawal of €1 billion from the National Development Fund of Iran—the country’s sovereign wealth fund—to help fight the epidemic; and recently, Rouhani’s government has prepared for selling state-owned corporations’ stocks in the Tehran Stock Exchange (Financial Tribune, 2020) and (Hassan-Nia, 2020). Globally, every country is dealing with the dilemma between containing the virus and saving the economy, but the issue is more urgent for the Iranian government. Despite the opposition from health experts, the Rouhani government has ordered some businesses to return to their normal routine by April 18th. “Health is a principle for us, but the production and security of society is also a principle for us,” Rouhani said at a Cabinet meeting (Hassan-Nia, 2020).

The answer to Iran’s economic problems is not an economic one, rather a political one. The COVID-19 economic ramifications are likely to push Iran’s economy further towards a collapse and deepen the frustration of common Iranians with the regime. Yet, the regime's hawkish foreign policy and internal corruption deserve more credit than COVID-19 for the current state of Iran’s economy. The fact of the matter is that we currently live in a highly interconnected world. We thrive on global supply chains. Therefore, Iran will not be able to sufficiently rebuild its economy while being excluded from the global financial market. It is only a matter of time when the next wave of protests storm the streets of Iran and, with the COVID-19 pandemic looming, chances are, the next cycle of public outrage will be far more strident than they were in  November. Time is running out for the regime—but more importantly for the Iranians enduring the regime’s plays. 

Sources

Atwood, Kylie. “US ready to block Iran's requests for coronavirus aid from the IMF, officials say.” CNN, 9 April 2020, US ready to block Iran's requests for coronavirus aid from the IMF, officials say. Accessed 9 November 2020.

Financial Tribune. “COVID-19 to Adversely Impact 15 Percent of Iranian GDP.” Financial Tribune, 10 April 2020, https://financialtribune.com/articles/domestic-economy/102761/covid-19-to-adversely-impact-15-percent-of-iranian-gdp. Accessed 9 Nov 2020.

Hassan-Nia, Arash. “What is “Shasta” and what are the consequences of selling it?” BBC, Farsi, 14 April 2020, https://www.bbc.com/persian/business-52281595. Accessed 9 Nov 2020.