With the fluctuations of oil and gas prices creating shocks to their economies, Gulf states may want to rethink the peg to the U.S. dollar.
Iran is experiencing a new wave of protests sparked by a sharp increase in food prices in the wake of President Ebrahim Raisi’s announced plan to reform subsidies. Simultaneously, Iran is sending mixed signals concerning the revival of the 2015 nuclear deal, the Joint Comprehensive Plan of Action. These mixed signals are all the more remarkable when considering the prospects for immediate gains for Iran presented in the deal through the unfreezing of up to $120 billion Iranian of assets trapped in foreign accounts. These could prove significant as Iran’s oil exports have been extremely limited due to the United States’ sanctions regime, and exports in total reportedly reached $100 billion from March 2021 to March 2022. Are domestic protests over economic conditions likely to increase Iran’s willingness to come to a final agreement with the United States to restore the JCPOA?
The Islamic Republic has a long history of economic protests, but they have become more frequent in recent years. The recent round of protests has been in the making for some time: The long-term impacts of the coronavirus pandemic, increasing price of basic foodstuffs in global markets, and weakened Iranian currency suffering from the unresolved crisis over Iran’s nuclear program and U.S. sanctions all have contributed to weaken purchasing power of Iranian consumers.
The final spark however, was Raisi’s May 9 televised interview in which he announced plans to reduce subsidies on basic foodstuffs and introduce digital coupons to reduce prices on these products for low-income groups. The decision amounts to increasing the universal basic income of the lowest income groups, and on top of it, providing them with electronic coupons further easing their access to basic foodstuffs at fixed government prices, while simultaneously denying the benefit to higher income groups. Raisi also plans to do away with Iran’s system of multiple exchange rates, with the government providing importers of basic foodstuffs with foreign currency at a subsidized lower rate than the market rate.
In theory, Raisi’s plan made good sense: Introduced by then-President Mahmoud Ahmadinejad in 2011, the universal basic income program, which at the time offered cash payments equal to 29% of the median household income on average, was meant to compensate for the phasing out of subsidies on bread, water, electricity, heating, and fuel. By making it less universal and more targeted, Raisi was hoping to improve the lot of the lowest income groups and reduce the burden on the public coffer. An end to Iran’s system of multiple exchange rates would also reduce corruption, which has marred the scheme.
In practice, Raisi’s initiative proved disastrous as the interview caused public panic. According to Sharq daily, Google Trends detected a significant increase in searches for food prices during Raisi’s speech. Immediately after the speech, desperate people stormed the supermarkets to purchase cooking oil, pasta, and eggs prior to the price increase. In the days following the interview, people posted videos on social media of chaotic scenes at supermarkets, provoking a second wave of panicked consumers storming supermarkets to buy, and in some cases steal, food. All the while, the market reacted to the increased demand with a sharp increase in food prices, which more than offset the coupons and the increased universal basic income for the lowest income groups.
Still worse, confusion arose over who is entitled to increased universal basic income benefits, who stands to lose, and how to use the digital coupons. On May 16, the government spokesman claimed 90% of Iranian nationals are entitled to the promised increased benefits. If true, this defeats the president’s purpose of targeting the aid, but many Iranians have also claimed they have not received the cash transfer in their bank accounts. According to Ali-Reza Pak-Fetrat, a parliamentarian, more than half of eligible recipients have not received their universal basic income cash transfer. Many more claim the cash amount transferred to their bank account has been blocked until the government issues the digital coupons, and it is unclear when that will be.
Since May 12, people have taken their protests to the streets, in particular in urban population centers in the country’s periphery provinces, including Khuzestan, Lorestan, Kohgiluyeh and Boyer-Ahmad, and Chaharmahal and Bakhtiari. However, sporadic protests have also spread to Isfahan, Qazvin, and Greater Tehran province, demonstrating the potential for countrywide uprisings resembling the 2019 protests against the government’s move to ration gasoline.
The deputy of Iran’s Law Enforcement Forces, the regime’s first line of defense against public protests, admitted “people are right to protest against rising prices.” But he also warned that the “stubborn” opposition is taking advantage of the protesters, potentially referencing their slogans, which initially focused on rising prices but soon turned to chants against the regime, including “Death to Raisi” and “Death to Khamenei,” and in favor of Reza Shah, the founder of the Pahlavi dynasty, which was overthrown during the 1979 revolution.
For now, the police are managing the crisis and there are no reports of overt involvement of the Basij militia or Islamic Revolutionary Guard Corps in suppression of the protests. The IRGC is even trying to endear itself with the public through its campaign against profiteers and smugglers, who reportedly hoard cooking oil, rice, sugar, pasta, wheat flour, and the like or illegally export government subsidized food to neighboring countries.
Raisi, too, is trying to show concern for the plight of the people by visiting frozen chicken distribution centers and promising self-sufficiency in production of basic foodstuffs to protect the population. On the other hand, on May 18, Supreme Leader Ayatollah Ali Khamenei sent the public a message, which appeared aloof and detached from reality, urging people to have more kids to protect society against the “ghastly future prospects for an old society.” However, he did not provide any suggestions on how to feed those children.
Nonetheless, prolonged and persistent protests will likely compel Khamenei to authorize the IRGC to come to the aid of the Law Enforcement Forces and use its military muscle to clamp down on the protests, as it has done in the past. But the regime can also opt for a different option: Alleviate the suffering of the population through the economic gains promised in restoring the JCPOA.
Admittedly, certain factors give Tehran cause for caution: The current administration in Washington cannot guarantee that its successor will remain committed to the nuclear deal . However, Iran can count on getting access to between $100 billion and $120 billion worth of Iranian assets currently trapped in foreign accounts. The regime would also be able to begin exporting oil and petrochemicals after the implementation of an agreement and would continue receiving revenue from these sales until Iran might again come under sanctions if the next U.S. president renounces the deal.
The Islamic Republic may also show hesitance because the U.S. administration currently finds it domestically difficult to accommodate Tehran’s demand for removal of the IRGC from the State Department’s list of foreign terrorist organizations, ahead of the November 8 midterm elections. Perhaps Iran is procrastinating on accepting the deal until after the midterm elections, so the U.S. administration has greater maneuverability to delist the IRGC. Even if it is delisted, the IRGC is subject to other U.S. sanctions, making its removal merely a symbolic win for Iran, which is a point currently being ignored by the regime.
For now, Iran is sending mixed signals: On May 15, Ali Bagheri Kani, Iran’s chief nuclear negotiator, indicated Tehran’s readiness to live without the JCPOA. On May 22, Qatar’s foreign minister said that in the recent meeting between the Qatari emir and Khamenei in Tehran, “the Iranian leadership expressed readiness for a compromise regarding the Iranian nuclear file.” Tasnim News Agency, close to the IRGC, took issue with the word “compromise” and Foreign Ministry Spokesman Saeed Khatibzadeh said: “The Supreme Leader of the Revolution has never talked of compromise, but told the Emir of Qatar: ‘We have always said negotiations must bear result rather than be a waste of time. The Americans know what to do to make this happen.’”
While semantics rather than substance may be at the core of the controversy over Khamenei’s alleged remarks to Qatar’s emir, time is running out for the ruling elites of the Islamic Republic. The regime can offer the impoverished Iranian public a nuclear deal and bread or intransigence in Vienna and bullets.
is a senior fellow at the Arab Gulf States Institute in Washington. He is the author of Political Succession in the Islamic Republic of Iran: Demise of the Clergy and the Rise of the Islamic Revolutionary Guard Corps (2020).
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